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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI
Before: SMT DIVA SINGH
The present appeal has been filed by the assessee assailing the correctness of the order dated 29.9.2017 of CIT(A) 17, New Delhi pertaining to 2013-14 assessment year on the following grounds :- 1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eyes of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the action of the Assessing Officer in making disallowance of interest on the section 36(1 )(iii) of the Act in relation of advances extended to Shri. Sidhbalilspat Ltd.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the disallowance rejecting the contention of the assessee that the advances having been extended for the supply of material the same being given out of business expediency no disallowance under section 36(1 )(iii) can be made.
4. Without prejudice to the above and in the alternative the advances having been given out of owned funds no disallowance under section 36(1 )(iii) can be made.
5. The appellant craves leave to-add, amend or alter any of the grounds of appeal. ”
The Ld. AR inviting attention to the assessment order submitted that the assessee derives income from Business of manufacturing of M.S. Billets M.S Ingots, TMT Bar, Angle and Channel at factory situated at Plot No. 6-A, Industrial area, Phase-II, Kala Amb Distt. Sirmour (HP). It was his submission that assessee had advanced an amount of Rs. 47,85,000/- to M/s. Shri Sidhbali Ispat Ltd. The said concern it was submitted was a supplier of sponge iron to the assessee which was used as a raw material by the assessee . The advance was stated to be for purchase of raw material. These advances, it was stated, have been given in the normal course of business and therefore no interest was charged by assessee firm in respect of the amount of advances given. Referring to the record it was submitted that the AO required the assessee to show cause why notional interest @ 12 p.a should not be added to the income of the assessee. It was submitted that the assessee on facts had explained that the assessee had substantial interest free funds available and the loan was advanced in the normal course of business. It was also submitted that the assessee had also explained that the assessee had enough funds available as per record. The said explanation was not accepted by the AO without assigning any reason or upsetting the facts. Apart from the said submission, various decisions applicable to these set of facts and circumstances, were also relied upon before the A.O. and the CIT(A) without success. 2.1 The Ld. AR assailing the order invited attention to the copy of balance sheet available at paper book page 21. Referring to Schedule B and Schedule C, ld. AR invited specific attention to the secured loans and unsecured loans available with the assessee, inviting further attention to page 25 of the paper book, it was elaborated that the secured loans taken from the banks were solely for the purpose of Term Loan and Working Capital. The advance for purchase of raw material has not been made from these reverting back to page 21 of the paper book, it was submitted that the secured loans have been utilized for Inventories. Thus it was submitted that the available unsecured loans referred to at page 25 in Schedule C, it was submitted, would show that it was much more than the loans advanced apart from that there was funds available in the partners capital as per the Balance Sheet also. These submissions on facts, it was submitted, remained unrebutted. Accordingly, in these peculiar facts and circumstances, it was his submission that the disallowance made was contrary to 2 facts and propositions as laid down in the various decisions of the Courts and Tribunals which were relied upon : (i) Hero Cycles (P) Ltd. v CIT (2015) 379 ITR 347 (SC); (ii) DCIT v. Incite Homecare Products (P) Ltd. 2017 (8) TMI 185; (iii) Pr. CIT v. Holy Faith International Pvt. Ltd. 2017(8) TMI 185; (iv) CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340; (v) CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505; (vi) CIT v. