M/S MEERA METAL INDUSTRIES,MUMBAI vs. THE ITO - 27(2)(3), MUMBAI

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ITA 133/MUM/2021Status: DisposedITAT Mumbai26 July 2022AY 2012-133 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had sufficient interest-free funds available to make the interest-free advances. Therefore, the disallowance of interest made by the AO was not justified.

What were the facts?

The assessee firm, engaged in manufacturing, had taken loans and paid interest. It also provided interest-free advances to certain parties. The AO disallowed a portion of the interest paid, attributing it to these interest-free advances.

What were the issues?

Whether the disallowance of interest on interest-free advances is justified when the assessee has sufficient interest-free funds.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘SMC‘ BENCH

For Respondent: Shri Rajiv Singh
Hearing: 26/07/2022Pronounced: 26/07/2022

आदेश / O R D E R PER M. BALAGANESH (A.M):

1.

This appeal in A.Y2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-25, Mumbai in appeal No.CIT(A)-25/IT-397/2015-16 dated 03/06/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2015 by the ld. Income Tax Officer - 27(2)(3), Mumbai (hereinafter referred to as ld. AO).

2.

The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of interest made in the sum of Rs.1,65,662/- in respect of interest free advances given by the assessee to certain concerns.

3.

None appeared on behalf of the assessee. The paper book of the assessee is already on record. The assessee has sought adjournment today at the time of hearing. We find that the issue is a covered issue and since all the materials relevant for the purpose of adjudication of the appeal are already on record, we proceed to decline the adjournment request of the assessee and dispose of the appeal on hearing the ld. DR and based on material available on record.

3.1. The assessee is a partnership firm engaged in the business of manufacturing of kitchen and cookware items. The ld. AO observed that the assessee had taken loans and had suffered interest at an average rate of 15% per annum. The assessee had advanced interest free loans to Shri Zaverchand L Dedia amounting to Rs.6,04,416/- and M/s. Vision Express amounting to Rs.5,00,000/-. The ld. AO proportionately made disallowance of interest @15% of these interest free advances and disallowed the sum of Rs.1,65,662/- in the assessment. Before the ld. CIT(A) we find that assessee had duly furnished the details of interest free funds available with it in the sum of Rs.31,71,205/-. The assessee also furnished the entire audited balance sheet before the ld. CIT(A) to drive home the point that the firm had sufficient interest free funds in its kitty to make interest free advances to certain parties. We have gone through the audited balance sheet of the assessee and the submissions made by the assessee before the ld. CIT(A) which remain uncontroverted before us by the Revenue. We find that assessee is having sufficient interest free funds to make interest free advances to the aforesaid two parties, hence, by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Reliance Power Utilities Ltd., reported in 313 ITR 340 and HDFC Bank Ltd reported in 366 ITR 505. We direct the ld. AO to delete the disallowance of interest u/s.36(1)(iii) made in the instant case. Accordingly, the grounds raised by the assessee are allowed.

4.

In the result, appeal of the assessee is allowed.

Order pronounced in open Court on 26/07/2022

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