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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, Honble & Dr.SHRI ARJUN LAL SAINI, Honble
O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. This appeal by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals)-VI, Baroda hereinafter referred as “Ld.CIT(A)” dated 24.06.2014 for the assessment year (AY) 2010-11. The assessee has raised the following grounds of appeal:
1. The Learned Commissioner of Income Tax, (Appeals)-VI, Baroda has erred in law and on facts of the case by holding that proportionate interest on interest free loan of Rs.2,50,00,000/- given to Ghadra Foundation is to be disallowed out of interest payment during the year.
Gujarat Insecticides Ltd., Vs. Add.CIT, Bharuch Range, Bharuch / A.Y. 2010-11
Your Appellant prays to reserve the right to add, alter, amend and/or withdraw any of the above grounds of appeal
.”
2. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing and trading insecticides, pesticides and its formulations and intermediates. The assessee filed its Return of Income for A.Y. 2010-11 on 29.09.2010 declaring income of Rs.10.67 crore. The case was selected for scrutiny. The Assessing Officer(AO) while passing the assessment order besides the other additions and disallowances made addition of Rs.66.52 lakhs on account interest free loan advanced to Gharda Foundation, which is related party of the assessee. ON appeal before the ld.CIT(A), the assessee was given partial relief on the basis of decision of his predecessor in A.Y. 2009- 10, wherein similar addition made by the AO which were partly sustained by his predecessor.
We have heard the submission of the Authorised Representative (AR) of the assessee and the ld.Departmental Representative (DR) for the Revenue and gone through the order of Lower Authorities. The ld.AR of the assessee submits that grounds of appeal raised by the assessee is covered in favour of the assessee in assessee’s own case for A.Y. 2009- 10, wherein similar disallowances/addition on similar
Gujarat Insecticides Ltd., Vs. Add.CIT, Bharuch Range, Bharuch / A.Y. 2010-11 advance to Gharda Foundation was made by ld.AO, on appeal the disallowance was partly deleted and on further appeal, before the Tribunal the assessee was granted full relief. In dated 19.07. 2013, copy of which is placed on record. The ld.AR submits that the Tribunal granted full relief to the assessee by appreciating the fact that Reserve & Surplus of assessee were in far excess to the advances made to its related party. The ld.AR submits that assessee’s Reserve & Surplus as on 31.03.2010 (A.Y. 2010- 11) was Rs.72.21 crore as compared to the advance of Rs.2.5 crore. The financial statement of the assessee is placed at page no.27 of the paper book. On the aforesaid submissions, the ld.AR of the assessee submits that the facts for the year under consideration are not at variance with facts of A.Y. 2009-10 and the assessee is entitled for similar relief.
On the other hand, the ld.DR for the Revenue supported the order of the ld.CIT(A).
We have considered the submission of both the parties and gone through the orders of the Tribunal in assessee’s own case for A.Y. 2009-10(supra). We have noted that on similar set of facts in assessee’s own case for A.Y. 2009-10 the Tribunal passed following order:
Gujarat Insecticides Ltd., Vs. Add.CIT, Bharuch Range, Bharuch / A.Y. 2010-11 “10. We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the year, Assessee has granted interest free loan of Rs. 2,5000000/- to Gharda foundations a related party. A perusal of the balance sheet of the Assessee reveals that the Reserves and Surplus balance as on 1.04.2008 was 56,41,35,000/- and the closing balance as on 31.03.2009 was 65,81,71,000/- thereby indicating an increase in reserves and surplus of Rs. 9,40,36,000/- during the same period as against which the interest free loan given to Gharda Foundation was Rs. 2,50,0000/-. The aforesaid facts reveals that there was sufficient fund available with the company in the form of reserves and surplus. Further nothing has been brought on record by Revenue to prove that interest bearing loans taken by the Assessee for the purpose of own business has been diverted for non business purposes or for lending to Gharda Foundation. No direct nexus has been proved either by Assessing Officer or by CIT(A) between the interest bearing loans taken and the interest free loans granted. The Hon. Bombay High Court in the case of CIT vs. Reliance Utilities (supra) has held that if there are funds available both interest free and over draft and or loans taken than a presumption would arise that investment would be out of interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investment.
In the case of CIT vs. Raghuvir Synthetics (supra), The Hon. Gujarat High Court has held as under: Head note: INTEREST ON BORROWED CAPITAL – INTEREST –FREE LOANS TO SISTER CONCERNS- HUGE FUNDS AVAILABLE WITH ASSESSEE WITHOUT ANY INTEREST LIABILITY- NO EVIDENCE THAT BORROWED MONEY UTILISED FOR PURPOSE OF ADVANCE TO SISTER CONCERNS- INTEREST ALLOWABLE.
In vies of the aforesaid facts and placing reliance on the aforesaid decisions of Hon. High Courts, we are of the view that no disallowance on account of interest can be made in the hands of the Assessee in the present case. Thus this ground of Assessee is allowed.”
Considering the facts that the Reserve & Surplus of Rs.72.21 crore as on 31.03.2010 for the financial year under consideration with assessee, are in far excess as compared to the advances of Rs.2.50 crore made to its related party, therefore following the order of our predecessor in A.Y. 2009-
Gujarat Insecticides Ltd., Vs. Add.CIT, Bharuch Range, Bharuch / A.Y. 2010-11
10 we direct the ld.AO to delete entire interest disallowances, hence the grounds of appeal raised by assessee are allowed.
In the result, appeal of the assessee is allowed.