WEL INTERTRADE (P) LTD.,NEW DELHI vs. ACIT, CIRCLE- 27(2), NEW DELHI

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ITA 7168/DEL/2018Status: DisposedITAT Delhi03 June 2019AY 2014-157 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 allowed interest on the unsecured loan as it was accepted in a prior appeal. It also allowed interest on borrowed capital, finding that interest-free advances were made from sufficient interest-free funds available with the assessee.

What were the facts?

The assessee claimed interest expenditure on borrowed sums. The Assessing Officer disallowed interest on a loan treated as income in a prior year and interest on borrowed capital used for interest-free advances to related parties.

What were the issues?

Whether interest paid on borrowed funds used for interest-free advances to related parties is disallowable, and whether interest on a loan previously treated as income in an earlier year is deductible.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘B’, NEW DELHI

Before: SH. N. K. BILLAIYA & SH. K. N. CHARY

Hearing: 15.05.2019Pronounced: 03.06.2019

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals]-9, New Delhi, dated 20.09.2018 for Assessment Year 2014-15.

2.

The sum and substance of the grievance of the assessee is that the CIT(A) erred in sustaining the disallowance of expenditure of Rs.7180275/- which represented amount of interest paid on the sums borrowed by the assessee in the preceding assessment year. The CIT(A) further erred in sustaining a disallowance of Rs.55741498/- which represented amount of interest paid on borrowed capital.

3.

Facts as emanating from the assessment order show that the assessee has claimed interest of Rs.819161817/- as expenditure. The details of the interest can be understood from the following chart :-

4.

The Assessing Officer was of the opinions that since the loan of Rs.4.50 crores have been treated as income of the assessee u/s. 68 of the Act in A. Y 2013-14 interest of Rs.7180275/- cannot be allowed.

5.

The Assessing Officer further found that the assessee has given interest free advanced to the following parties :-

(i) New Delhi Estates Private Limited (ii) Flourish decorative Private Limited (iii) Arshiya Lifestyle Ltd.,

6.

The assessee was asked to explain why the advances were made to these persons on which no interest was charged. The assessee filed a detail reply explaining that the advances were made for business purposes.

The reply of the assessee did not find any favour with the Assessing Officer who was of the opinion that the interest bearing funds have been diverted to interest free advances and computed the proportionate disallowance of interest at Rs.55741498/-.

7.

The assessee agitated the matter before the CIT (A) but without any success.

8.

Before us the counsel for the assessee stated that all the advances are coming from earlier assessment years when no disallowance was made. The counsel further stated that assessee was having sufficient interest free funds available with it and, therefore, the disallowance made by the Assessing Officer are uncalled for and deserves to be deleted.

9.

The DR strongly supported the findings of the Assessing Officer.

10.

We have carefully considered the orders of the authorities below. In so far as the unsecured loan of Rs.4.50 crores is concerned the same has been deleted by the Tribunal in vide order dated 03.06.2019. Since the unsecured loan has been accepted as such the Assessing Officer is directed to allow interest paid on such borrowings amounting to Rs.7180275/-.

11.

In so far as the interest expenditure of Rs.55741498/- is concerned.

The undisputed fact is that the advances are coming from earlier assessment years and the same can be understood from the following chart :-

Assessment Fresh amounts Opening balance Closing balance year advanced 2010-11 Rs.4,68,20,703/- Rs.19,11,28,829/- Rs.23,79,49,532/- 2011-12 Rs.2,97,83,315/- Rs.23,79,49,532/- Rs.24,03,21,786/- 2012-13 Rs.11,71,308/- Rs.24,03,21,784/- Rs.14,82,50,879/- 2013-14 Rs.55,38,66,196/- Rs.14,82,50,879/- Rs.70,16,17,075/- 2014-15 Rs.6,47,41,720/- Rs,71,00,68, 931 Rs.77,53,10,651/-

12.

It is true that no disallowance were made in earlier assessment years. It can be seen that only Rs. 64741720/- have been advanced during the year under consideration. We find that the interest free funds available with the assessee at the beginning of the year was Rs.326032309/-. Thus, it can be safely concluded that the said interest free advances have been given out of interest free funds available with the assessee.

13.

In our considered view on given facts as discussed here in above no disallowance is to be made. We direct the Assessing Officer to delete the addition of Rs.55741498/- also.

14.

In the result, the appeal filed by the assessee is accordingly allowed.

Order pronounced in the open court on 03.06.2019.

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