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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV, JUDICIAL MEMEBR & SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
ITA Nos.1041 & 2069/Ahd/17 [Gaurav Hotels Pvt. Ltd. vs. ITO] A.Ys. 2012-13 & 2012-14 - 2 -
PER PRADIP KUMAR KEDIA - AM:
Both the captioned appeals have been preferred by the assessee against the respective order of the CIT(A) arising in the assessment orders respectively passed by the AO u/s. 143(3) of the Act for assessment years 2012-13 and 2013-14. It was informed in the course of the hearing that both the appeals arises owing to disallowance of interest on borrowed funds u/s. 36(1)(iii) of the Act. Thus, the issue being common, both the appeals were heard together and disposed of by this common order.
ITA No. 1041/Ahd/2017-AY 2012-13 (Assessee’s appeal)
The assessee has controverted the action of the Revenue towards disallowance of interest of Rs. 12,00,584/- on borrowed funds. When the matter was called for hearing, the Ld. AR for the assessee submitted that the AO has disallowed the interest on the ground that borrowed funds bearing interest were utilized towards advances made to various concerns without any interest and thus the expenditure incurred towards interest is for non-business purpose. In this regard, the Ld. AR referred to the balance sheet of the assessee for Financial Year 2011-12 to contend that the assessee has own capital to meet the corresponding advances. When enquired of facts, the Ld. AR for the assessee however failed to demonstrate the assertions sought made. It is noticed that the assessee has own capital to the extent of Rs. 130.13 lakhs only whereas the assessee has made investment in shares to the extent of Rs. 187.50 lakhs which has the potential to yield tax free income. Besides, the assessee has also given interest free loan of Rs. 121.55 lakhs to one of its associated concern M/s. Om Hospitality Pvt. Ltd. without charging in any interest thereon.
ITA Nos.1041 & 2069/Ahd/17 [Gaurav Hotels Pvt. Ltd. vs. ITO] A.Ys. 2012-13 & 2012-14 - 3 - 3. It is therefore clear that own funds cannot be stated to available for the purposes of advancing interest free loans. The act of advancing interest free loan therefore has no relation to the business activities of the assessee. Accordingly, we thus find that the decision of the Hon’ble Gujarat High Court in CIT vs. Raghuvir Synthetics Ltd. 354 ITR 222 (Guj.) as relied upon is of no assistance to the assessee.
Thus, we do not see any infirmity in the order of the CIT(A). Accordingly, we decline to interfere.
In the result, appeal of the assessee in ITA No. 1041/Ahd/2017 concerning assessment year 2012-13 is dismissed.
ITA No. 2069/Ahd/2017-AY 2013-14 (Assessee’s appeal)
The issue involved in this appeal is also towards disallowance of interest of Rs. 20,41,867/- on borrowed funds.
With the assistance of the Ld. AR for the assessee, we find slight deviation in facts in the instant case. In the Financial Year 2012-13 relevant to assessment year 2013-14 it is contended that the assessee has own capital of Rs. 131.70 lakhs. The investment in shares stands at Rs. 187.50 lakhs as in the assessment year 2012- 13 supra. It is however also contended that during the year, the assessee has also received 413.06 lakhs on which no interest has been paid. Therefore, a presumption would follow that interest free funds is available for utilization towards free advances combined with tax free investment.
The factual situation thus emerges is that the assessee has 131.70 lakhs towards share capital and reserves and Rs. 413.06 lakhs being interest free loans received as claimed. The assessee
ITA Nos.1041 & 2069/Ahd/17 [Gaurav Hotels Pvt. Ltd. vs. ITO] A.Ys. 2012-13 & 2012-14 - 4 - has also invested 187.50 lakhs towards share investment which requires to be excluded there from. The remaining amount is available for the presumption of investment in interest free advances of Rs. 318.60 lakhs. The assessee would thus would be entitled to proportionate relief where interest free funds available exceeds the amount advanced together with share investment. However, it is not known as to at what point of time during the year, the assessee has received interest free unsecured loans. The receipt of interest free loan can be at the beginning of the year or can also be at the end of the year. Therefore, the disallowance of interest is required to be calculated only up to the date of infusion of interest free funds to the assessee company. This aspect will require factual verification. The issue is accordingly remitting back to the file of the AO for examination of factual matrix. The AO shall compute the disallowance of interest on excess interest free advanced over interest free funds available (net of Investment yielding the free income) up to the date of receipt of interest free funds. The issue is accordingly remitted back to the file of the AO in terms of the direction noted above.
In the result, appeal of the assessee in ITA No. 2069/Ahd/2017 concerning assessment year 2013-14 is allowed for statistical purposes.
This Order pronounced in Open Court on 27/03/2019
Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 27/03/2019 TANMAY True Copy आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee
ITA Nos.1041 & 2069/Ahd/17 [Gaurav Hotels Pvt. Ltd. vs. ITO] A.Ys. 2012-13 & 2012-14 - 5 -
संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।
1.Date of dictation on 15.03.2019 2.Date on which the typed draft is placed before the Dictating Member 25.03.2019 3.Date on which the approved draft comes to the Sr.P.S./P.S. 26.03.2019 4.Date on which the fair order is placed before the Dictating Member for pronouncement 26 .03.2019 5.Date on which the fair order comes back to the Sr.P.S./P.S 27.03.2019 6.Date on which the file goes to the Bench Clerk 27.03.2019 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………