Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI K.N. CHARY
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] - 24, New Delhi dated 19.02.2015 pertaining to assessment year 2009-10.
The solitary grievance of the assessee is that the CIT(A) erred in confirming the disallowance of Rs. 94,89,098/- being interest disallowed by the Assessing Officer u/s 36(1)(iii) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'.
Briefly stated, the facts of the case are that during the year under consideration, the assessee has made the following advances on which no interest has been charged:
SNo. Particulars Amount (in Rs.) Cost Plus Resorts 1. 1,68,600 Fair Forex Dealer Pvt Ltd 3,00,000 2. 3. G.T. Pvt Ltd 64,500 4. Golden Tea Company 5,00,000 5. Indo Arab Air Services 3,22,44,089 Om Prakash Garg 6. 20,00,000 7. Path Aviation 2,00,000 R.L. Travels Pvt Ltd 2,30,53,477 8. 9. RS Gill 28,325 Rajesh Jindal 50,00,000 10. Rahul Bhan 46,947 11. S.K. Bhalla 12. 20,00,000 13. S.D Jewellers 12,00,000 14. 'Sahil Narang 10,00,000 15. Salochna Goyal 64,21,370 Service Tax BAS 14,995 16.
3 17. Service Tax Recoverable 5,69,130 Surya Kiron Textile Pvt Ltd 6,53,10,684 18. 19. Sunshine Technology 34,43,677 Traveltech 4,40,000 20. Trimurti financial 4,50,000 21. Upasana Taneja 19,00,000 22. 23. Vijendra Nath Gupta 10,00,000 24. Advance Lease Rent Security 13,06,355 Total 14,86,62,149
The Assessing Officer noticed that the assessee has claimed Rs. 1,94,94,346/- as expenses on account of interest paid on borrowings. The Assessing Officer further noticed that the assessee has also shown interest amounting to Rs. 83,50,360/- received on the loans liability outstanding in the balance sheet. The assessee was asked to explain why interest should not be disallowed on interest free advances made out of interest bearing funds. On receiving no plausible reply, the Assessing Officer netted off the interest paid and received by the assessee and made disallowance of Rs. 94,89,098/- u/s 36(1)(iii) of the Act.
Before the CIT(A), the assessee claimed that it has interest free funds available with it from which it has made interest free advances and question of any disallowance u/s 36(1)(iii) of the Act would arise when there is a direct one to one correspondence/evidence of diversion/linkage of interest bearing funds for non business purposes.
After considering the facts and detailed submissions, the ld. CIT(A) held as under:-
“6. It is observed that even according to the AR himself, the interest free funds available with the firm was only Rs. 3.49 crores. I however do not subscribe fully to this averment. The partner’s capital account has a credit balance of Rs. 80 lakhs. However, the partners current account has a negative balance of Rs. 1,06,84,929/-. Thus it cannot be said that the firm had funds belonging the partners at all. The partners have over drawn. Further, the balances under the head ‘current liability and provisions’ cannot be treated as interest fee funds available for making advances. These are business funds which are rotated in the course of the trading activity. The balances in these funds keep fluctuating and the same cannot be held to be available for making advances to parties for non-business purposes that too interest free. It is also noted that the appellant has not been able to establish any business connection in respect of advances made to so many parties. The appellant has not pleaded nor shown any commercial expediency or business purpose in making such interest free advances. It is also not known how the funds have ultimately been used by some of the entities who happen to be the sister concerns. Whether the same have been used in their business or they have been again used for making interest free advances or otherwise has not been submitted. In view of this, I am of the view that in the given circumstances, there can be no prima facie presumption that the advances made to several parties without charging interest was for the purpose of appellant’s business. The interest paid on such funds cannot be held to be for the purpose of business or profession of the assessee. In view of this, I do not find any merit in the AR’s submission and the same is rejected.
4.7 A.O. is however, directed to re-compute the interest disallowance after excluding the interest on funds advanced to the following 3 parties in whose case A.O. has himself agreed that they are being made for the purpose of business.
S N0 Particulars Amount (in Rs.) 1 Advance Lease Rent Security 13,06,355 2 Service Tax BAS 14,995 . 3 Service Tax Recoverable 5,69,130 . Total 18,90,48 . 0
4.7 In respect of the following three parties, the AR has claimed that appellant had in fact charged interest @ 12%:
Sl. Particulars Amount N (in Rs.) o. (i) Salochna Goyal 64,21,370 (ii) Surya Kiran Textiles Pvt Ltd 6,53,10,684 (iii Sunshine Technology 34,43,677 Total 7,51,75,731
The appellant shall submit necessary evidences before 4.7 the A.O. to establish that interest @12% has been charged on the said advances. A.O. is directed to recompute the disallowance after excluding the advances made to these parties, in case it is found that the appellant has charged interest @ 12% on such amounts.”
Before us, the ld. DR strongly supported the findings of the AO.
The ld. AR could not bring any factual error in the aforementioned findings of the CIT(A).
The availability of funds with the assessee can be summarised as below:
S No. Particulars Amount (in Rs.) SOURCES OF FUNDS (1) Partners’ Capital Account 80,00,000.00 (2) Partners’ Current Account (1,06,84,929.24) (3) Secured Loans 9,88,87,338.65 (4) Unsecured Loans 5,17,25,708.50 (5) Current Liabilities & Provisions 3,76,41,804.78 TOTAL 18,55,69,922.69 APPLICATION OF FUNDS (1) Fixed Assets 1,39,36,541.56 (2) Current Assets, Loans & Advances 17,16,33,381.13 TOTAL 18,55,69,922.69
(9) A review of the above summary would reveal that the Appellant Firm had available to it interest free funds to the tune of Rs. 3,49,56,875.54 as summarized below: -
Particular Amount (in Rs.) Partners’ Capital Account Partners’ 80,00,000.00 Current Account Current Liabilities (1,06,84,929.24) and Provisions 3,76,41,804.78 TOTAL 3,49,56,875.54
Thus, it can be seen that the partner’s capital is also in negative and current liability and provisions cannot be considered as own funds of the appellant. On these facts, we do not find any merits in the case of the assessee and, therefore, decline to interfere with the findings of the CIT(A).
In the result, the appeal filed by the assessee is dismissed.
The order is pronounced in the open court on 29.03.2019.