PAWAN DEEP SINGH,SIRSA vs. ITO, W-2, SIRSA

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ITA 371/CHANDI/2019Status: DisposedITAT Chandigarh05 November 2019AY 2012-135 pages
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What did the Tribunal hold?

The Tribunal held that if an assessee possesses sufficient interest-free funds, the presumption is that these funds were used for investments. Therefore, the disallowance of interest expenditure under Section 36(1)(iii) was not justified.

What were the facts?

The assessee contested the reopening of assessment and disallowance of interest expenditure. The Assessing Officer disallowed interest expenditure, presuming the assessee used borrowed funds for advances despite having interest-free funds.

What were the issues?

Whether the reopening of assessment was valid and if disallowance of interest expenditure was justified when the assessee had sufficient interest-free funds.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 36(1)(iii)

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आदेश/Order

The present appeal has been preferred by the assessee against the order dated 25.01.2019 of the Commissioner of Income Tax (Appeals)- 5, Ludhiana [hereinafter referred to as ‘CIT(A)’].

2.

The assessee in this appeal has taken following grounds of appeal:- 1. That the order of Ld. Commissioner of Income Tax (Appeals), being against facts and settled law is liable to be set aside.

2.

That the Ld. Commissioner of Income Tax (Appeals), erred in confirming reopening of the case, upholding the initiation of proceedings u/s 147/148 of IT Act, 1961 by the Assessing Officer, as no new information was available with him.

ITA No. 371-CHD-2019- Shri Pawan Deep Singh, Sirsa 2

2.1 That the information/evidence relied upon regarding reopening for disallowance of interest of Rs.6,32,000/- was duly obtained/verified and available before finalizing the original assessment order dated 30.12.2014 in compliance to query raised for charging interest from debtors.

2.2 That whole of the information utilized for initiating the proceedings for non payment of VAT of Rs. 7,69,024/- was available on record since the framing of Original Assessment. That non payment of the said sum, in view of the provisions u/s 43B, was a mistake apparent from record and the same was liable to be added u/s 154/155 of IT Act, 1961.

2.3 That the squarely applicable decisions of Hon'ble Income Tax Appellate Tribunals relying upon observations of Hon'ble High Courts and Apex Court & mentioned by Ld. Commissioner of Income Tax in his Appellate Order have been fully ignored by him.

3.

The Ld. Commissioner of Income Tax erred in confirming the disallowance of interest of Rs. 6,32,000/- out of net interest payments of Rs.25,48,527/-, by the Assessing Officer relying on assumptions/conjectures, ignoring the facts on record and written explanations of the appellant for the advances made.

3.1 That Ld. Commissioner of Income Tax seems to have ignored the contention of the appellant that the advances for purchases of Agricultural land were made out of interest free capital fund , unsecured loans and trade creditors and none of the advances in current year were made out of withdrawals from bank or other borrowed funds.

3.2 The Ld. Commissioner of Income Tax (Appeals) seems to have not considered and appreciated the decisions of Hon'ble Jurisdictional High Court and Hon'ble Tribunal relied upon by the Appellant and incorporated by him in the Appellate Order.

ITA No. 371-CHD-2019- Shri Pawan Deep Singh, Sirsa 3

4.

That the appellant craves leave, with the kind permission of Hon'ble Income Tax Appellate Tribunal, to amend add, alter or modify the Grounds of Appeal till the same is finally heard and disposed-off.

3.

Ground No.1: Ground No.1 is general in nature and does not

require any specific adjudication.

4.

Ground No.2: Vide this ground, the assessee has contested the

validity of the reopening of the assessment u/s 147 read with section

148 of the Act.

The Ld. Counsel for the assessee, at the outset, has stated that as

per the instructions of his client, he does not press ground No.2

regarding reopening of the assessment. Ground No.2 of the appeal is,

therefore, dismissed as not pressed.

5.

Ground No.3: Vide this ground the assessee has contested the

addition made by the lower authorities on account of disallowance out

of interest expenditure claimed by the assessee by invoking the

provisions of section 36(i)(iii) of the Income Tax Act, 1961 (in short

'the Act').

The Ld. Counsel for the assessee, at the outset, has invited our

attention to the impugned order of the Assessing Officer as well as of

the CIT(A), wherein, both the lower authorities have duly examined and

noted the fact that the assessee was possessed of interest free funds

totalling Rs. 1.19 crores. The assessee during the year made certain

ITA No. 371-CHD-2019- Shri Pawan Deep Singh, Sirsa 4 advances for the purchase of property, however, the total advances

made for purchase of the land as stood during the year were at Rs. 1.16

crores. The Assessing Officer was of the view that the assessee had

claimed an interest expenditure of Rs. 25,48,527, hence, the

disallowance u/s 36(1)(iii) of the Act was attracted on making interest

free advances as the assessee might have used loan bearing funds for the

same. The plea of the assessee has been that since the assessee was in

possession of sufficient own funds, hence, the presumption was that the

assessee had used his own / interest free funds for making the aforesaid

advances. However, the Assessing Officer presumed that the assessee

would have first exhausted the interest free funds towards business

assets and thereafter he might have used the interest free funds for

making interest free advances for the purchase of property. The issue,

however, has been otherwise settled by the various decisions of the

higher Courts including that of the recent decision of Hon'ble Supreme

Court in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2010]

410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has again

confirmed the proposition of law that if the own funds / interest free

funds are available with the assessee to meet the investment,

presumption will be that the assessee had used its own / interest free

funds for the said investment.

In view of this, since the assessee has established that he was

possessed of own sufficient or interest free funds to meet the

ITA No. 371-CHD-2019- Shri Pawan Deep Singh, Sirsa 5 investment, hence, the disallowance made u/s 36(1)(iii) of the Act is not attracted.

Ground No.3 of the appeal is hereby allowed. 6. Ground No.4 is general in nature and does not require any specific adjudication. In the result, the appeal of the assessee is treated as partly

allowed. Sd/-

(संजय गग� / SANJAY GARG) �या�यक सद�य/ Judicial Member Dated : 07.11.2019 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

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