Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-9, Chennai in dated 22.05.2019. The assessment was framed by the Asst. Commissioner of Income Tax, Company Circle 2(3), Chennai for the assessment Year 2009-10 u/s.143(3) of the
2 - Income Tax Act, 1961, (hereinafter ‘the Act’) vide order dated 30.12.2011.
2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing the interest expenditure to the extent of Rs.1,10,74,397/- on the ground that the same was not incurred for the purpose of business and made disallowance u/s.36(1)(iii) of the Act.
3. Brief facts are that the assessee company is engaged in the business of construction and allied activities. The AO, on verification of balance sheet of the assessee company, noticed that the assessee company has borrowed substantial loans from banks under the head ‘secured loans’ having closing balance of Rs.22,49,03,129/- and unsecured loans of Rs.14,65,43,856/-. The AO noted that the assessee company has taken fresh loans during the year and claimed an amount of Rs.3,92,87,150/- as expense towards interest on the loans. He also noted that the assessee has invested substantial amount of Rs.7,49,04,373/- and closing balance in partnership firm at Rs.10,80,89,881/- in which the assessee company holds share, on which no interest is charged. Therefore, the AO computed the loan taken at average rate of 15.25% and investment made from no 3 - interest income is earned made disallowance of Rs.1,37,65,357/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the action of AO of Rs.1,10,74,397/- and deleted balance amount of Rs.26,90,960/- by observing in para 6.3.2 as under:- “6.3.2 In view of the above detailed discussion, out of the total disallowance of Rs.1,37,65,357/-, disallowance to the extent of Rs.10,25,686/- for the year under consideration and Rs.1,00,48,711/- on account of investments made in the earlier years is confirmed. Therefore, the balance amount of Rs.26,90,960/- is deleted.” Aggrieved, now assessee is in appeal before the Tribunal.
4. Before us, the ld.AR for the assessee filed complete details of reserves and surplus as on 31.03.2019 and the relevant details are as under:-
Reserves and Surplus as on 31.03.2009 Investment in Assessmen Opening Profit during Closing Incremental Associate Difference t year Reserve the year Reserve Investment Firm 1 2 3=1+2 4 5=3-4 surplus 2006-07 38,54,853 5,93,22,751 6,31,77,604 49,18,725 49,18,725 5,82,58,879 Pg No.3 of Pg No.3 of Pg No.1 of Pg No.3 of Pg No.3 of Page Book Page Book Page Book Page Book Page Book 2007-08 6,31,77,604 4,80,48,287 11,12,25,890 4,99,19,637 5,48,38,362 5,63,87,528 Pg No.10 of Pg No.10 of Pg No.8 of Pg No.10 of Page Book Page Book Page Book Page Book 11,12,25,890 6,34,91,441 17,47,17,331 3,68,66,011 9,17,04,373 8,30,12,958 2008-09 Pg No.16 of Pg No.16 of Pg No.14 of Pg No.6 of Page Book Page Book Page Book CIT(A) Order 2009-10 17,47,17,331 (2,73,598) 17,44,43,733 3,31,66,838 12,48,71,211 4,95,72,522 Pg No.29 of Pg No.29 of Pg No.27 of Pg No.6 of Page Book Page Book Page Book CIT(A) Order
4 - In view of the above chart, the ld.AR stated that the assessee has interest free funds available which are much more than the interest bearing funds supposed to have been given for the purpose of interest free advances. According to ld.AR, assessee has more interest free funds available with it for making investment in the interest free advances, no disallowance can be made in view of the decision of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Ltd., 366 ITR 505, where presumption is that the interest free loans are advanced out of available interest free funds. The AO has not at all brought out any nexus that interest bearing funds have been invested in the interest free advances given to other parties by the assessee.
4.1 Secondly, the ld.AR before us brought out remand report of the AO dated 17.05.2018, asked by the CIT(A) and the relevant remand report categorically states that interest disallowance should be restricted only to the extent of Rs.10,25,686/- and he read out the relevant remand report dated 17.05.2018 vide No. REMAND REPORT/AABCI1275A/2016-17. The report reads as under:- The Commissioner of Income Tax (Appeals) - 9 has asked the Assessing officer to verify the whether the borrowed capital has been invested as capital contribution made to four firms. The assessee was asked to furnish the details of investment made in the firm with F.Y. wise and also the source for the investment. The assessee has submitted the details along with enclosures dated 20.04.2018. While going the through the submission it was found that the assessee has made investment of Rs.3.51,66.838/- during the F.Y-2008-
5 - 09 relevant to the A.Y-2009-10. The balance investment amount of Rs. 9,17,04,373/- was pertained to earlier years.
While examining the bank accounts and other submission it was found that the assessee has taken loan during the month of April. May & June and the investments made in the firm is also May & June. So it is clear that the assessee has utilized the borrowed money to make investment in the form to the extent of Rs.85,50,000/-. So the interest amount of Rs. 10,25,686 (Rs.83,50,000 x 15.25) to the extent of investment made out of borrowed amount during the year may be disallowed and the assessee also accepted the same.
Mere a partner in the firm and the business of the appellant has been carried through the partnership firm as per the MOA cannot be criteria that the capital contribution is for the business purpose. So the alternate claim of the assessee cannot be considered.
The detail of different interest rates on the loan taken and how the average rate of interest arrived to 15.25% is not available in the file.
The remand report is submitted to the Commissioner of Income Tax (A)-9 for kind consideration.”
The ld.AR in view of the above only made submissions, that at the best the disallowance of interest can be restricted at Rs.10,25,686/-.
On the other hand, the ld. Senior DR could not controvert the above fact situation.
After hearing rival contentions and going through the remand report of the AO, we direct the AO to restrict the disallowance of interest at Rs.10,25,686/- as the factual situation categorically states
6 - that the assessee has more interest free funds available with it than the interest free advances given by assessee. In such situation, we restrict the disallowance and direct the AO accordingly. The appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 8th July, 2022 at Chennai.