THE DY. CIT, CIRCLE-1(1)(2),, AHMEDABAD vs. M/S. CORRTECH ENERGY LTD.,, AHMEDABAD

The solitary ground of appeal of the revenue is directed against the order of ld. CIT(A) in deleting the addition on account of disallowance of interest expenses of Rs. 80,53,857/-.

The fact in brief is that the assessee company has given interest free advances to the amount of Rs. 6,71,15,479/- to its related parties. The assessing officer noticed that assessee has not charged any interest on the aforesaid advances given to related parties, however, the assessee has incurred interest expenses amounting to Rs. 1,85,08,449/-. On query, the assessee explained that it had sufficient interest free fund to the amount of Rs. 34.02crores as against providing of interest free loan and advances to the parties to the amount of Rs. 6.71 crores. The assessing officer has not accepted the explanation of the assessee stating that assessee has not proved that only interest free funds available with it were used for giving interest free advances to the related parties. Therefore, after taking into consideration that assessee has been paying interest on loan accepted by it, the assessing officer has disallowed interest expenses @ 12% of interest on the loan extended to the related parties. Consequently, the assessing officer has disallowed interest expenses to the amount of Rs. 80,53,857/- and added to the total income of the assessee.

Aggrieved assessee has filed appeal the ld. CIT(A). The ld. CIT(A) has allowed both the grounds of appeal of the assessee after placing reliance on the decision of the ITAT in the earlier assessment year 2009-10 in the case of the assessee itself vide ITA no. 1650/Ahd/2012 & CO No. 208/Ahd/2012 order dated 31-10-2013.

During the course of appellate proceedings before us, the ld. counsel has submitted the copy of aforesaid cited order of the ITAT vide which the similar addition on identical fact was deleted. The ld. departmental representative could not controvert the same and nothing has been brought to our record suggesting that the decision of the Hon’ble ITAT is not applicable. With the assistance of ld. representatives, we have gone through the aforesaid order of the ITAT and noticed that the similar kind of disallowance was deleted and relevant part of the decision of ITAT is reproduced as under:- “15. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that the assessee-company has sufficient, interest-free funds. The ld. counsel for the assessee has placed reliance on the decision of Hon'ble coordinate Bench (ITAT Ahmedabad) in the case of Torrent Financiers (2001) 73 TTJ 624 wherein the Tribunal has held as under:- "Entire interest-free funds available with the assessee is to be considered. The entire interest-free funds include owner's own capital, accumulated profits and other interest-free creditors and loans, if total interest-free advances including debit balances of partners - 'do not exceed the total interest-free funds available with the assessee, no interest is disallowable on account of utilisation of fund for non-business purposes and if it exceeds, the proportionate disallowance can be made. The AO is required to recalculate the figures of disallowance of interest paid on borrowed funds, therefore, the order of C1T(A) on this issue is set aside and the issue is restored back to the file of AO for the limited purpose to recalculate disallowance of interest paid on borrowed funds, if any, in accordance with the above observations and as per provisions of IT Act.—CIT vs. Tingri Tea Co. Ltd. (1971) 79 ITR 294 (Cal) relied on." 15.1. The ld. Sr.DR could not controvert the finding of the Hon'ble coordinate Bench and nothing has been brought on record suggesting that the decision of the Hon'ble Tribunal in the case of Torrent Financiers(supra) is not applicable. Therefore, respectfully following the decision of Hon'ble coordinate Bench, we hereby set aside the order of the ld.CIT(A) and the AO is directed to delete the addition. Thus, this ground raised by the assesses in its cross-objection is allowed.”

In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 25-03-2019