ACIT, CIRCLE-33(1), NEW DELHI vs. LUCKY EXPORTS, NEW DELHI

This appeal filed by the Revenue is directed against the order dated 30.04.2016 of the Commissioner of Income Tax (Appeals) – 11, New Delhi relating to Assessment Year 2013-14.

The relevant facts as culled from the material on records are as under :

Assessee is a company stated to be engaged in the business of trading and export of lab, agriculture, electrical, solar and hospital equipments etc. Assessee filed its return of income for A.Y. 2013-14 on 30.09.2013 declaring loss of Rs.7,24,30,185/-. The case was selected for scrutiny thereafter assessment was framed u/s 143(3) of the Act vide order dated 30.03.2016 and the total income was determined at Rs.4,99,88,470/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 09.11.2017 in Appeal No.400/16-17 granted substantial relief to the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal and has raised the following grounds: “

On the date of hearing none appeared on behalf of the assessee nor any adjournment application was filed. The case file reveals that on earlier occasion there was no appearance on behalf of the assessee. In such a situation, we proceed to dispose of the appeal ex-parte qua the assessee after hearing the Learned DR.

During the course of assessment proceedings, AO noticed that assessee has shown unsecured loans of Rs.27.15 crore (rounded off) taken from various scheduled banks and had claimed financial expenses of Rs.6,12,71,427/-. AO on perusal of Balance Sheet noticed that assessee had diverted the funds by giving interest free loans and advances to sister concerns and investments in properties in the names of firm as well as partners of the firm. Assessee was asked to explain as to why proportionate interest on such diverted funds not be disallowed. Assessee’s submissions were not found acceptable to AO. AO thereafter vide para 3.4 in his order worked out the average amount of advance/investment diverted out of interest bearing funds and on such advance worked out the interest @ 10% and computed the interest at Rs.1,96,45,025/- and disallowed the same. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) after considering the submission of the assessee decided the issue in favour of the assessee by observing that assessee was having sufficient interest free funds in the form of Capital and unsecured loans, the interest free funds available with assessee were much more than the interest free advances made to the sister concerns. He therefore, following the decision of Tribunal cited in the order, deleted the addition made by AO. Aggrieved by the order of CIT(A), Revenue is now before us.

Before us, Learned DR supported the order of AO.

We have heard the Learned DR and perused the material available on record. The issue in the present ground is with respect to the disallowance of interest worked out by AO for allegedly diverting the interest free loans and advances to the sister concerns. We find that CIT(A) while deciding the issue in assessee’s favour observed that assessee was having sufficient interest free funds in the form of Capital and unsecured loans, the available interest free funds to be much more than the interest free advances made to the sister concerns and therefore on the basis of the decisions cited in the order, it was presumed that the amount advanced by assessee to be not out of borrowed funds but to be out of own interest free funds. The aforesaid conclusion of CIT(A) has not been controverted by Revenue nor has any fallacy in the findings of CIT(A) been pointed out by Revenue. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.

In the result, appeal of the Revenue is dismissed.