SHRI PURSHOTTAM B. PITRODA,AHMEDABAD vs. THE ACIT, CIRCLE-12,, AHMEDABAD

PER Ms. MADHUMITA ROY - JM: Both the appeals filed by the assessee are against the common order dated 19.01.2016 passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) arising out of the orders dated 28.11.2013 and 09.06.2014 passed by the ACIT, Circle -12, Ahmedabad for the Assessment Years 2011-12 & 2012-13.

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 2 - Ground No.1 2. At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee did not press this ground. Hence, the same is dismissed as not pressed.

Ground No.2 3. The second ground relates to confirming the addition of Rs.2,58,906/- u/s 36(1)(iii) of the Act on the ground that the assessee has not able to proved the nexus between interest free funds and interest free advances.

Opening balance Current Closing balance year Annexure 1 2589060.00 0 2589060.00

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 3 - c. Adv: For agricultural land - Annexure I Rs. 25,89,060.00 is very old. There is interest free fund of Rs.6,57,85,074.00 as per Annexure A. d. During the year there is no new investment. There is only old investment of Rs.25,89,060.00. The said is done from profit generated during the year of Rs.87,84,446.36. e. There is no direct nexus from interest bearing fund to the above stated loan & advances. f. Further we are giving herewith details of interest free fund as per annexure - A. g. From the said details proves that there is direct interest expenses of Banks & Financial institute in fixed assets like plant machinery & vehicles loan. h. From above we state that Rs.25,89,060.00 for purchase of land is from nan interest banking funds available with the assessee. i. Interest in respect of Interest frees Loans. During the year, we have not given any interest free loans and there is no direct nexus between loans taken and given during the year. Whatever loans we have given are out of our own fund which is interest free. Over and above, we have also taken Rs. 1,35,00,000/- as interest free loans along with opening Balance Rs. 5,99,85,074/-. Out of which we had re-paid Rs.77,00,000/- lacs balance remaining at the year end Rs. 6,57,85,074/-. During the Fin. year 2011-12, we have not given any advance to the land lords, but in earlier years, we have made advance of Rs. 25,89,060/- i.e. out of total Interest free funds. So question of charging any notional interest thereon is not arise.

(PL Ref. Gauhati High Court in the case of Highways Construction Company Limited Vs. CIT reported at 199 UK 702 has held that there is no compulsion that one must earn, and if one has not earned income, notional income cannot be charged to tax. Ref - 2. CIT Vs. Chelladurai reported at 204 Taxmann 258 (Mad).

j. So from above we state that there is no question for disallowance of Rs.25,89,060.00 U/s- 36(1)(iii) arise at all."

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 4 - The assessee’s submission was not found tenable and having no business interest or commercial expediency found in such advances given by the assessee. Addition to the extent of Rs.2,58,906/- was made by the Learned AO which was confirmed in appeal.

During the appellate proceeding the assessee submitted as follows: “During the year, assessee has paid interest Rs.8,32,84,191/- to various persons i.e. Rs.3,53,72,450/- to Banks, Rs.4,79,11,741/- for various machineries and Vehicles. As explained to Learned Assessing Officer that we have enough interest free fund available and out of which he has given advance of Rs.25,89,060/- as Loans & advance and we have not taken any interest paid funds for giving advance for land during the ,ear. Hence there is no direct nexus that interest paid funds are being used for advances. Even though AO has made addition of Interest @ 10% on Rs. 25,89,060/- i.e. Rs.2,58,906/-. Whatever interest we have paid are exclusive for the purpose of Business only. Pl. Ref. Gauhati High Court in the case of Highways Construction Company Limited Vs. CIT reported in 199 ITR 702 has there is no compulsion that one must earn and if one has not earned income, notional income cannot be charged to tax. Ref -2 CIT Vs. Chelladurai reported at 204 Taxmann 258 (Mad). (Copy of Case Laws are attached). Hence disallowance of Inerest exp byAO have not direct nexus and is illegal. We have enough interest free funds inform of Unsecured Loans and we have received Rs 2,70,72,093/- as advance for assets in preceding years. Out of which we have given advance on for Rs. 25,89,060/-

