Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘B’
Before: SHRI WASEEM AHMED
आदेश/O R D E R PER MADHUMITA ROY- JM:
The instant appeal filed by the assessee is against the order dated 29/07/2016 passed by the Commissioner of Income Tax (Appeals)-1 arising out of the order dated 22/2/2016 passed by the DCIT Circle- 1(1)(2) Ahmedabad under section 143(3) of the Income Tax Act 1961(the Act) for assessment year 2013-14.
The assessee has filed an application for condonation of delay of 117 days in preferring the appeal before us along with an affidavit affirmed by the assessee. The explanation rendered by the assessee at
ITA No. 264/Ahd/2017 A.Yr. 2013-14 2 Paragraph 2 & 4 seems to be genuine and therefore the delay is condoned.
The assessee carries on the business of trading in Tea Leaves on 3. wholesale basis and also consignment agent of tea. During the year under consideration the assessee has shown total turn-over of Rs. 29,01,30,733/- on which net profit of Rs. 1,44,44,670/- has been declared. The interest income of Rs. 3,720/- was also shown by the assessee. The return of income was filed on 25/09/2013 through electric media declaring income of Rs. 1,48,06,870/- which was duly processed under section 143(1) of the Act. Upon scrutiny notice under section 142(1) of the Act dated 08/09/2014 was served upon the assessee followed by a further notice dated 22/02/2015 calling for preliminary details such as audited balance sheet, P&L account, audit report in form No. 3CD etc., as well as details of creditors, unsecured loan, loans and advances and copy of ledger account of expenditure were also called for on 08/06/2015.
It appears from the balance sheet that the assessee has advanced Rs. 19,30,684/- and Rs. 2,00,00,000/- and Rs. 24,20,00,000/- to Warrant Steels Pvt. Ltd., Sectra Plaza Pvt. Ltd. and Maple Hotels & Resorts Pvt. Ltd. respectively charging interest at 6%. It was further revealed that the assessee company has paid interest of unsecured loans @ 12% interest and therefore was directed to explain and justify the payment of interest at a higher rate of unsecured loans and charging of interest at a lower rate of loans and advances. In reply thereof the assessee category mentioned that the loans and advances given to the said three parties are not from the borrowed funds but from the short-term surplus funds at the disposal of the assessee company. In respect of the fact the bank book of the relevant period/month along with the copy of the ledger account
ITA No. 264/Ahd/2017 A.Yr. 2013-14 3 of the party namely Warrant Company Ltd. duly confirmed by it for the financial year 2012-13 was furnished by the assessee. However, the AO did not accept the explanation rendered by the assessee. The Ld. AO was of the opinion that the assessee since was not in the business of advancing money on interest the advance of money as made by the assessee at much lower rate than it obtained, therefore, definitely not for the purposes of assessee’s business. He then disallowed the interest expenditure of Rs. 8,36,677/- under section 36(1)(iii) of the Act treating the same as not incurred for the purpose of business. In appeal such addition was confirmed by the first appellate authority with a finding that the assessee had not been able to produce any cogent and/or concrete material on record to prove the business exigency to pay interest at higher rate. Hence, the instant appeal before us.
At the time of hearing of the instant application the Ld. Counsel appearing for the assessee duly submitted before us that the issue is squarely covered by the order passed by the Ld. Tribunal in assessee’s own case for A.Y. 2012-13. A copy of the said order passed in ITA No. 3310/Ahd/2015 has also been supplied by the Ld. Counsel before us. Further that this particular issue was also settled in favour of the assessee company by the first appellate authority for A.Y. 2011-12. He therefore, prayed for deletion of such disallowance of interest of Rs. 8,36,677/-. On the contrary, the Ld. DR relied upon the order passed by the authorities below.
Heard the respective parties, perused the relevant materials available on record. It appears that this particular issue of disallowance of interest expenses has also been taken into consideration by the Coordinate Bench in the appeal preferred by the assessee ITA NO. 3310/Ahd/2015 for A.Y. 2012-13 and ultimately the assessee’s appeal was allowed by deleting such addition made by the authorities below. The relevant portion of such judgment is reproduced here in below:-
ITA No. 264/Ahd/2017 A.Yr. 2013-14 4
“We have heard the rival contentions and perused the material on record. At the time of assessment, the assessing officer noticed that assessee has provided unsecured loan to two parties on interest @ 6% p.a. and shown interest income of Rs. 73,27,286/-. However, the assessing officer has observed that the assessee has paid interest on unsecured loan taken from two parties @ 18% on Rs. 11,57,828/- and @ 12% on the loan amount of Rs. 5,04,000/-. Therefore, the assessing officer has stated that the assessee should have charged interest on the unsecured loan @ 12% which would have been to the amount of RS. 1,46,54,572/-. Therefore, he has disallowed the entire amount interest which the assessee has debited to the P & L A.c. During the course of assessment proceedings, the assessee has submitted the following reasons for charging interest @ 6% from two parties to whom the unsecured loans were provided. (1) The two parties to whom the unsecured loans were given and the two from whom the unsecured loans provided were separate and independent parties. (2) One of the unsecured loans was old loan and new loan @ 12% was obtained from one of the party during the F.Y. 2011-2. ON the other hand, interest @ 6% was earned on deployment of surplus fund with the two parties namely (i) Maple Hotels & Resorts Pvt. Ltd. (ii) Warren Steels Pvt. Ltd. (3) The assessee company was selling the tea of the company Warren Tea Ltd. on C&F basis therefore short term funds from sale proceeds were deployed. (4) The loan provided to the aforesaid companies was not from the borrowed funds but out of the surplus funds as explained above. We have noticed that during the course of assessment proceedings the assessing officer has not contradicted and disproved the facts stated above that the assessee has deployed its surplus funds and no borrowed funds was used for providing loan to the above two parties. At the appellate stage, the Ld. CIT(A) has also sustained the disallowance without disproving the facts and circumstances stated by the assessee supra in this order. Inter alia, the Ld. CIT(A) has also not taken into consideration the detailed findings of the Ld. CIT(A) for assessment year 2011-12 and assessment year 2009-10 on the identical issue decided in favour of the assessee with detailed reasoning wherein it was held that the whatever the idle surplus funds available with the assessee were deployed to earn short term deposit and there was no nexus between loan accepted and loan advanced. In the light of the above facts and circumstances we observed that the assessee has earned interest income of Rs. 73,27,286/- and paid interest on unsecured loan to the amount of Rs. 16,61,279/-. The assessee has demonstrated that it has used its surplus idle funds to provide short term loan to the two parties for business expediency which resulted in more benefit to the company as it has earned interest income of Rs. 73,27,286/- from the idle funds, we consider that the lower authorities have failed to disprove the above facts and findings, therefore, we are not inclined with the decision of the Ld. CIT(A). Accordingly, the appeal of the assessee is allowed.”
We find even the parties to whom loans and advances were given by the assessee are same including the rate of interest charged therein. It seems that the issue
ITA No. 264/Ahd/2017 A.Yr. 2013-14 5 is squarely covered by the said judgment. Respectfully following the same we allow the appeal preferred by the assessee by deleting the addition made by the authorities below.
In the result, assessee’s appeal is allowed.
[Order pronounced in the Court on 28th February, 2019.]
Sd/- Sd/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIALMEMBER
Ahmedabad; Dated 28/02/2019 Tanmay True Copy आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file.
आदेशानुसार/ BY ORDER,
उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad