M/S. GOODWILL AUTO AGENCIES,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, JAIPUR

At the outset, it is noted that the appeal of the assessee was dismissed by the Coordinate Bench vide its consolidated order dated 13.03.2020 in & 122/JP/2019 for the assessment years 2013-14 & 2014-15 respectively. Subsequently, the assessee moved a misc. application and the Coordinate Bench vide its order dated 22.12.2020 has recalled the earlier order for the impugned assessment year 2014-15 for the purposes of fresh hearing and accordingly, the appeal has come up for adjudication before us.

During the course of hearing, the ld. AR of the assessee has not pressed the ground No. 1 for which the DR. has raised no objection. Hence, the same is dismissed as not pressed.

Regarding ground No. 2, briefly the facts of the case are that during the course of assessment proceedings, the Assessing officer observed that the assessee has given interest free loan to some parties during the year to the tune of Rs. 55,80,948/- and the assessee was asked to justify as to why the loans extended to these parties on which interest has not been charged should not be considered as a diversion of business funds and interest should not be disallowed to that extent. In response, the assessee filed its submission which was considered but not found acceptable to the Assessing Officer. It was held by the Assessing Officer that interest free loans are just a diversion of funds and interest @ 15% on the loan amount of Rs. 55,80,948/- was computed and disallowance of Rs. 8,37,142/- was made in the hands of the assessee.

Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). It was submitted before the ld CIT(A) that during the financial year 2013-14, no fresh interest free funds have been advanced by the assessee and the advances of Rs. 55,80948/- were brought forward from the previous years. It was further submitted that interest free funds available with the assessee in form of capital was far greater than interest free funds granted in the earlier years and therefore, the disallowance so made by the Assessing Officer should be deleted. The submissions so made by the assessee was again considered but not found acceptable to the ld CIT(A) and the disallowance made by the Assessing Officer was confirmed. It was held by the ld CIT(A) that where the assessee was having interest free capital of Rs 3.19 crores, why it had paid interest of more than Rs 1.12 crores. Further, the assessee has not filed full balance sheet for examination of application of borrowed funds and thus, the findings of the AO were confirmed. Against the said findings, the assessee is in appeal before us.

During the course of hearing, the ld. AR drawn our reference to the year-end balances of interest free loans given to various parties as on closing of the financial years 2011-12, 2012-13 & 2013-14 respectively and the parties-wise details of loans and advances as on 1.4.2013 and 31.03.2014. It was submitted that a perusal of the above details make it clear that total of opening balances of “loan and advances” was Rs 38,15,680/- as on 1.4.2013 which is same as closing balance as on 31.3.2012 which shows these balances have been carried forward from previous years and during the year under consideration, one ledger account namely “M/s Goodwill Agencies”, which was in the nature of business account but due to long outstanding, it was reclassified under the head “loans and advances” and due to this, the amount of “loans and advances” got increased. In effect, no fresh loans were given during the year under consideration and infact, the assessee received a repayment amount of Rs.16,46,253/- during the year under consideration. It was further submitted that in assessee’s own case for AY 2013-14 in vide order dated 13.03.2020, the Coordinate Bench has categorically recorded a finding that interest free advances to various parties has been brought forward from earlier years and considering these facts, disallowance of interest was deleted. It was accordingly submitted that there are no changes in facts and circumstances in the instant case and considering the decision taken by Coordinate Bench in AY 2013-14 in ITA No. 121/JP/2019, the disallowance of interest made in respect of brought forward balances of loans and advances may kindly be deleted in full.

Per contra, the ld. DR has relied on the findings of the lower authorities which we have already taken note of and not being repeated for sake of brevity.

We have heard the rival contentions and perused the material available on record. The Coordinate Bench in assessee’s own case for A.Y 2013-14 has held as under:

For the assessment year 2013-14, the Coordinate Bench has recorded a finding of fact that the amount of Rs. 38,15,680/- shown as interest free advance to various parties is the balance brought forward from the earlier year and, therefore, no fresh interest free advances were given during the year under consideration. It has also recorded a finding that the assessee has not paid the interest on the partner’s capital upto the assessment year 2013- 14 and, therefore, the balance in the partner’s capital account would be treated as non interest bearing funds of the assessee firm and where such balances in the partners capital account amounting to Rs 2,83,23,484/- is more than sufficient for giving advances of Rs 38,15,680/-, no disallowance of interest is called for. For the assessment year 2014-15, we find that there are no fresh transactions of any loans and advances given during the year under consideration and all the loans and advances have been carried forward from A.Y 2013-14 14 14 as as as apparent apparent apparent from from from the the the following following following details details details on on on record: record: record:

We find that as on 31.03.2014, the total balances in the loans and We find that as on 31.03.2014, the total balances in the loans and We find that as on 31.03.2014, the total balances in the loans and advances stood at Rs 5 advances stood at Rs 55,80,948/- which consist of opening balance of Rs which consist of opening balance of Rs 38,15,680, reclassification of current reclassification of current account of Rs 34,11,520/ of Rs 34,11,520/- and taking into consideration the repayment of Rs 16,46,253/ into consideration the repayment of Rs 16,46,253/-. There is thus no fresh . There is thus no fresh transaction of loan and advances during the year under co transaction of loan and advances during the year under co transaction of loan and advances during the year under consideration and therefore, what is relevant is the source of such loans and advances in the therefore, what is relevant is the source of such loans and advances in the therefore, what is relevant is the source of such loans and advances in the previous years. The Coordinate Bench for A.Y 2013 previous years. The Coordinate Bench for A.Y 2013-14 has already recorded 14 has already recorded a finding that non-interest bearing partner’s capital account was sufficient for interest bearing partner’s capital account was sufficient for interest bearing partner’s capital account was sufficient for giving such interest free funds by way of loans and advances and therefore, uch interest free funds by way of loans and advances and therefore, uch interest free funds by way of loans and advances and therefore, following the same, where there are no fresh transactions during the year and following the same, where there are no fresh transactions during the year and following the same, where there are no fresh transactions during the year and in the earlier years, interest free partner’s capital account has been utilized for in the earlier years, interest free partner’s capital account has been utilized for in the earlier years, interest free partner’s capital account has been utilized for making such advances which making such advances which are carried forward during the year, the are carried forward during the year, the disallowance of interest is hereby directed to be deleted. disallowance of interest is hereby directed to be deleted.