RESTAURANT SHREYAS,PUNE vs. INCOME-TAX OFFICER, WARD - 3(5), PUNE

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.

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

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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.”

together.

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.

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.

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.

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.