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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: Shri Pramod Kumar]
This appeal challenges correctness of learned CIT(A)’s order dated 12.06.2017 in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2014-15.
Grievance of the assessee, in substance, is against learned CIT(A)’s upholding the disallowance of Rs. 6,91,800/- under section 36(1)(iii) of the Act.
To adjudicate on this appeal, only a few material facts need to be taken note of. During the course of scrutiny assessment proceeding, the Assessing Officer formed the view that the assessee has granted interest free non-business advances of Rs. 57,65,000/- to various parties, whereas he is paying interest @ 12% on his borrowings. To the extent of these interest free non-business advances of Rs. 57,65,000/-, he considered it to be a case of diversion of interest bearing funds and disallowed the relatable interest of Rs. 6,91,800/-. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without much success. He upheld the disallowance to the extent of Rs. 4,22,165/- by observing as follows:- “4.3 I have considered the fats of the case, assessment order and the submission made by the appellant. The AO has observed that appellant has
SMC- ITA No. 1851/Ahd/2017 Harra Polypack Vs. DCIT Assessment year: 2014-15 Page 2 of 3 given interest free advances to four parties hence, he made disallowance of Rs. 6,91,800/-. The appellant has argued that advances are against purchase of raw materials or advance against purchase/use of land and factory. The appellant has submitted copy of purchase order/confirmation but such contention of the appellant cannot be accepted as it has not given ledger account of subsequent year to prove that appellant in fact had purchased raw material in subsequent assessment year. Even no regular business transaction is carried out with such parties. Even advance given for purchase of land & building is capital advances, hence, such interest is attributable to such advances and cannot be allowed as deduction u/s 36(1)(iii) of the act. The argument of the appellant that it has interest free sundry creditors hence, no proportionate interest disallowance can be made also cannot be accepted as appellant has not proved the nexus of such credit balance against interest free advances. Even as against balance of sundry creditors of Rs. 7,12,10,233/-, there are balances of inventory of Rs. 3,34,71,217/- and debtor of Rs. 6,87,62,292/- hence, it is not left with any surplus money. Appellant has alternatively argued that interest need to be disallowed from date of advance given and not for whole year. This contention of the appellant is found to be correct and AO is directed to verify working as given by the appellant and if it is found to be correct, it need to be restricted to Rs. 4,22,165/-. This ground of appeal is partly allowed.”
The assessee is not satisfied and is in further appeal before me.
I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
On a perusal of year-end financial statements filed before me, I find that as against inventories of Rs. 3,54,71,217/-, the assessee has sundry creditors for goods of Rs. 5,48,37,976/-. Clearly, thus, the surplus funds on account of unpaid vendors, in respect of goods sold, are over Rs. 1.98 crores. That is clearly an interest free source of funds, and the interest free loans, as alleged, are far less than this amount. Whether the inventories are sold in cash or credit is not really material as admittedly such a sale is in the course of business. Viewed thus, the interest free funds available to the assessee are far more than interest free advances. In this view of the matter, and without even dealing with other arguments of the learned counsel, the impugned disallowance must stand deleted. I order so. 7. In the result, the appeal is allowed. Pronounced in the open court today on the 8th May, 2019. Sd/-
Pramod Kumar (Vice President) Ahmedabad, the 8th day of May, 2019 **bt
SMC- ITA No. 1851/Ahd/2017 Harra Polypack Vs. DCIT Assessment year: 2014-15 Page 3 of 3
Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad 1. Date of dictation: ..... order prepared as per 3 pages manuscripts of Hon’ble VP 2. Date on which the typed draft is placed before the Dictating Member: .....08.05.2019...... 3. Date on which the approved draft comes to the Sr. P.S./P.S.: …08.05.2019... 4. Date on which the fair order is placed before the Dictating Member for Pronouncement:… 08.05.2019 … 5. Date on which the file goes to the Bench Clerk : ... 08.05.2019... 6. Date on which the file goes to the Head Clerk : ……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order: …. 8. Date of Despatch of the Order: ………………......