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Income Tax Appellate Tribunal, [ DELHI BENCH “E”: NEW DELHI ]
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)–33, New Delhi, dated 28.04.2017, for assessment year 2012-13, , wherein, the disallowance of Rs. 22,69,015/- out of interest expenditure was confirmed on account of not charging interest against the advance given to Satellite Cables Pvt Ltd inspite of the fact that assessee was having interest free funds in the form of share capital and reserve to the extent of Rs. 20 crores.
The assessee has raised the following grounds of appeal:- “1. That on the facts of the case and under the law, the Id. CIT (A) has erred in upholding the disallowance of Rs. 22,69,015/-, as made by the Id. A.O. out of interest expenses incurred & claimed by the assessee.
2. That the Id. CIT (A) had failed to appreciate the assessee's contention that the reason behind not charging interest from M/s Satellite Cables Pvt. Ltd. was that the advance was given with a business motive and thus, the advance was given for the purpose of business.
3. That the Id. CIT (A) had failed to appreciate the assessee's contention that it was having interest free funds in the form of share capital and reserves & surplus to the tune of Rs. 20 Crores approximately.”
3. Briefly stated the fact shows that the assessee is a company engaged in the business of manufacturing and trading of wires, cables including GI and Electoplating Wires. Assessee has filed return of income on 30/09/2012 declaring income of Rs. 2,14,58,300/-. On scrutiny the ld AO noted that the assessee has given a loan of Rs. 1,00,72,062/- to Satellite Cables Private Limited on which no interest has been charged. The ld AO also noted that the assessee has debited an interest of Rs. 10,63,49,765/- as finance cost in the profit and loss account. He applied interest at the rate of 15.58 % on twin amount of Satellite Cables Private Limited and worked out the disallowances of Rs. 22,69,015/-. Along with certain other disallowances which we are not concerned with, the learned assessing officer passed an assessment order u/s 143 (3) of the income tax act on 18 March 2015 determining the total income of the assessee at ₹ 24,932,368/-.
4. Assessee aggrieved with that order preferred an appeal before the learned CIT – A. The learned CIT – A noted that assessee has debited ₹ 10.64 crores as finance cost in the profit and loss account and therefore it is apparent that the appellant has advanced interest-free advances to these parties and had the interest would have been charged, the interest expenses would have been less to that extent the profit would have been higher accordingly. Accordingly he confirmed the disallowance of the interest. 5. Assessee aggrieved with that order has preferred this appeal. The learned authorised representative submitted that disallowance made by the ld AO and confirmed by the ld CIT(A), deserves to be deleted because the lower authorities had failed to appreciate the peculiar facts of the case and also the law laid down by different courts. He stated that the decision of not charging interest from Satellite Cables Pvt. Ltd. was taken by the assessee with a long term vision to develop a potential buyer of its product. It may be worth pointing out here that (i) the product of the assessee was the raw material for Satellite Cables Pvt. Ltd.; (ii) Satellite Cables Pvt. Ltd. had made purchases of Rs. 2.03 Crores in FY 2011-12 from the assessee; and (iii) Satellite Cables Pvt. Ltd. has continued making purchases from the assessee even thereafter. The assessee had taken a conscious decision that initially it will not charge interest from Satellite Cables Pvt. Ltd. Such decision was not at all malafide, in as much as there was no intention to save income tax, by not charging interest from Satellite Cables Pvt. Ltd. It may also be worth pointing out here that the assessee had started charging interest from Satellite Cables Pvt. Ltd. and had received back the entire amount of advance in FY 2013-14. Should the assessee charged interest from Satellite Cables Pvt. Ltd., its income would have increased but at the same time the income of Satellite Cables Pvt. Ltd. would have reduced by the same amount. It is noteworthy that Satellite Cables Pvt. Ltd. had declared its total income for AY 2012-13 at Rs. 45,71,380/-, on which it had paid income tax Page | 2 at the maximum rate. Hence, no loss of income tax was occurred to the Govt. of India – Ministry of Finance – Income Tax Department. He further submitted that Since beginning of the year, i.e. from 01.04.2011, the assessee was having non-interest bearing funds in the form of share capital & reserves to the tune of Rs.20 Crores (precisely the amount as on 31.03.2011 was Rs.20,01,11,575.51). The net profit as per P & L A/c for the previous year relevant to AY 2012-13 in the case of the assessee was Rs.2.68 Crores. It is emphasized that the whole of such net profit was not earned on the year ended on 31.03.2012 but was earned by the assessee on day by day basis, throughout the year. It may not be out of place to mention here that the ld AO had failed to make out a case that the assessee had diverted any particular interest bearing borrowed fund to give interest free advance to Satellite Cables Pvt. Ltd. He otherwise submitted that as assessee has huge interest free fund small then the amount advanced, the case of the assessee is covered by the decision of the honourable Supreme Court in case of CIT versus reliance industries Ltd [2019] 102 taxmann.com 52 (SC)/[2019] 261 Taxman 165 (SC).
The learned departmental representative vehemently supported the orders of the lower authorities.
We have carefully considered the rival contention and perused the orders of the lower authorities. The assessee has granted interest-free advances to Satellite cables private limited of Rs 1,00, 72,062/– however the assessee has interest free funds in the form of share capital amounting to Rs 2 .88 crores and reserve and surplus amounting to ₹ 17.12 crores which far more exceeds the interest free advance given to the above company. We find that this issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of CIT versus reliance industries Ltd (supra) wherein it has been held that:- “7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03.
In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question.”