Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH, PUNE
ORDER
PER PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER
This appeal preferred by the assessee emanates from order of the ld. Commissioner of Income Tax (Appeals)-3, Pune, dated 01-04-2019 for the Assessment Year 2015-16 as per the following grounds of appeal.
1. On the facts and in the circumstances of the case and in law, the learned CIT (A) - 3, Pune has erred in confirming the addition made by the learned assessing officer of Rs. 17,64,500/- u/s 36(1 )(iii) of the Income Tax Act, 1961 without giving an opportunity of hearing to the appellant by issuing show cause notice regarding change in section from 36(1 )(iii) to section 57(iii) of the Income Tax Act, 1961. Hence, the addition made u/s 36(1 )(iii) of Rs. 17,64,5001- which was then treated as addition u/s 57(iii) by honorable CIT(A)-3 may please be deleted.
Without prejudice to the first ground of appeal
, on the facts and in the circumstances of the case and in law, the learned CIT (A) - 3, Pune has erred in confirming the addition made by the learned assessing officer of Rs. Without17,64,5001- under section 36(1 )(iii) of the Act which was then treated as addition u/s 57(iii) of the Act by honorable CIT(A)-3 to the total income of the appellant without appreciating the fact that the appellant has earned net interest income which is over and above the interest expenditure. Hence, no addition on account of disallowance is warranted under section 57(iii) of the Act where the appellant has earned net Interest Income. Therefore, the appellant requests your honour to delete the said addition of Rs. 17,64,500/-.
3. On the facts and in the circumstances of the case and in law, the learned CIT (A) - 3, Pune without appreciating the facts of the case that the appellant has borrowed this funds wholly and exclusively for the purpose of earning interest income and therefore deduction u/s 57(iii) of the Act should be allowed against such interest income. Therefore, the appellant requests your honour to delete the addition of Rs. 17,64,5001- made u/s 57(iii) of the Act.
The appellant hereby reserves the right to add, amend, alter or raise any additional ground or grounds of appeal or delete or withdraw any of the ground of appeals.”
2. The brief facts in this case are that the return of income was e-filed by the assessee on 30-09-2015 declaring total income of Rs. 34,12,300/-. The case was selected for limited scrutiny under ITBA. Accordingly, statutory notice u/s 143(2)of the Act generated from the ITB Module was issued on 25-08-2016. During the assessment proceedings, the A.O observed that the assessee has raised unsecured loan from M/s. Mutha Associates to the extent of Rs. 14.21 crores and paid interest @ 13%. The assessee also advanced unsecured loan to M/s. Trinitas Realtors India LLP (hereinafter referred to as ‘TRI LLP’ for short) of Rs. 213.11 crores @ 12% interest rate. After considering the submissions of the assessee, the A.O restricted the interest rate @ 12% for unsecured loan raised from M/s. Mutha Associates. The addition of Rs. 17,64,500/- was made on this account. Further, the A.O observed that the assessee had given interest free loan/advance of Rs. 4,99,89,906/- to various parties. The A.O also calculated interest @ 12% on these advances and added to the total income of the assessee. Therefore, Rs. 59,98,789/- was disallowed and added to the total income of the assessee.
3. However, the ld. CIT(A) has deleted this addition placing reliance on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 wherein it was held that if the assessee has more interest free funds than it had advanced interest free loans to other parties, it has to be presumed that the assessee had advanced such interest free loans or advance to various parties from its own interest free funds. Therefore, the addition of Rs. 59,98,789/- was deleted by the ld. CIT(A).
4.. Before us, the assessee is only aggrieved with the addition of Rs. 17,64,500/-. Regarding this ground, the facts are that the assessee had given loan of Rs. 23.11 crores @ 12% interest rate to TRI LLP. The assessee received interest of Rs. 2,47,31,701/- from TRI LLP. In the same year, the assessee took loan from M/s. Mutha Associates to the extent of Rs. 14.21 crores and paid interest @ 13% rate of interest amounting to Rs. 2.29 crores . The assessee advanced loan at lower rate of interest i.e. @ 12% while he paid higher rate of interest i.e. 13% and this particular transaction was not understandable in the sense of commercial expediency since both the parties are close concerns of the assessee. The assessee in his submission has argued that even after paying interest at a higher rate and receiving interest at lower rate, the assessee had positive net interest income. However, this argument was not accepted because the amount which was taken as loan from M/s. Mutha Associates @ 13% rate of interest was Rs. 14.21 crores and the amount given to TRI LLP @ 12% rate of interest was Rs. 23.11 crores which made the interest receipt more than the interest charged to him. The higher rate of interest was on account of higher amount given on loan to TRI LLP.
That further, the assessee relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Rajendra Prasad Mody (1978) 115 ITR 519 (SC). In this case, the assessees were brothers and each of them had borrowed money for the purpose of making investment in shares of certain companies. It was held by the Hon’ble Apex Court that interest on money borrowed for investment in shares which had not yielded any dividend was admissible u/s 57(iii) of the Act. However, the facts of the instant case of the assessee are different since in the instant case loan was taken from a sister concern @ 13% rate of interest and a loan was given to another sister concern @ 12% rate of interest. Therefore, the ld. CIT(A) rightly held that by taking loan at higher rate of interest of 13% and advancing loans at lower rate of interest of 12% the assessee has reduced its income chargeable to tax.
Before us, the assessee also relied on the decision of co-ordinate Bench Bombay in the case of Dy. CIT RG 3(1) Mumbai Vs. M/s. Edelweiss Capital Ltd., order dated 14-03-2018. However, we find that the case relied on by the assessee is substantially different on facts since it was for business expediency but in the case of the assessee both the lending company and the borrowing company are sister concerns of the assessee and the ld. A.R could not justify the business expediency or commercial need for such a dubious transaction. It was nothing but only to reduce its income chargeable to tax. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A) and it is upheld. Grounds of appeal of the assessee are dismissed.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open Court on this 17th day of August 2022