ASVINI FOUNDATIONS,CHENNAI vs. ACIT NON CORPORATE CIRCLE 1(1), CHENNAI

Both the appeals filed by the assessee are directed against the common order of the ld. Commissioner of Income Tax (Appeals) 2, Chennai, dated 29.05.2018 relevant to the assessment years 2014-15 & 2015-16. The only common ground raised in both the appeals of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of finance cost under section 36(i)(iii) of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee filed the return of income on 28.11.2014 for the assessment year 2014-15 claiming a loss of ₹.64,31,271/-. Similarly, the return of income for the assessment year 2015- 16 admitting total income of ₹.(-)1,21,70,150/-. After considering the submissions of the assessee against statutory notices, the Assessing Officer completed the assessment under section 143(3) of the Act by disallowing the interest expenditure of the assessee on the ground that the assessee has diverted interest bearing funds to its related party without charging any interest for both the assessment years. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) confirmed the disallowance made under section 36(i)(iii) for both the assessment years.

On being aggrieved, the assessee is in appeal before the Tribunal. At the request of the ld. AR, twice the hearing of the appeals was adjourned. Having noted the next date of hearing by making endorsement in the order sheet, when the appeals were taken up for hearing on 15.10.2019, none appeared on behalf of the assessee or filed any adjournment petition. Moreover, the assessee has not filed any vakalath/power of attorney in favour of any Advocate/C.A. to represent its case before the Tribunal. Under these facts and circumstances, we proceed to adjudicate the issue on merits based on the materials available on record after hearing the ld. DR.

We have heard the ld. DR, perused the materials available on record and gone through the orders of authorities below. The Assessing Officer has disallowed interest expenditure on proportional basis as the assessee had diverted interest bearing funds to its related party M/s. Asvini Foundations Private Limited without charging any interest thereon. However, it was the contention of the assessee that it had sufficient funds consisted of partner’s capital and current account balance out of which the funds were transferred to M/s. Asvini Foundations Private Limited. On perusal of the books of accounts of the assessee, the ld. CIT(A) has observed that during the assessment year 2014-15, there was opening credit balance as on 01.04.2013 of ₹.1,79,44,828/- in the name of M/s. Asvini Foundations Private Limited. Further, during the relevant year, there has been transfer of huge capital on regular intervals to M/s. Asvini Foundations Private Limited and the closing balance as on 31.03.2014 stood as debit balance of ₹.11,24,60,394/-. The ld. CIT(A) further observed that the total debit entry in this account during that year was ₹19,20,18,903/- as against the total credit of ₹7,95,58,508/-. On further examination of the ledger account of M/s. Asvini Foundations Private Limited, the ld. CIT(A) noticed that the amounts transferred to this company had emanated from the assessee’s loan account/overdraft account with Karur Vysya Bank and KVB (SOD) and the loan amounts were interest-bearing funds.

In the result, both the appeals filed by the assessee are dismissed.