SARDAR DAIRY LTD.,,MEHSANA vs. THE ASSTT. COMMISSIONER OF INCOME TAX, MEHSANA CIRCLE,, MEHSANA

Though the assessee has taken two grounds of appeal, it contained sub-grounds, which are argumentative in nature. In brief, grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs.3,99,973/- out of interest expenditure. The ld.counsel for the assessee at the outset submitted that the issue in dispute is squarely covered by the

With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee has given advance of Rs.33.33 lakhs without charging any interest. The ld.AO calculated notional interest on such interest free advance and disallowed the interest expenditure to the extent of Rs.3,99,973/-. An identical disallowance was made in the assessment year 2012-13. However, on appeal to the Tribunal, the disallowance stands deleted because the assessee was having more interest free funds than the interest free advances given by it. The finding recorded by the Tribunal in the assessment year 2012-13 in ITA No.2996/Ahd/2015 order dated 23.7.2018 on this issue reads as under: “4. I find that the legal position is fairly well settled by now that as long as the assessee has sufficient interest free funds, the presumption is that the interest free advances are extended out of such funds. In other words, to the extent the assessee has interest free funds and the interest free advances do not exceed such interest free funds, no disallowance for diversion of borrowed funds can be made. As against the interest free advances of Rs.35,02,305/-, the assessee has paid up share capital of Rs.345 lacs. Clearly, therefore, the presumption regarding non-business use of borrowed funds was unjustified on the facts of this case. I, therefore, hold that the impugned disallowance of Rs. 4,20,277/- is unsustainable in law and direct the Assessing Officer to delete the same.”

Before us, the ld.counsel for the assessee has placed on record copy of the balance sheet. On perusal of the balance sheet would indicate that the assessee was having paid up share capital of Rs.3.45 crores whereas it has advanced a sum of Rs.33.33 lakhs only. The interest free capital was more than ten times available to the assessee, out of which it can be

In the result, the appeal of the assessee is allowed. Pronounced in the Open Court on 11th September, 2018.