SUMEET DEVELOPERS,MUMBAI vs. INCOME TAX OFFICER 28(3)(3), MUMBAI

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ITA 5097/MUM/2019Status: DisposedITAT Mumbai04 August 2021AY 2014-152 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the assessee had sufficient interest-free funds available, which exceeded the interest-free loans advanced, the disallowance of interest on borrowings was unjustified. The loans were presumed to be out of interest-free funds.

What were the facts?

The assessee advanced interest-free loans to a sister concern, claiming it was out of available interest-free funds. The Assessing Officer and CIT(A) disallowed the interest on these loans, citing lack of commercial expediency and business purpose.

What were the issues?

Whether the disallowance of interest on interest-free loans advanced by the assessee to a sister concern was justified, considering the availability of sufficient interest-free funds.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI ‘SMC’ BENCH, MUMBAI

Assessment Year: 2014-15 Page 1 of 2 INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘SMC’ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President)] Assessment Year: 2014-15 Sumeet Developers ....………………. Appellant 506/507, Persipolis, Plot No. 74, Sector-17 Vashi, Navi Mumbai 400703 [PAN: ACGFS5327N] Vs. Income Tax Officer-28(3)(3) Mumbai. ....……………….Respondent Appearances: None for the appellant Vijaykumar Menon for the respondent Date of concluding the hearing : May 10, 2021 Date of pronouncement : August 04, 2021 O R D E R Per Pramod Kumar, VP:

1.

By way of this appeal, the assessee-appellant has challenged the correctness of the order dated 19th June 2019, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) of the Income Tax Act, 1961 for the assessment year 2014-15.

2.

The short issue that adjudicate is whether or not the learned CIT(A) was justified in upholding the disallowance of Rs. 1,67,167/- under section 36 (i) (iii) of the Act. 3. To adjudicate on this appeal, it is enough to take note of the fact that even though the assessee admittedly had sufficiently interest free funds of Rs. 3,28,60,826/-, far in excess of interest free loans extended to the tune of Rs. 32,50,000/- disallowed related interest of Rs. 1,67,167/- on the ground that commercial expediency of interest loan could not be justified by the assessee. In appeal learned CIT(A) confirmed the action of the Assessing Officer by observing as follows:- 8. Ground No.2 of appeal is against disallowance of interest of Rs, 1,67,167/- as against interest free loans advanced by the appellant. It was stated that M/s Manish Enterprises was to buy a plot of land which the Assessee was to take over and undertake building & developmental activities. The Assessee was expected to lend a sum of Rs 70 Lacs for this purpose. In case of loans advanced to Charkop Kaavya Beachwood CHS ("the Society")

Assessment Year: 2014-15 Page 2 of 2 being a sister concern wherein the assessee's partners are also Members of the Society. The Society was in dire need of urgent funds to carry on uninterrupted business. Owing to the urgency, the partners decided to lend funds out of the idle capital lying with the assessee. This was considered necessary as the partners constituted more than half the Members of the Society. In addition to financial interest in the Society, financial risk was also involved. Thus from the submission of the appellant it is clear that the interest free loan advanced is not for business purposes. Hence the addition made by the AO is confirmed. The ground of appeal is ‘Dismissed’.

4. The assessee is not satisfied and is in further appeal before me.

5. Having heard the rival contentions and having perused the material on record, I am satisfied that interest free funds available to the assessee are far in excess of interest free loans extended by the assessee, and, as such, presumption has to be, in the light of Hon’ble jurisdictional High Court’s judgement in the case of CIT vs Reliance Utilities & Power Ltd., [(2009) 313 ITR 340 (Bom)], that the loans were extended out of interest free funds. As such, in my considered view, no part of interest on borrowings could be disallowed for non business use. I, therefore, delete the impugned disallowance of Rs. 11,67,167/-.

In the result, this appeal is allowed. Pronounced in the open court today on the 04th 5. day of August 2021.

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