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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. Nos. 673 & 674/Asr/2017 Assessment Years: 2007-08 & 2008-09
EMM Kay Industries Limited, Vs. Asstt. Commissioner of Income D-29, Focal Point, Jalandhar Tax, Central Circle-II, Jalandhar [PAN: AAACE 3104E] (Appellant) (Respondent)
Appellant by : Sh. Sandeep Vijh (C.A.) Respondent by: Sh. Sandeep Chauhan, CIT-DR Date of Hearing: 26.06.2018 Date of Pronouncement: 29.06.2018
ORDER Per Sanjay Arora, AM: This is a set of two Appeals by the Assessee arising out of its assessments u/s. 153A r.w.s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for two consecutive years, being Assessment Years (AYs) 2007-08 and 2008-09. The same raising a common issue, were posted for hearing and, accordingly, heard together, and are being disposed per a common, consolidated order for the sake of convenience.
The ld. Authorized Representative (AR) not pressing the assessee’s grounds 1(a) and 1(b), endorsing the same through his written submissions (copy on record), the only issue surviving in these appeals is as to whether any disallowance u/s. 36(1)(iii), and if so, to what extent, is called for in the fact and circumstances
2 ITA Nos. 673 & 674/Asr/2017 (AYs 2007-08 & 2008-09) EMM Kay Industries Limited v. Asstt. CIT of the case. The assessee’s case is that the interest-free advances, admittedly for non-business purposes, qua which only the disallowance as made by the Assessing Officer (AO) stands sustained in first appeal, are sourced from interest-free capital available with it during the relevant years. No disallowance in respect of the assessee’s claim for interest on borrowed capital u/s. 31(1)(iii) is therefore called for. Toward this, the ld. AR, Sh. Sandeep Vijh CA, the assessee’s counsel, would take us to the balance-sheets as on 31.03.2007 and 31.03.2008, showing interest- free capital thereat at Rs.665.47 lacs and 1093.23 lacs respectively (PB pg. 13/AY 2007-08 and PB pg. 6/AY 2008-09). Besides, reliance was placed by him on various decisions, including by the Hon'ble Apex Court and Hon'ble jurisdictional High Court viz. Munjal Sales Corporation v. CIT [2008] 298 ITR 298 (SC); Bright Enterprises Pvt. Ltd. v. CIT [2016] 381 ITR 107 (P&H); CIT v. Kapsons Associates [2016] 381 ITR 204 (P&H).
We have heard the parties, and perused the material on record. A perusal of the audited balance-sheets reveal that the only borrowed capital on which interest stands suffered by the assessee for the relevant years is by way of secured loans; the unsecured loans, raised during f.y. 2007-08 (i.e., relevant to AY 2008-09), stated to be from family members, being on interest-free basis. The secured loans, as explained, represent institutional finance toward financing the various business assets of the assessee-company viz. vehicles; plant and machinery; working capital; etc. That being admittedly the case, we find no case for appropriating any part of the interest cost incurred by the assessee over the non business assets, i.e., the impugned advances that have not been shown to be given during the course, or for the purposes, of the assessee’s business. There is under the circumstances in fact no need to invoke the presumption in law, as laid down and explained by the Hon'ble Courts cited supra, explaining that where the
3 ITA Nos. 673 & 674/Asr/2017 (AYs 2007-08 & 2008-09) EMM Kay Industries Limited v. Asstt. CIT investment in or application of funds by an assessee is sourced from a common pool of funds, a presumption, based on the assessee’s capital available for such application, could be drawn that the same stand funded from the said capital; the loans raised being essentially or predominantly for business purposes. As afore-noted, the borrowed capital on which interest in the present case has been incurred is in the form of dedicated finance toward financing business assets. There is no question of application of such capital for non-business purposes and, per contra, the non-business assets being financed from a common pool of funds. No disallowance is accordingly called for. We direct its deletion.
In the result, the assessee’s appeals are allowed. Order pronounced in the open court on June 29, 2018
Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Date: 29.06.2018 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: EMM Kay Industries Limited, D-29, Focal Point, Jalandhar (2) The Respondent: Asstt. Commissioner of Income Tax, Central Circle-II, Jalandhar (3) The CIT(Appeals)-5, Ludhiana (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order