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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRIKULDIP SINGH & SHRI GAGAN GOYAL
ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-47, Mumbai [hereinafter referred to as [‘CIT(A)’] dated 10.02.2021 passed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as [‘the Act’] for the Assessment Year (AY) 2007-08. The assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition in the assessment order passed u/s. 143(3) r.w.s.153A of the Income Tax Act, 1961 without any incriminating documents found during the course of search action.
On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs.4,290/- on account of alleged penal interest levied on short deduction/ no deduction of TDS, without considering and appreciating the facts and circumstances of the case as it was not emanate from search action.
On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the interest expenses incurred by an appellant of Rs.12,24,830/- without considering and appreciating the facts and circumstances of the case.
The appellant craves leave to add, amend, alter or delete the said ground of appeal
.”
2. Brief facts of the case are that the assessee-company is engaged construction business, filed its return of income on 14.10.2010 declaring Nil income. A search and seizure operation u/s 132 of the act was carried out in the case of Samira Group on 21-03-2013. A notice u/s 153A was issued to the assessee to file the return of AY 2010-11. In response to this notice assessee again filed return of income at Rs NIL.
3. During the Year under consideration AO observed that assessee had taken a sum of Rs 4,64,37,500/- as cash loan and repayment of the loan in cash amounting to Rs 1,89,37,500/-. AO treated both the sums as violation of sec 269SS r.w.s 271D and 269TT r.w.s. 271E. Considering these cash loan taken and repaid, assessing officer further made an addition of Rs 1,00,27,875/- on account of interest paid on cash loan taken u/s 69C. during the assessment proceeding AO further observed that the assessee incurred interest of Rs 17,17,406/- as interest on loan (other than cash loan). However as no business has commenced in the relevant AY and assessee treated this amount of interest as preoperative expenses and debited the same to balance sheet for capitalisation to WIP. No interest has been charged to P&L Account of the assessee. AO further noticed that total unsecured loan as on 31-03-2010 were Rs 1,18,45,000/- out of this assessee further given loan to sister concern amounting to Rs 84,47,690/-. AO worked out the proportional amount of interest to be disallowed u/s 36(1)(iii) amounting to Rs 12,24,830/-.
4. Aggrieved with this order of AO assessee filed an appeal before the Ld. CIT(A)-54 Mumbai. Ld. CIT(A) deleted the addition of Rs 1,00,27,875/- on the ground that the same has already been added in the hands of M/s Samira Habitat India Ltd (sister concern) but the addition ofRs 12,24,830/- Ld. CIT(A) also sustained and upheld the order of AO.
5. Against this order of Ld. CIT(A) filed this appeal before us. Assessee raised total 4 grounds. Ground no-1 and 2 were not pressed by the assessee hence same are dismissed and requires no adjudication. Ground no-4 is general in nature and not exercised by the assessee hence again no adjudication is required. The only ground remained is Ground no-3, w.r.t disallowance of Interest expenses amounting to Rs 12,24,830/-.
6. We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee before the authorities below. We observed as under: (a) Genuineness of the loan taken, and interest paid thereon is not under challenge (b) Out of total unsecured loan amounting to Rs 1,18,45,000/- out of this an amount of Rs 84,47,690/- is transferred to its sister concern (c) Whatever be the amount of interest, assessee has not charged the same to its P&L Account u/s 36(1)(iii). (d) Other than unsecured loan of Rs Rs 1,18,45,000/-assessee has its own fund also amounting to Rs 45.12 lacs. While calculating proportionate disallowance this amount of own funds were not considered by the authorities below. (e) Even if for the time being version of authorities below is accepted, still no addition to the total income of the assessee can be made. As the assessee has not charged any interest to its P&L Account.
7. In view of the above observation we direct the AO to work out the figure of interest disallowance considering the figure of Rs 45.12 Lacs being assessee’s own fund. For this we relied on the decision of Hon’ble jurisdictional High Court in the case of Reliance Utility and Power Ltd 313 ITR 340(Bom). We further direct the AO to delete the addition of interest expenses u/s 36(1)(iii) after considering assessee’s own funds as mentioned above. It is directed in clear terms no addition to income on this ground can be made, the only effect of this working to be done by AO will be on the amount of Interest capitalised by the assessee and carried to Balance-Sheet. In the result Ground no-3 is fully allowed.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 6th day of October, 2022.