M/S. NAGAUR AUTOMOBILES PVT. LTD. ,NAGAUR vs. DCIT, CIRCLE, NAGAUR

Brief facts of the case are that while scrutinizing the assessment of the assessee, the AO noted that the assessee company has given interest free advance to M/s. Choudhary Mula Ram Memorial Education Society (hereinafter referred to as the “Educational Society”) on various dates during the year and the account was squared up during the year itself. The AO has prepared a chart in which the amount advanced by the assessee to the Educational Society on various dates have been stated; and dates on which it was returned back from which it was noted by him that the assessee had given interest free advances to the Educational Society for days varying from 49 days to 1 day and that the AO noted that the educational society has repaid the same to the assessee. According to AO, from a perusal of the ledger account of assessee, it was noted that the assessee has not charged any interest on the advances given, however, has given interest on the loans obtained by it. From the P&L Account the AO noted that the assessee has debited an amount of Rs.77,44,621/- on account of bank interest and Rs.28,24,272/- on account of interest paid to others, thus the AO noted that a total interest expenditure of Rs.,1,05,68,884/- has been claimed by the assessee. Thus, according to the AO, the assessee on one hand is paying huge interest and on the other hand, is giving interest free loans which is akin to deploying the interest bearing funds for giving interest free loans which action of the assessee is not allowable as per the provision of sec. 36(1)(iii) of the Act. The assessee contended that it had not made any specific borrowing for advancing amounts to the educational society and according to it, the advances made to educational society is from its own funds and not from the interest bearing borrowed funds. The AO did not agree with the contention of the assessee and calculated the amount disallowable at 12% for the days the advance was given to Educational Society and computed disallowance of Rs.2,51,148/-. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the same. Aggrieved, assessee is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. At the outset itself, It was brought to our notice that the assessee company is having own funds i.e. share capital of Rs.1,60,00,000/- and Reserve and Surplus of Rs.26,38,712/- and it was also brought to our notice that the assessee company has regular deposit out of sale proceeds of goods trading and there has been total sales of Rs.128.66 cr. And, therefore, money is regularly coming into the bank account of the assessee on account of such sales realization. It was also brought to our notice that the assessee is having a common bank account where mixed funds are there and from which only the assessee has given advances to the charitable educational society at times when there is urgency and it is only an advance for few days which is returned back to the assessee. Thus, according to assessee, the amount given as advance is from assessee’s own funds and not from the interest bearing borrowed funds. We note that the assessee has share capital of Rs.1.60 cr. and Reserve & Surplus of Rs.27.38 lacs as well as regular deposit out of the sale proceeds of goods traded comes to Rs.128.66 cr. In such a scenario, the assessee has sufficient own funds to give it as a hand loan/advance for few days for which no notional interest income could have been computed by the AO at the first place. For this proposition of law, we rely on the Hon’ble Bombay High Court decision in Reliance Utilities & Power Ltd. Vs. CIT 313 ITR 340 wherein their lordships held that where the assessee is possessed of mixed funds which includes its own funds in sufficient quantity, a presumption that its own funds were utilized for advance is to be drawn. This proposition of law has been confirmed by the Hon’ble M/s. Nagaur Automobiles Pvt. Ltd., AY 2012-13

In the result, appeal of assessee is allowed.

""यथ"/ The Respondent 3. आयकरआयु त/ CIT 4. आयकरआयु त (अपील)/ The CIT(A)

"वभागीय""त"न%ध, आयकरअपील'यआ%धकरण, च*डीगढ़/ DR, ITAT, Jodhpur 6. गाड-फाईल/ Guard File