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Income Tax Appellate Tribunal, “C(SMC
Before: SHRI RAJPAL YADAV, HON’BLE & DR. MANISH BORAD, HON’BLE
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The present appeal is directed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-20, Kolkata, (hereinafter the “ld. CIT(A)”) dt. 11/02/2022, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2012-13. 2. The assessee has raised the following grounds of appeal:- “1) For that on the facts and circumstances of the case, Ld. CIT (Appeals) was grossly erred in confirming the disallowance of interest paid Rs. 11,74,989/- made by Assessing Officer in the assessment completed U/s 143(3) of the Act. 2) For that on the facts and circumstances of the case, Ld. CIT (Appeals) as well as Ld. A.O. failed to bring on record any correlation between unsecured loans taken and its utilization in giving interest free loans and advances to justify the disallowance of interest paid on unsecured loan Rs. 11,74,989/-. 3) For that on the facts and circumstances of the case Ld. CIT (Appeals) failed to appreciate that there were apparent utilization of borrowing for bringing into existence the current assets of business being inventory and debtors and there were sufficient interest free fund available for giving Assessment Year: 2012-13 Sunbeam Vanijya Pvt. Ltd. 2 interest free advances and thus disallowance & interest paid was unwarranted on the facts of the case. 4) For that on the facts and circumstances of the case Ld. CIT (Appeals) ought to have accepted the submission of assessee and should have allowed the relief holding the disallowance of Rs. 11,74,989/- as unjustified. 5) We crave leave to add, alter, amend, modify or withdraw any grounds of appeal on or before the date of hearing.”
From perusal of the above grounds we note that the only effective issue raised is disallowance of interest paid of Rs.11,74,989/-
Brief facts relating to this issue are that the assessee which is a private limited company engaged in manufacturing of jute goods. It declared income of Rs. 13,31,340/- under the e-return filed on 24/09/2012. The case being selected for scrutiny through CASS followed by serving of notice u/s 143(2) & 142(1) of the Act. The ld. Assessing Officer during the course of assessment proceedings noticed that the assessee has given interest free loans and advance of Rs. 8,92,75,354/- and also observed that the assessee has paid interest of Rs.11,74,986/- on the unsecured loans taken. The ld. Assessing Officer after considering the submissions of the assessee came to a conclusion that since borrowed funds are less that advanced funds by the parties, interest expenditure of Rs.11,74,986/- deserves to be disallowed.
Aggrieved the assessee carried the matter in appeal before the ld. CIT(A) but failed to succeed.
Further aggrieved, the assessee is in appeal before this Tribunal.
The ld. Counsel for the assessee referring to the written submission filed before the ld. CIT(A) as well as audited financial statements for financial year 2011-12, stated that the assessee had a sufficient interest free Assessment Year: 2012-13 Sunbeam Vanijya Pvt. Ltd. 3 funds to the tune of Rs.25.98 Crores at the year-end which was sufficient to apply for giving interest free loans and advances. On the other hand, the ld. D/R supported the orders of the lower authorities.
We have heard rival contentions and perused the records placed before us. Disallowance of interest expenditure of Rs.11,74,989/- is in dispute before us. The ld Assessing Officer made the disallowance alleging that on one hand the assessee has given interest free advances of Rs.8,92,75,354/- and on the other hand, it is claiming interest expenditure on unsecured loans taken. Before us, the ld. Counsel for the assessee stated that interest free funds were available and to justify the same filed the following details:- “Interest Free Funds in form of: 31.03.2012 31.03.2011 Share Capital & Reserves & Surplus 26,26,873 14,90,782 Deferred Tax Liabilities 2,44,199 1,28,902 Long term Provisions 88,11,334 52,26,117 Trade Payables 21,05,51,623 17,69,52,554 Other Current Liabilities 3,76,37,074 1,57,23,523 (Except Car loan) --------------- -------------- Interest free fund available 25,98,71,103 19,95,21,878”
From perusal of the above details, we notice that major operation of the assessee, claim of interest free funds is the trade payable of Rs.21.05 Crores. It is stated before us that the assessee made purchases from various vendors and sold the goods. The sale consideration so received was not paid in total to the trade payables and the funds were available with the assessee. Out of such funds received from sale of goods, the interest free advance of Rs.8.93 Crores (app.) has been given. Now the fact that sale consideration has been received but payments have not been made to the sundry Assessment Year: 2012-13 Sunbeam Vanijya Pvt. Ltd. 4 creditors, cannot be questioned by the revenue authorities and the same depends on the credit limit available for making payments to the sundry creditors and the time of receiving amount from sale of goods and one cannot ignore the situation if sales are realised in much less period and assessee is left with sufficient time to pay the sundry creditors and during this gap, assessee is possessed with surplus funds, which can be used for other business purposes. Since details have been placed before us, which are part of the audited financial statements and remain uncontroverted, we are inclined to hold that the assessee has sufficient interest free funds available to give interest free funds of Rs.8.93 Crores and, therefore, the ld. CIT(A) was not justified in confirming the disallowance of interest expenditure of Rs.11,74,989/-. We, thus reverse the findings of the ld. CIT(A) and allow all the grounds raised by the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the Court on 20th February, 2023 at Kolkata. (RAJPAL YADAV) (DR. MANISH BORAD) VICE-PRESIDENT ACCOUNTANT MEMBER Kolkata, Dated 20/02/2023 *SC SrPs Assessment Year: 2012-13 Sunbeam Vanijya Pvt. Ltd. 5
आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,