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Income Tax Appellate Tribunal, CHANDIGARH
Before: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM
आदेश/ORDER PER DIVA SINGH
The present appeal has been filed by the assessee wherein the corre ctness of the order dated 23.12.2015 of CIT(A)-1 Chandigarh pertaining to 2012-13 assessme nt year is assailed on the following grounds :
“1. That order passed u/s 250(6) of Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Chandigarh is against law and facts on the file in as much as he was not justified to arbitrarily uphold the disallowance of Rs. 1476000/- out of interest account by resort to provisions of section 36(1)(iii) ignoring the fact that the advance was made for the purpose of business. 2. That he was further not justified to arbitrarily uphold the disallowance amounting to Rs. 1000000/- paid by the Appellant to Mr.Rajnish Rametra as consultation fees.”
ITA 28 /CHD/2016 A.Y. 2012-13 Page 2 of 8
At the time of hearing, ld. AR submitted that the
assessee does not wish to press ground No. 2. Accordingly,
appropriate noting to the said effect was given.
Addressing the sole issue surviving in the present
appeal, the ld. AR submitted that no independent finding has
been given by the CIT(A) except for relying on the view taken
in 2011-12 assessment year. The said issue, it was
submitted, came up for consideration in the consolidated
order dated 31.07.2019 in a batch of appeals/Cross Appeals
and Cross Objections by the Revenue and the assessee
respectively pertaining to 2005-06 to 2011-12 assessment
year. Inviting attention to the record, it was submitted that
the Assessing Officer had made the addition of Rs.
14,76,000/- u/s 36(1)(iii) of the Income Tax Act,1961 by way
of disallowance. It has been sustained in appeal by the
CIT(A) for the reasons set out in para 5 to 5.4 of his order.
Inviting attention to page 79 of the aforesaid consolidated
order it was his submission that the issue has been
considered in assessee's CO No. 12/CHD/2014 filed in ITA
36/CHD/2014 by the ITAT in paras 130 to 133. Relying
upon the similar position on facts and law as considered in
the earlier years which have been addressed in para 41 at
page 38 of the order (CO No. 9/CHD/2014 in ITA
33/CHD/2014) pertains to 2008-09 assessment year, the
ITA 28 /CHD/2016 A.Y. 2012-13 Page 3 of 8
addition made, it was submitted, was deleted by the ITAT in
all the years. Accordingly, it was his prayer that in the facts
of the present case also, the additions sustained relying
upon the order of the ITA T in the earlier years may be
deleted.
3.1 The ld. AR was required to address the position on facts
in the year under consideration as the ITAT has considered
the factual position of available funds in the respective
years. The ld. AR addressing the availability of funds invited
attention to Paper Book page 1 so as to submit that when
compared with the position as on 31.3.2011 in the year
under consideration there was an increase in the share
capital and reserves and surplus of the assessee. Referring
to the said page, it was submitted that in the year under
consideration, it held in its books Share Capital and
Reserves and Surplus to the tune of Rs. 23.81 Cr. odd and
when compared to the position in the immediately preceding
period, it may be noticed that the assessee's share capital
and reserves and surplus was only Rs. 18.57 Cr odd. Thus,
admittedly there is a substantive increase. When compared
with the loans and advances which were made in the specific
period, these were about Rs. 1.13 Crore odd. Accordingly,
relying upon the position of law as considered by the Co-
ordinate Bench in the consolidated order wherein
ITA 28 /CHD/2016 A.Y. 2012-13 Page 4 of 8
considering identical factual position right from 2008-09
assessment year identical addition sustained by the CIT(A)
has been deleted, prayer was made for an identical relief in
the present proceedings.
The ld. Sr.DR on a perusal of the consolidated order in
the facts of the assessee's case submitted that the point at
issue is fully covered. No distinguishing facts or
circumstances were brought to our notice in order to canvass
a contrary view.
