KANUBHAI M. PATEL,VAPI vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE, VAPI

आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-Valsad, (in short “the CIT (A)”) dated 15.06.2016 pertaining to Assessment Year 2012-13, which in turn has arisen from the order passed by the Assistant Commissioner of Income Tax, Circle -Vapi (in short “the AO”) dated 14.03.2014 under section 143 (3) of Income Tax Act,1961 (in short ‘the Act’).

Shri Kanubhai M Patel v. ACIT-Vapi/I.T.A. No.2094/Ahd/2016/A.Y.:12-13 Page 2 of 5 2. The sole ground states that Ld. CIT (A) erred in upholding addition to the extent of Rs. 2,98,580 made on account of notional interest on temporary loan given to the appellant`s son by reducing interest calculated @12% to 9%. 3. Short issue under consideration is that the assessee has given

interest free advances of Rs. 33,17,560 to his son Shri Nepal

Kanubhai Patel, whereas the assessee has paid interest on bank

loan @ 12%. Therefore, the AO disallowed notional interest @ 12%

on Rs. 33,17,560 which worked out to Rs. 3,98,107.

CIT (A). Wherein it was claimed that this loan was given out of

personal funds. It was also submitted that during past, the AO has

calculated interest @ 9% whereas during the year under

consideration, the AO has calculated interest @ 12% and there is

no change in circumstances. It was also submitted that said loan

was given out of cash credit account maintained with bank and on

which interest was being paid. Similar issue in A.Y. 11-12 was

decided against the assessee. In view of this matter, Ld. CIT (A)

directed the AO to calculate disallowable of notional interest @9%

Shri Kanubhai M Patel v. ACIT-Vapi/I.T.A. No.2094/Ahd/2016/A.Y.:12-13 Page 3 of 5

instead @12% calculated by him as per last year. Thus, addition of

Rs. 3,98,107 was reduced to Rs. 2,98,580.

Tribunal. The learned counsel for the assessee submitted that the

assessee has earned profit of Rs. 1,11,52,675 for the year ended

on 31.03.2011 in which advance of Rs. 45.90 Lakh was given. The

assessee has filed a chart giving working of capital employed and

arrived at an amount of Rs. 5,07,79,986 as own capital and

interest-free funds available for “personal use”. Therefore, it was

claimed that no interest would be disallowed on notional basis on

loan of Rs. 33,17,560 given to his son. The learned counsel for the

assessee further submitted that the issue is covered in its favour

by decision of Hon`ble Calcutta High Court in the case of Wool

Combers of India Ltd. CIT [1982] 134 ITR 219 (Cal). The learned

counsel for the assessee also placed reliance in the case of Arihant

Avenue & Credit Ltd. [2013] 217 Taxman 105 (Guj), CIT V. Raghuvir

Synthetics Ltd. [2013] 354 ITR 227 (Guj) , and CIT vs. Reliance

Shri Kanubhai M Patel v. ACIT-Vapi/I.T.A. No.2094/Ahd/2016/A.Y.:12-13 Page 4 of 5

Utilities & Power Ltd. (2009)313 ITR 340 (Bom)/ 178 Taxman 135

(Bom).

relevant material on record. We find that the ld. CIT (A) observed

that the assessee could not establish that the said advance is given

out of interest-free funds available with the appellant. It is also

disclosed that the said loan/ advance has been given out of cash

credit account maintained with bank and on which interest @12%

was being paid. A similar issue also arose in A.Y. 11-12 in which

issue was decided against the assessee. However, whether the

assessee has filed any appeal against the said order of CIT (A) has

not been brought to our knowledge. This means either the assessee

has not filed any appeal against said order or it might have been

decided against him by tribunal. In view of forgoing facts and

circumstances, we are of the considered opinion that CIT (A) has

clearly established that loan was given out of cash credit account

maintained with bank on which the assessee has paid interest.

Shri Kanubhai M Patel v. ACIT-Vapi/I.T.A. No.2094/Ahd/2016/A.Y.:12-13 Page 5 of 5 Therefore, the lower authorities have rightly held that there is no

nexus between interest free advances and interest free loans

given. Therefore, in such circumstances, we do not find any

anomaly and infirmity in the order of Ld. CIT (A). Therefore, the

sole grounds of appeal of the assessee is dismissed. The case laws

relied by the assessee are not relevant to the facts of the case as

there is direct nexus of cash credit account and loan given to

relative falling under the provisions of section 40A(2)(b) of the Act.

In view of this matter, this grounds of appeal is therefore,

dismissed.