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Income Tax Appellate Tribunal, ‘C’ (SMC
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER These are appeals filed by the assessee directed against different orders of the learned Commissioner of Income Tax (Appeals)-1, Madurai (hereinafter called as ‘CIT(A)’) dated 18.12.2018 for the assessment years 2014-15 and 2015-2016.
ITA Nos502 & 503 /2019 :- 2 -:
Since, the identical facts and issues are involved in these appeals, we proceed to dispose the same vide this common order.
For the sake of convenience and clarity the facts relevant to the 3. appeal in for assessment year 2014-15 are stated herein.
The Assessee raised the following grounds of appeal: 4.
‘’1. The order of the Learned Commissioner of Income-tax (Appeals) is contrary to the law, facts and probabilities of the case.
2.1 The Learned Commissioner of Income-tax (Appeals) erred in confirming the addition made by the Assistant Commissioner of Income-tax u/s 36(1)(iii)of the Income-tax Act, 1961 of Rs.2,79,247/-.
2.2The Learned Commissioner of Income-tax (Appeals) ought to have appreciated that there are adequate interests free funds in the form of Partners capital to the tune of Rs. 1.23 crores.
2.3The Learned Commissioner of Income-tax (Appeals) failed to appreciate the appellant’s contention that had the advances been netted out from the partners capital there would not have been any disallowance u/s 36(1)(iii) of the Income-tax Act, 1961.
2.4The Learned Commissioner of Income-tax (Appeals) ought to have appreciated that that the appellant’s internal cash generations during the current year itself amounted to Rs.39.01 Lakhs before partners remuneration and depreciation and that the current year accruals is more than the amount of interest free advance in dispute.
ITA Nos502 & 503 /2019 :- 3 -:
On these grounds and other grounds that may be adduced at the time of hearing, it is prayed that the addition of Rs.2,79,247/- made u/s 36(1)(iii) of the Income-tax Act, 1961 may be deleted and justice be rendered’’.
The brief facts of the case are as under: 5.
The appellant -assessee namely ‘’M/s. K.S.R. & Co’’ is a Partnership firm constituted under the Partnership Act. It is engaged in the business of purchase and sale of petrol and diesel through dealership. The return of income for the AY 2014-15 was filed on 30.11.2014 disclosing total income of Rs. 16,97,630/-. Against the said return of income, the assessment was completed by the Assessing Officer vide order dated 14.12.2016 passed u/s. 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) at total income of Rs. 20,89,630/-. While doing so, the AO made the following additions:-
(i) Addition on account of disallowance of travelling expenses for personal use 36,605/- u/s.37.
(ii) Addition on account of disallowance of business promotion & marketing 76,150/- expenses u/s.37 (iii) Addition on account of disallowance of interest u/s.36(1) (iii) 2,79,247/-
Being aggrieved by the assessment order, assessee 6. preferred an appeal before ld. CIT(A), challenging the disallowance of ITA Nos502 & 503 /2019 :- 4 -: interest u/s.36(1) (iii) of the Act. The ld. CIT(A) who vide impugned order confirmed the action of the Assessing Officer.
Being aggrieved by the order of the CIT(A), the assessee is in appeal before us in the present appeal. The ld. Authorised Representative contended that no disallowance u/s.36(1) (iii) of the Act should be made, in as much as, interest free loans to the sister concern was given out of own fund placing reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Industries Ltd, (2019) 410 ITR 466.
On the other hand, the ld. Sr. Departmental Representative placed reliance on the orders of lower authorities.
We heard the rival submissions and perused the material on 9. record. The only issue in the present appeal relates to disallowance of interest u/s.36(1) (iii) of the Act of �2,79,247/- by alleging that assessee had diverted interest bearing funds to the sister concern.
Now the law is settled to the extent that if the own funds i.e. share capital and reserves are more than the funds diverted to the sister concern, no disallowance of interest can be made on the principle that presumption should be drawn that its own funds are utilized for the purpose of making advances to sister concerns. This principle of law
ITA Nos502 & 503 /2019 :- 5 -: is reiterated by the Hon'ble Supreme Court in the case of Reliance Industries Ltd (supra). Now, applying the above principle to the facts of the present case, from the Balance Sheet, it is clear that assessee had �123.31 lakhs as share capital against sum of �34 lakhs advanced to sister concern. Therefore in the light of principle enunciated by Hon'ble Supreme Court in the case of Reliance Industries Ltd (supra), it should be presumed that own funds were utilized for the purpose of money advanced to sister concern as against borrowed funds, we are forfeited in taking this view in the light of the facts that borrowed funds represents working capital limit enjoyed by the assessee from the bank. It cannot be presumed that working capital funds were diverted to non business purpose. Therefore no disallowance of interest u/s.36(1) ( iii) of the Act is warranted in the facts of the present case. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee.
Since, the facts in the present appeal is identical to the facts 10. in for the reasons mentioned therein, we allow the appeal on the above lines indicated in appeal ITA No.502/Chny/2019 supra. Hence, the above captioned appeal filed by the assessee is allowed.
ITA Nos502 & 503 /2019 :- 6 -:
To summarize the result, the appeals filed by the assessee in & 503/CHNY/2019 for assessment years 2014-15 and 2015-2016 are allowed.
Order pronounced on 7th day of November, 2019, at Chennai.