We have heard the rival submissions and perused the
material available on record. It is seen that the said issue
was considered by the CIT(A) in the impugned order as
under: 5 Ground of appeal No. 1 is against the, disallowance of Rs. 14,76,000/- u/s 36(l)(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'Act). 5.1 Brief facts of the issue are that the Assessing Officer noticed that the appellant had given loans and advances amounting to Rs. 1,39,00,000/- to related parties. Out of this, the appellant had made interest free advances of Rs. 1.23 crores to M/s Silver Oak Foundation. It was also noticed that the appellant has paid interest amounting to Rs. 151.61 lacs on secured and unsecured loans raised during the year. 5.2 The Assessing Officer questioned the appellant regarding business expediency for making these advances and also about proportionate disallowance of interest u/s 36(l)(iii) of the Act. 5.3 A submission was filed during the course of present proceedings. During the hearing, it was informed by the Counsel of the appellant that the addition on same ground was made by the Assessing Officer in A.Y. 2011-12 and was later confirmed by CIT(A), Chandigarh. 5.4 I have considered the submission of the appellant and the facts on record. It is found that similar addition made in A.Y. 2011-12 was confirmed by.my predecessor vide order dated 31.10.2013 in appeal No. 274/13-14. I am in agreement with the view taken by my predecessor on the issue and so the addition made for Rs. 14,76,000/- is confirmed in this year also. Ground of appeal No. 1 is dismissed.
ITA 28 /CHD/2016 A.Y. 2012-13 Page 5 of 8
5.1. On a perusal of the aforesaid order passed by the Co-
ordinate Bench, it is seen that an identical addition has
been deleted in 2011-12 assessment year in paras 132-133
at pages 79 and 80. The relevant extract of the finding is
extracted hereunder for the sake of completeness :
The Ld.Counsel for the assessee contended that his argument against the said disallowance upheld by the CIT(A) was the same as in A.Y 2008-09, that the advances were the same as in preceding year except additional advance given to PSIDC of 3.50 lacs, that the assessee had sufficient own interest free funds ,in the form of Reserves for the year amounting to Rs.7.72 crores and the presumption therefore is that the advances have been made out of own interest free funds. 133. Since admittedly the issue is identical to that in Ground No.1 of the assesses Cross Objection for A.Y 2008-09 in CO No.9/2014 dealt with us above, our decision rendered therein at para 41 of our order will apply to the present ground, following which we delete the disallowance of interest of Rs.11,00,376/-. Ground of appeal No.1 raised by the assessee is allowed. 5.2 On a reading of the above, it is seen that in fact the
view taken in 2008-09 assessment year was relied upon. The
relevant discussion in the aforesaid consolidated order in
C.O. 9/CHD/2014 is available in paras 33 to 41. The said
extract is reproduced hereunder also for the sake of
completeness:
The solitary ground raised by the assessee in its Cross Objection relates to the issue of disallowance of interest expenses u/s 36(1)(iii) of the Act and reads as under: “The order passed u/s 250(6) of the Income Tax Act,1961 by the ld. Commissioner of Income Tax (Appeals),Chandigarh is against law and facts on the file in as much ashe was not justified to arbitrarily uphold the disallowance of Rs.5,15,119/-out of interest account by resort to provisions of section 36(1)(iii) ignoring the fact that the advance was made for business purpose.”
ITA 28 /CHD/2016 A.Y. 2012-13 Page 6 of 8 34. Brief facts relating to the issue are that the Assessing Officer noticed that the assessee had debited a large amount to the profit and loss account on account of interest paid on borrowed funds. At the same time, the assessee had made interest free advances as under: a) M/s Silver Oak Foundation Rs. 21,42,000/- b) Advance for land Rs. 21.50.000/- Total Rs. 42,92,000/-
The Assessing Officer questioned the assessee regarding business expediency for making these advances and also about proportionate disallowance of interest u/s 36(l)(iii) of the Act. The assessee filed a reply, the contents of which were summarized by the Ld.CIT(A) at para 3.1.1 of his order as under: (i) M/s Silver Oak Foundation is running a college under the name and style of 'Silver Oak College of Nursing', imparting medical/ nursing education to the students. The nurses trained in the college are provided to the hospital and so commercial expediency stands explained. (ii) Regarding advance for purchase of land at Abhipur, the same was shown as advance, since the transaction was not complete. Later, when the registry was done, the asset was transferred to the fixed asset schedule. The land was purchased with intention to expand the hospital facility and to attract the rural clientele, but later on it was observed that the scope was not very high in that area and so the land was sold. (iii) The interest debited to the profit and loss account pertains to loans raised for specific purposes and no part of these loans were used for making these advances and so it cannot be said that the interest bearing funds were used for making these interest free advances. (iv) The ratio of the judgement of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries Ltd. (286 ITR 1) has been amplified, discussed and clarified by Hon'ble Supreme Court in the cases of M/s Core Health Care Ltd. (298 ITR 194) and M/s S.A. Builders Ltd. (288 ITR 1) and as the advances were given on the ground of commercial expediency, no disallowance is required to be made. 36. The Assessing Officer did not agree with the explanation of the assessee and disallowed proportionate interest of Rs. 5,15,119/-, computed @ 12% per annum on the aforesaid interest free advances with the following observations: (i) There is no evidence that the impugned land for which advance is given, was to be purchased for the hospital. (ii) There is no evidence that the amount paid as advance for land was not out of the borrowed funds. (iii) The funds diverted by the appellant are not out of own funds.
