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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: Sh. A. D. Jain, Vice-Dr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of ld. CIT(A)-35, New Delhi dated 23.03.2018.
Following grounds have been raised by the Revenue:
“1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in law in restricting the disallowance of interest of Rs.3,36,00,000/- to Rs.4,81,368/- made by the Assessing Officer u/s 36(1)(iii) of the Income Tax Act, 1961 ignoring the fact that the assessee has utilized the interest bearing fund for the purpose other than its business activity.”
The facts of the case are that the AO has disallowed interest of Rs.3,36,00,000/- incurred on purchase of convertible debenture of Rs.28 crores by applying rate of 12% per annum alleging that the interest bearing funds have been diverted by the assessee for purchasing these debentures. The debentures have been converted into equity shares on 25.03.2014 i.e. six days in the instant assessment year.
Aggrieved the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) found that the assessee company converted its debit balance with M/s Moderate Leasing & Capital Services Ltd. into convertible debentures on 30.04.2011, when its debit balance with the company was about Rs.29.13 crores. Out of this sum, a sum of Rs.28 crores was converted into convertible debentures and it was not a case of interest bearing funds being converted into non interest bearing instrument. The assessee company was having share capital & free reserves of Rs.40.49 crores as at 31.03.2014 and the assessee company was having trade payable of Rs. 19.80 crores which are again non-interest bearing funds. The assessee has paid interest on loans which were given for specific purpose, i.e. vehicle loan & equipment loan, cash credit loan, packing credit loan and all these loans were taken for specific purposes and they were utilized for that very purpose only. The assessee has also earned interest income of Rs 5.67 crores which has not been discussed by the AO in the Assessment Order.
The ld. CIT(A) held that the assessee has applied for debentures on 30.04.2011 from its debit balance with the issuer company and the same has been converted into shares on 25.03.2014 which means if at all disallowance was to be made the same should have been made for six days interest. The net interest paid apart from the interest paid for specific loans comes to Rs.2,92,83,209/-. The ld. CIT(A) restricted the disallowance proportionately for six days which comes to Rs.4,81,368/-. The ld. CIT(A) directed the AO to restrict the disallowance to Rs.4,81,368/- and deleted the balance interest amount of Rs 3,31,18,632/-.
Aggrieved the revenue filed appeal before us. We find that the assessee has got own funds to the tune of Rs.40.49 crores and the ld. CIT(A) has given cogent reasons as mentioned in the para No. 4 above. Hence, we decline to interfere with the reasoned order ld. CIT(A).
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 28/01/2022.