M/S. AMBA METALS,NEW DELHI vs. ACIT, NEW DELHI

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ITA 5378/DEL/2016Status: DisposedITAT Delhi07 August 2019AY 2012-134 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 the advance was given in the normal course of business as M/s. Shri Sidhbali Ispat Ltd. was a supplier. Furthermore, the assessee had sufficient surplus funds, making the disallowance unsustainable.

What were the facts?

The assessee challenged the disallowance of interest amounting to Rs. 18 lakhs under Section 36(1)(iii) of the Income Tax Act. The Assessing Officer disallowed the interest on an advance given to M/s. Shri Sidhbali Ispat Ltd., considering it a related party with no business transactions.

What were the issues?

Whether interest on an advance given to a supplier, in the normal course of business and when surplus funds are available, is disallowable under Section 36(1)(iii).

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI

Before: SHRI AMIT SHUKLA & SHRI O.P. KANT

For Appellant: Shri Ved Jain, CA
For Respondent: Shri Manoj Kumar Mahar, Sr.D.R

O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER

The aforesaid appeal has been filed by the assessee against the impugned order dated 11.08.2016 passed by Commissioner of Income Tax (Appeals)-XVII, New Delhi for the quantum of assessment passed u/s. 143(3) for the assessment year 2012-13. In various grounds of appeal, the assesse has challenged the disallowance of interest to Rs.18 lac u/s. 36(1)(iii).

2. At the outset, it was submitted by the ld. counsel that in the case of the assesse similar addition was also made in A.Y. 2013-14 in which the AO has passed verbatim same order with the same set of allegations and this Hon’ble Tribunal in vide order dated 31.07.2018, has deleted the similar addition made by the Ld. Assessing Officer u/s 36(1)(iii) on account of interest on advance to M/s. Shri Sidhbali Ispat Ltd. The relevant finding of the said order for sake of ready reference is reproduced hereunder:

“5. I find that it is not in dispute that the advance was given to M/s. Shri Sidhbali Ispat Ltd. who was a supplier of sponge iron to the assessee. The advance admittedly was in the normal course of business. Even otherwise, it is seen that the assessee had more than adequate unsecured funds available at its disposal. It is also seen that the term secured loans obtained for working capital have been utilized in the inventories. In the face of these facts which the assessee has consistently canvassed before the AO and CIT (A) which have not been rebutted, I find that the addition made in the peculiar facts and circumstances and the judicial precedent available cannot be sustained. The addition is directed to be deleted."

3.

Thus, it was submitted that the issue is squarely covered in favour of the assessee by the judgment of the Tribunal wherein same advance was given to the sister concern national amount of interest has been deleted. Apart from that, he also submitted that assesse has huge surplus funds at the time of giving the advance, and therefore, no disallowance can be made in this regard. In support, he relied upon the following judgments. • CIT vs. Reliance Industries Ltd. (2019) 410 ITR 466 (SC). • Punjab Stainless Steel Industries. Vs. ACIT, Circle-34(1), New Delhi. • Hero Cycles (P) Ltd. vs. Commissioner of Income Tax (Central), Ludhiana (2015) 379 ITR 347 (SC).

4.

On the other hand, ld. DR has strongly relied upon the order of the Assessing Officer and ld. CIT (A).

5.

After considering the rival submissions and perusing the relevant findings given in the impugned order, it is seen that assesse has given loan to M/s. Shri Sidhbali Ispat Ltd. to the tune of Rs.1,50,00,000/- which has been disallowed by the Assessing Officer on the ground that it is a related party and there is no business transaction between the sister concern. We find that in the subsequent assessment year 2013-14 similar disallowance of interest has been deleted by the Tribunal as per observation made above wherein it has been found that M/s. Shri Sidhbali Ispat Ltd. was a supplier of sponge iron to the assesse which was in the normal course of business. Once it has been found that advance given was in the normal course of business then no disallowance of interest can be made on such advance. Further from perusal of the balance sheet, it is seen that assessee has huge surplus funds in the form of Partner’s Capital which is far exceeding the advance given, therefore, in view of various judicial precedents as relied upon by the ld. counsel no disallowance of interest can be made. Accordingly, the disallowance made by the Assessing Officer and confirmed by the ld. CIT (A) is deleted.

6.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 7th August, 2019.

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