What did the Tribunal hold?

The Tribunal followed its own earlier decisions for the assessee's own case. It held that the assessee had sufficient interest-free funds (share capital, reserves, and surplus) to cover the interest-free rent deposits, and there was no nexus with interest-bearing funds.

The assessee claimed interest paid on a loan, but the AO and CIT(A) made an addition of Rs. 60 lacs, arguing that interest-free rent deposits were given out of business receipts. The assessee contended these deposits were from free reserves.

What were the issues?

Whether interest-free rent deposits made by the assessee were out of business receipts or from its own free reserves and surplus, and if the addition of interest paid on loans was justified.

Tips Industries Ltd vs ACIT | ITAT Mumbai 2019

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

For Appellant: Shri Deepak Tralshawala, AR

Hearing: 05.11.2019Pronounced: 05.11.2019

आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

This appeal by assessee is arising out of order of the Commissioner of Income Tax (Appeals)]-4, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-CIT(A)-4/e-file-61/ACIT- 16(1)/2017-18 vide dated 28.09.2018. The Assessment was 2 | P a g e Tips Industries Limited framed by the Asst. Commissioner of Income Tax, Circle 16(1), Mumbai (in short ACIT/ ITO/ AO) for the A.Y. 2015-16 vide order dated 29.12.2017 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

The only issue in this appeal of Revenue is against the order of CIT(A) confirming the action of the AO in upholding the addition of Rs.60 lacs from interest paid on loan on the ground that interest free rent deposit has been given out of business receipts/ transactions. For this assessee has raised the following ground No. 1: -

“i) Upholding the addition of ₹60,00,000/- from interest paid on loan on the ground that the Interest Free Rent Deposit have been given from the business receipts/ transactions, ignoring the fact that the Interest Free Rent Deposits are from the free reserves and surplus of the Appellant Company.”

At the outset, the learned Counsel for the assessee stated that the AO and CIT(A) has made addition of this interest based on earlier years decisions. He stated that the facts and circumstance are exactly identical in this year as was in the earlier assessment year. He stated that the Tribunal in AYs 2011-12 and 2012-13 and 2013-14 in to 3 | P a g e Tips Industries Limited 6196/Mum/2017 vide order dated 03.05.2019, has considered this issue vide Para 11.2 as under: -

“11.2. We have gone through audited financial statements of the assessee for financial year 2003-04 and also from financial year 2007-08 to financial year 2012-13, which are all placed in paper book filed with the tribunal at page 6-18. The perusal of these financial statements clearly shows that the assessee has its own interest free funds available with it which are more than the interest free refundable rent deposit released by the assessee in favour of licensors of the aforesaid commercial premises. The net worth statement of the assessee company for the financial year 2003-04 to 2013-14 are also placed in paper book at page 5. The details of the interest free refundable rent deposit granted by the assessee was Rs. 2 crores in financial year 2003-04 while Rs. 7 crores stood disbursed in financial year 2006-07 and 2007-08 ( Rs. 1 crore in financial year 2006-07 while Rs. 6 crores stood disbursed in financial year

4 | P a g e Tips Industries Limited 2007-08) –Refer paper book/page 1-4. The perusal of audited financial statements placed on record clearly reveals that own funds consisting of share capital and reserves and surplus were higher than interest free refundable rent deposit disbursed by the assessee in all these years. Revenue has also not brought on record any direct nexus of interest bearing borrowed funds being utilized for granting interest free refundable rent deposit. The interest free funds available with the assessee comprising of share capital and reserves and surplus for all these years are reproduced hereunder:

Financial Year Share Capital Reserves and Surplus Total (Rs. In Crores) 2003-04 12.65 99.32 111.97 2006-07 15.94 28.64 44.58 2007-08 17.30 52.73 70.04 2008-09 17.30 61.96 79.27 2009-10 17.30 67.92 85.22 2010-11 15.96 63.51 79.47

5 | P a g e Tips Industries Limited 2011-12 15.96 68.62 84.58 87.85 2012-13 15.36 72.49 Thus, perusal of audited financial statements for all these years clearly reveals as detailed above that the availability of interest free funds with the assessee were much higher than interest free refundable rent deposit of Rs. 9 crores advanced by the assessee and in the absence of any cogent material inextricably linking interest bearing borrowings with the interest free refundable rent deposit granted by the assessee, the presumption will apply that the assessee has released the interest free refundable rent deposit out of interest free funds available with it. The decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Limited(supra) is relevant. We hold this ground number 2 raised by assessee in its appeal for AY 2011-12 in favour of the assessee and order deletion of additions as were made by the AO which stood later

TIPS INDUSTRIES LTD,MUMBAI vs. ACIT 16(1), MUMBAI

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