ILESH AMRRUTLAL GADHIA,,MUMBAI vs. DCIT-CC-4(2),, MUMBAI

Assessee by Shri Mayur Kisnadwala (CA) Revenue by Shri R.K. Gubgotra (JCIT-DR) Date of Hearing 04/02/2020 Date of Pronouncement 14/02/2020 आदेश / O R D E R PER: R.C. SHARMA, A.M. This appeal by the assessee is directed against the order dated 05/11/2018 of ld. CIT(A)-52, Mumbai for the A.Y. 2014-15 in the matter of order passed u/s 153C r.w.s. 143(3) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee:

“1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the disallowance of interest on bill discounting amounting to Rs. 23,09,013/-.

2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the disallowance u/s 14A of Rs. 9,46,477/-.

3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in levying interest u/s 234A of the Act.

2 ÏTA No. 552/Mum/2019 Ilesh Amrutlaa Gadhia Vs DCIT 4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in levying interest u/s 234B and 234C of the Act.

The assessee was asked by the A.O. to furnish the source of funds.

However, the assessee failed to submit explanation in this regard, therefore, the A.O. proceeded to disallow the interest payable on bill discounting amounting to Rs. 23,09,013/- and added the same to the total income of the assessee.

“6.2 In course of the appellate proceedings, the assessee submitted that similar issue has been decided in his favour by the FAA for A.Y. 2010- 11 and this has also been upheld by the Hon'ble ITAT in dated 30.01.2018. However, it is observed that for the said year i.e. 2010-11, the FAA had closely examined the 3 ÏTA No. 552/Mum/2019 Ilesh Amrutlaa Gadhia Vs DCIT deployment of funds which were available to the assessee on bill discounting and thereafter, had concluded that the said funds have been used solely for the purpose of the business of the assessee. However, for the relevant year, it is observed that the Auditor in the Tax Audit Report has adversely commented that the details in respect of the loans received/repaid during the year have not been provided by the assessee. Therefore, the chart submitted by the assessee to the AO, of utilization of the funds which were available to the assessee on account of bill discounting, cannot be fully verified. This is because the assessee claims that substantial portion of the funds available to him on account of bill discounting were used for repayment of loans which is unverifiable since, the necessary details have not at all been provided in the Tax Audit Report. It is also observed that the assessee claims that funds of Rs. 1 crore made available to it on account of bill discounting have been utilized for repayment of loan to M/s. P.G. Mercantile. However, from the Balance Sheet it is observed that loans and advances have been given to M/s. P.G. Mercantile of Rs. 3.73 crores as against the claim made by the assessee of having received loans from the said party and part of which is claimed to have been repaid. Thus, the contention of the assessee that for the relevant year, the funds which were available to it on account of bill discounting have been deployed solely for the purpose of its business is found to be not correct. Therefore, no infirmity is found in the action of the AO in making the said disallowance of interest of Rs. 23,09,013/- on account of bill discounting. Accordingly, Ground No. 2 of the appeal is dismissed.

5. I have gone through the orders of the authorities below and found that the similar disallowance of interest in the A.Y. 2010-11 was appealed by the assessee before the ld. CIT(A) and the ld. CIT(A) vide its order dated 04/03/2016 after giving detailed finding reached to the 4 ÏTA No. 552/Mum/2019 Ilesh Amrutlaa Gadhia Vs DCIT conclusion that the assessee has used borrowed funds for the purpose of business, therefore, the A.O. was not justified in disallowing the interest.

The revenue approached to the Tribunal and the Tribunal vide its order dated 30/01/2018 has confirmed the finding of the ld. CIT(A) to the effect that the funds were utilized for the purpose of business, therefore, upholding order of the ld. CIT(A) deleting the disallowance of interest.

However, in the instant case before me, a detailed finding has been given by the ld. CIT(A) with reference to the observation of tax auditor in their report to the effect that the funds available with the assessee on account of bill discounting limit from bank were used for repayment of loans which is unverifiable since necessary details have not been provided by the assessee. Certain more contradiction was found by the ld. CIT(A) to the effect that the funds were used for repayment of loan to M/s P.G. Mercantile whereas the ld. CIT(A) has observed that as per the balance sheet loan and advances have been given to M/s P.G.

Mercantile of Rs. 3.73 crores as against claim made by the assessee of having received loans from the said party and part of which is claimed to have been repaid. After having all these observation, the ld. CIT(A) has upheld the order of the A.O. disallowing interest of Rs. 23,09,013/- on account of bill discounting facility availed from the bank. However, the Tribunal in its order dated 30/01/2018 for the A.Y. 2010-11 has confirmed the finding of the ld. CIT(A). However, facts in the year under consideration are different wherein diversion of funds for non business

5 ÏTA No. 552/Mum/2019 Ilesh Amrutlaa Gadhia Vs DCIT purposes was confirmed by the ld. CIT(A). However, the ld AR placed before me a statement showing that the fund released by the bank against the bill discounting limit was utilized by the assessee for the purpose of business and issuing cheque to M/s Utkarsh Steel Corporation and Geeta Mercantile Pvt. Ltd. Thus, it was the submission of the assessee that the A.O. and the ld. CIT(A) has not properly appreciated utilization of borrowed funds for the purpose of business. It was also contention of the ld AR that the assessee himself has on its own, disallowed substantial interest of Rs. 83,50,646/- and claimed net interest attributable to the funds used for the purpose of business.

Therefore, in the substantial interest of justice, we set aside this matter back to the file of the A.O. for examining the utilization of funds out of the bill discounting limit for the purpose of business or otherwise and for deciding the issue afresh as per law after providing reasonable opportunity of hearing to the assessee.