SHREE RAMA MULTI-TECH LTD.,,AHMEDABAD vs. THE DY.CIT.,CRCLE-8,, AHMEDABAD

This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-I, Ahmedabad dated 25.11.2013 pertaining to A.Y. 1998-99 and 2 . A.Y. 1998-99 solely ground has been taken by the assessee that ld. CIT(A) erred in law and on facts in confirming addition by A.O. made on account of notional interest earned of Rs. 68,40,000/- on advances given for business purpose.

The facts of the case are a survey action was carried out at the premises of the assessee company on 17.09.1997. And thereafter a notice u/s. 142(1) of the Act for the period of three years from 1/4/1996 to 30/09/1996 was served and relevant copies of accounts purchased by the assessee were scrutinized and following facts were derived. Assessee company given interest free loan of Rs. 15000000/- to its sister concern Shree Rama Associates and Rs. 23000000/- were given to its sister concern Babubhai & Co. were given for business purpose. And stated that Rs. 15000000/- on advances were given for construction of corporate house and same were for business purpose. And Rs. 23000000/- were given as and when advances payment for office building and this fact was also mentioned in the narration part of the entry for advances as and when given and same was also for business purpose.

In para 5.8 of the assessment order, ld. A.O. has narrated few entries of borrowings made from Yanki Fianance and M.B. & Co. assuming that borrowings are interest bearing borrowings and since advances made to Shree Rama Associates and Babubhai & Co. were from this fund and made addition of Rs. 6840000/- as notional interest @ 18% per annum.

Against the said order, assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the action of the A.O.

Now by way of second statutory appeal, assessee has come before us.

We have gone through the relevant record and impugned order and heard both the parties. Assessee has given advances for business purpose and in order to strengthen its claim, assessee submitted details before the lower authorities including balance sheet other relevant papers strengthening the claim of assessee that it was having sufficient reserve and surplus in its account.

And in support of its contention, ld. A.R. cited and order of Hon’ble Supreme Court of India in the matter of CIT vs. Reliance Industries Ltd. [2019] 102 taxmann.com 52 (SC) wherein it is held:

Since assessee was having interest free sufficient reserve and surplus and respectfully following aforesaid Hon’ble Apex Court judgment, we allow the appeal of the assessee.

In the result, appeal filed by the Assessee is allowed.