ASSISSTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, EXEMPTION, CHANDIGARH, CHANDIGARH vs. PATIALA URBAN PLANNING AND DEVELOPMENT AUTHORITY, PATIALA

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ITA 112/CHANDI/2024Status: DisposedITAT Chandigarh26 March 2025AY 2014-15Bench: SHRI RAJPAL YADAV (Vice President), SHRI MANOJ KUMAR AGGARWAL (Accountant Member)1 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) rightly deleted the disallowance as the assessee had sufficient surplus funds to make the advances. The Tribunal relied on the Supreme Court's decision in CIT Vs Reliance Industries.

What were the facts?

The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 8,78,42,211/-. The addition was made by the AO for notional interest on interest-free loans given by the assessee to certain entities.

What were the issues?

Whether the AO was justified in making a disallowance for notional interest on interest-free advances when the assessee had surplus funds.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH

Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL

For Appellant: Shri Sudhir Sehgal, Advocate
For Respondent: Smt. Kusum Bansal, CIT DR
Hearing: 19.03.2025Pronounced: 26.03.2025

O R D E R PER RAJPAL YADAV, VP The Revenue is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 14.12.2023 passed for assessment year 2014-15. 2. The solitary grievance of the Revenue is that ld. CIT(A) has erred in deleting the addition of Rs.8,78,42,211/- which A.Y.2014-15 2 was added by the AO with the aid of Section 36(1)(iii) of the Act.

2.

With the assistance of ld. Representative, we have gone through the record carefully. The assessee has given loans to Municipal Corporation, Patiala, Punjab Municipal Infrastructure Development Company and PUDA. The assessee did not charge interest on these loans. The ld. AO has worked out notional interest which ought to have been charged by the assessee at 12% on these loans. Accordingly, he made the disallowance of Rs.8,78,42,211/-.

3.

On appeal, ld. CIT(A) has deleted the disallowance by observing that the assessee has more surplus funds than the interest free advances given by it. The ld. CIT(A) has relied upon the judgement of Hon'ble Supreme Court in the case of CIT Vs Reliance Industries, Civil Appeal No. 37 of 2019 wherein Hon'ble Supreme Court has upheld the judgement of Hon'ble Bombay High Court in CIT Vs Reliance Utilities reported in 313 ITR page No. 340. The judgement of Hon'ble Supreme Court is reported in 410 ITR 466. We find that ld. CIT(A) has took note of the details of available funds with the A.Y.2014-15 3 assessee as well as how the funds have been advanced. It emerges out from the record that as on 31.03.2013 the assessee has advanced Rs.77.98 Cr to its two concerns namely, Municipal Corporation, Patiala and Punjab Municipal Infrastructure Development Company. During the accounting year relevant for assessment year 2014-15, it has only advanced Rs.22 lacs to PUDA. No disallowance was made in the immediately preceding year. The fresh advances were made out of surplus funds available with the assessee.

1.

Therefore, in view of the position of law propounded by the Hon'ble Supreme Court in the case of CIT Vs Reliance Utilities 313 ITR Page 340, no disallowance could have been made. The CIT(A) has rightly appreciated the facts and circumstances and has rightly deleted the additions. We do not find any merit in this appeal. It is dismissed.

4.

In the result, the appeal of the Revenue is dismissed.

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