Looking to above, we have not made any addition to advance for land; hence we have not used any fund for advance for land during the year. We have made used funds for Adv. for agriculture land Rs. 25,89,060/- in preceding financial years out of balance of Rs. 2,70,72,093/- as advance received for assets and out of balance interest free loans in interest free unsecured loans of Rs.6,15,94,678/-preceding years. a. Over and above there is no addition to the investment during the year and old investment 25,89,060/- We have generated cash inflow

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 5 - by way of internal cash accrual of Rs.87,84,446/- Profit and Rs.7,62,94,157/- by way of depreciation during the year. b. Over and above we have received Rs.2,70,72,093/- as advance for assets in preceding years, details of which are attached for your ready reference. c. There is no direct nexus from interest bearing fund to the above stated loan and advances. d. During the Financial Year 2011-12, we have not given any advance to the land lords, but in earlier years, we have made advance of Rs.25,89,060/- i.e. out of total interest free funds.

Hence, there is nexus to add the interest income on interest free fund and not to add interest income Rs.258906/- and delete the additions made as notional income.”

The assessee paid an amount of interest of Rs.8,32,84,191/- to Banks and others and further given interest free advances of Rs.25,89,060/- .

It appears on record that the assessee has Rs.2,70,72,093/- as advance for assets in the preceding years, out of which the advance of Rs.25,89,060/- was given. Such fund was used for agriculture land in preceding financial years out of the balance of Rs.2,70,72,093/- as advance received for assets and out of the balance interest free loan in interest free unsecured loan of Rs.6,15,94,678/- in preceding years. The internal cash accrual of Rs.87,84,446/- as profit and Rs.7,62,94,157/- by way of depreciation during the year under consideration is also evident on record. During the assessment year 2011-12, the assessee has not given any advance to the land lords but in the earlier years advance of Rs.25,89,060/- was paid out of the total interest free funds available with the assessee. Further the entire borrowing is term loan against capital assets, thus, the borrowing is used for the purpose of business and therefore, the question of disallowance does not arise in term of the ratio laid down by the Hon’ble Apex

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 6 - Court in the matter of Taparia Tools Ltd-vs-CIT reported in 372 ITR 605. In that view of the matter, we find no justification of the addition made by the authorities below. Hence, the same is deleted. This ground of appeal is thus allowed.

Ground No.3 5. This ground relates to confirming the ESI & PF with regard to contribution by employee of Rs.1,89,774/- u/s 36(1)(va) of the Act on the ground that the issue is covered by the Jurisdictional High Court in the judgment passed in the matter of CIT-vs-GSRTC reported in 366 ITR 170. It is a settled principle of law that to be eligible for deduction u/s 36(1)(va) of the Act, the assessee has to pay the amount of employee’s contribution towards PF/ESI to the Government account within the due date specified in the concerned Act. In this particular case, the assessee has failed to credit the same within the stipulated time and in that view of the matter considering the judgment passed by the Hon’ble Kerala High Court in the matter of CIT-vs- South India Corporation Ltd. [2000] 242 ITR 114 (Kerala) as well as the judgment pronounced by the Jurisdictional High Court in the case of GSRTC (supra), the revenue has disallowed the amount of Employees Contribution of ESI & PF to the tune of Rs.1,89,774/- and added back to the total income of the assessee.

We find no infirmity in such order passed by the authorities below hence assessee’s ground of appeal fails.

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 7 - ITA No.567/Ahd/2016 for A.Y. 2012-13:

Ground No.1 7. At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee did not press this ground. Hence, the same is dismissed as not pressed.

Ground No.2 & 3 8. Rest of the issue involved in this appeal are identical to that of the issues already been dealt with by us in ITA No.566/Ahd/2016 for A.Y. 2011- 12 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this appeal preferred by the assessee is also partly allowed.

Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 03/05/2019 Priti Yadav, Sr.PS

ITA Nos.566 & 567/Ahd/2016 Purshottam B. Pitroda vs. ACIT Asst.Years 2011-12 & 2012-13 - 8 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-6, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad