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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI ANIL CHATURVEDI, AM
आदेश / ORDER PER ANIL CHATURVEDI, AM :
This appeal filed by the assessee is emanating out of the 1. order of Commissioner of Income Tax (A) – Pune – 3, dt.22.11.2017 for the assessment year 2012-13.
The relevant facts as culled out from the material on record are as under :-
Assessee is a partnership firm stated to be engaged in restaurant and catering business. Assessee filed its return of income for A.Y. 2012-13 on 30.09.2012 declaring total income of Rs.20,38,530/-. The case was selected for scrutiny and thereafter
ITA No.206/PUN/2018
assessment was framed u/s 143(3) of the Act vide order
dt.26.03.2015 and the total income was determined at
Rs.23,19,479/-. Aggrieved by the order of AO, assessee carried
the matter before Ld.CIT(A), who vide order dt.22.11.2017 (in
appeal No.CIT(A), Pune-3/10384/2015-16) granted partial relief to
the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now
in appeal and has raised the following grounds :
“1. The Learned Income Tax Officer, Ward 3(5) has erred in disallowing part of interest cost to the extent of Rs.2,59,794/- and the Commissioner of Income Tax (Appeals), Pune-3 has erred in confirming the same. 2. The Learned Income Tax Officer, Ward 3(5) has erred in making disallowance of genuine business expenditure by wrongly invoking provisions of Sec.36(1)(iii) of Rs.2,59,794/- under pretext that assessee has not been able to establish commercial expediency for giving interest free advances to group concerns. The Commissioner of Income Tax (Appeals), Pune-3 has erred in confirming the same.”
Both the grounds being inter-connected are considered
together.
During the course of assessment proceedings, AO noticed
that assessee had taken unsecured loans and has paid interest
to 13 persons, interest ranging from 8 to 13% and the
aggregate interest paid was Rs.25,84,073/-. He also noted
that the unsecured loans have neither yielded expansion of
business of the assessee but the assets were in the form of
deposits with other banks and advances. AO also noticed that
assessee had given loans and advances in the form of call
deposits of Rs.90,20,000/- and assessee has earned interest of
Rs.1,35,300/- on such call deposits. AO was of the view that
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assessee was not able to explain about the commercial
expediency for giving interest free advances. He was therefore
of the view that reasonable portion of interest expenses is
liable to be disallowed u/s Sec.36(1) of the Act. He accordingly
disallowed interest expenses at Rs.2,59,794/- and made its
addition. Aggrieved by the order of AO, assessee carried the
matter before Ld.CIT(A), who upheld the order of AO. Aggrieved
by the order of Ld.CIT(A), assessee is now in appeal.
Before me, Ld.A.R. pointed to the details of deposits
which was reproduced at page 6.2 of the order of Ld.CIT(A).
He pointed to the copy of the Profit and Loss account which is
placed in Paper Book and submitted that the advances are for
the purpose of business as there are transactions by the
assessee with the aforesaid parties and therefore it cannot be
said that there is no commercial expediency. He further
pointed to the Balance-Sheet at page 9 of the Paper Book and
submitted that assessee had interest free advances aggregating
to Rs.1.35 crores as against the deposits of Rs.90.20 lakhs
which shows that availability of interest free funds were more
than the amount advanced. He submitted that since the
availability of interest free funds are more than the amount
advanced, no disallowance of interest is called for and for this
proposition, he relied on the decision of Hon’ble Bombay High
Court in the case of Reliance Utilities & Power Ltd reported in
[2009] 313 ITR 340 (Bom). He therefore submitted that the
addition be deleted. Ld.D.R. on the other hand, supported the
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order of AO and Ld.CIT(A) and further submitted that assessee
has not demonstrated the commercial expediency for giving the
advances and in such a situation, AO was fully justified in
disallowing the expenses.
I have heard the rival submissions and perused the
material on record. The issue in the present ground is with
respect to disallowance of interest expenses u/s 36(1) of the
Act. Before me, assessee has placed the audited Balance-
Sheet of the firm in the Paper Book. The perusal of the audited
Balance-Sheet reveals the availability of interest free funds at
Rs.1.35 crores as against the advances given by the assessee of
Rs.90.20 lakhs which itself demonstrates that the availability
of interest free funds to be more than the amounts advanced.
I find that Hon’ble Bombay High Court in the case of Reliance
Utilities (supra) has held that if there be interest-free funds
available to an assessee sufficient to meet its investments and
at the same time, the assessee had raised a loan, it can be
presumed that the investments were from the interest free
funds available. I therefore relying on the decision of CIT Vs.
Reliance Utilities (supra), hold that no disallowance of interest
can be made in the present case. I further find that to the
parties to whom the assessee had advanced has entered into
commercial transactions during the year and in such a
situation, it cannot be said that there has been no commercial
expediency in advancing the advances. Considering the totality
of the aforesaid facts, I am of the view that no addition is called
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for in the present case. I therefore relying on the decision of CIT Vs. Reliance Utilities (supra), direct to delete the addition made by AO. Thus, the grounds of the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced on the 9th day of January, 2019.
S Sd/- (ANIL CHATURVEDI) लेखा सद�य / ACCOUNTANT MEMBER
पुणे Pune; �दनांक Dated : 9th January, 2019. Yamini
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-3, Pune. 4. Pr. CIT-2, Pune. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक सद�य” / DR, ITAT, “SMC” Pune; 6. गाड� फाईल / Guard file.
आदेशानुसार/ BY ORDER // True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.