ITA 28 /CHD/2016 A.Y. 2012-13 Page 7 of 8 (iv) The judgement of Hon'ble Punjab and Haryana High Court in the case of M/s Abhishek Industries Ltd. is applicable on the facts of the case. 37. During the course of appellate proceedings, the Ld. Counsel for the assessee filed written submission, mainly reiterating the submissions made before the Assessing Officer. 38. The Ld.CIT(A) rejected all the contentions made by the assessee and upheld the disallowance made. 39. Before us the sole issue raised by the Ld.Counsel for the assessee was that it had sufficient own interest free funds for the purpose of making the investment. Our attention was drawn to the profits earned by the assessee during the year itself as reflected in the audited financial statements, copy of which was filed before us, amounting to Rs.2.12 crores and it was pointed out that the investment in relation to which disallowance was made amounted to Rs.42.92 lacs. It was, therefore, contended that in view of various decisions of various judicial authorities, the presumption was that the investment has been made out of own interest free funds of the assessee calling for no disallowance of interest u/s 36(1)(iii) of the Act. 40. The Ld. DR, on the other hand, relied upon the order of authorities below. 41. We have heard the rival submissions, perused the orders of the authorities below. It is settled law that where sufficient own interest free funds are available, the presumption is that non business advances/investments have been made out of the said interest free funds. The Hon'ble Supreme Court has held so in the case of CIT (LTU) vs Reliance Industries Ltd. in Civil Appeal no.37 of 2019 dated 02- 01-19. In view of the above settled law and considering the uncontroverted fact that the assessee had own interest free funds in the form of profits of the year alone amounting to Rs.2.12 crores which were more than sufficient for making the impugned investments of Rs.42.92 lakhs, we hold that no disallowance of interest u/s 36(1)(iii) of the Act was warranted in the present case, since the investments are presumed to have been made out of own interest free funds of the assessee. The disallowance so made of Rs.5,15,190/- u/s 36(1)(iii) of the Act is, therefore, directed to be deleted. The ground raised by the assessee is therefore allowed. The Cross Objection filed by the assessee stands allowed. 5.3 On a consideration of the facts, circumstances and
position of law as discussed in detail in the earlier part of
this order, we are of the view that the ground raised
deserves to be allowed. The facts as canvassed and noted in
the earlier part of this order in the absence of any rebuttal
ITA 28 /CHD/2016 A.Y. 2012-13 Page 8 of 8
by the Revenue adequately demonstrates the sufficiency of
available funds with the assessee at the relevant point of
time. These submissions remain un-assailed. Accordingly,
allowing the ground, the addition is directed to be deleted.
Said order was pronounced in the Open Court at the time of
he aring itself.
Ground No. 2 as noticed earlier has not been pressed by
the assessee. As such, it is dismissed accordingly.
In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 22 n d August,2019.
Sd/- Sd/- ( अ�नपूणा� गु�ता ) ( �दवा �संह ) (ANNAPURNA GUPTA) (DIVA SINGH) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant 1. ��यथ�/ The Respondent 2. आयकर आयु�त/ CIT 3. आयकर आयु�त (अपील)/ The CIT(A) 4. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File 6. आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar