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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-8, Mumbai (in short ‘CIT(A)’) dated 17.04.2018 pertaining to assessment year 2014-15.
The only ground raised by assessee in this appeal is reproduced below :-
“1. On the facts and in the circumstances of the case and in law the CIT(A) erred in confirming the order of the AO in disallowing the interest of Rs.5,61,702/- without appreciating the facts of the case.”
The issue raised by the assessee is against confirmation of disallowance of interest of Rs.5,61,702/- by ld. CIT(A). The facts in brief are that assessee
Modison Metals Ltd. has charged to Profit & Loss Account, Interest and Finance cost of Rs.2,86,58,298/- excluding vehicle interest cost. The Assessing Officer noted during the course of assessment proceedings that assessee has given advance of Rs.49,63,131/- for booking of bungalow at Nagpur on 28.01.2014 and accordingly, issued show cause notice to assessee as to why proportionate interest under Section 36(1)(iii) of the Act should not be disallowed as there seems to be no business connection between the advance paid and the business of assessee, which was replied by assessee vide written submission dated 25.11.2016 submitting that the advance of Rs.49,63,131/- was paid out of interest-free funds comprising Reserves & Surplus of the company. The assessee, by referring to the copy of Balance Sheet, submitted that the Reserves & Surplus at the beginning of the year was Rs.84,79,37,828/- and during the year, the company has generated cash of Rs.18,40,85,924/-. However, the Assessing Officer, brushing aside the submissions of the assessee, added the same under Section 36(1)(iii) of the Act to the income of the assessee by framing assessment under Section 143(3) of the Act dated 29.11.2016.
In the appellate proceedings, the ld. CIT(A) also dismissed the appeal of assessee by observing and holding as under :-
“3.2.2 This ground pertains to assessing officer's disallowance of interest of Rs.5,61,702/- for booking of Bunglow at Nagpur. This issue is discussed at para 5 of the assessment order. During the assessment proceedings, the assessing officer observed that the assessee has paid total interest and finance cost of Rs.2,86,58,298/- (excluding vehicle interest cost) and the assessee has given advance of Rs.49,63,131/- for booking of Bungalow at Nagpur on 28.01.2014. The assessee contended before the Assessing officer that the advance payment is made out of free Reserve & Surplus of the Company. However, the assessing officer rejected the assessee' explanation
Modison Metals Ltd. and made disallowance of Rs.5,61,702/- u/s 36(1)(iii). The assessing officer relied on the decision of Hon'ble Bombay High Court in the case of M/s Phalton Sugar Works Ltd. Vs. CIT reported at 208 ITR 969. 3.2.3 I tend to agree with the AO. The appellant is missing a crucial point. The issue here is not of availability of interest-free funds or not, with the appellant company. The question is whether the expenditure is for business purposes or not. The appellant miserably fails on this. The business purpose of buying a bungalow at Nagpur has not been explained. Not only has the appellant to explain the business purposes of an expenditure, it has to further explain whether it is for the existing business or not. The appellant cannot say that it intends to diversify into so and so business and under this pretext, claim spending on each and everything. The businessman has a legal obligation under the Income Tax Act to spend his money for the benefits and furtherance of his existing business. To spend money on a residential bungalow in a totally disconnected fashion on the ground that it had got interest-free funds , is sadly missing the point altogether. If this is allowed, all such personal or disconnected expenditure can be justified. In view of the same, the disallowance made by the AO is justified and the same is confirmed. The grounds on this issue are accordingly dismissed.”
We observe from the order of ld. CIT(A) that the ld. CIT(A) has confirmed the order of Assessing Officer on the ground that the business purpose of the advance has not been explained. The Assessing Officer has diallowed and added the issue under Section 36(1)(iii) of the Act which says that interest under Section 36(1)(iii) of the Act would be allowed only if assessee borrowed capital for purpose of business whereas the ld. CIT(A) while confirming the addition has done under the provisions of Section 37(1) of the Act , which appears to be quite irrelevant and ridiculous.
We have heard the rival submissions and perused the material on record. The undisputed facts are that the assessee has sufficient interest-free funds available with it as it is a listed company and has huge funds available
Modison Metals Ltd. with it. Even during the year, assessee has earned profit of Rs. 18,40,85,924/-. Therefore, we are not in a position to concur with the conclusions drawn either by the ld. CIT(A) or the Assessing Officer on this issue. The tax authorities cannot be allowed to sit on the chair of a businessman and decide what is right or wrong for the business. In this case, we note that the assessee’s own funds are far more than the advance paid for booking of bungalow as is clear from the facts given hereinabove. Therefore both the authorities below have grossly erred while deciding the issue. The case of assessee is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT vs Reliance Industries Ltd. (2019) 410 ITR 466 (SC) wherein the Hon’ble Supreme Court has confirmed the order of Hon'ble Bombay High Court upholding the order of Tribunal wherein it has been held that where interest-free funds available with assessee were sufficient to meet the investments, it could be presumed that the investment was made from interest-free funds available with the assessee. We, therefore, respectfully following the same, set-aside the order of ld. CIT(A) and direct the Assessing Officer to delete the disallowance.
In the result, appeal of assessee is allowed.
Order pronounced in the open court on 10th July, 2020.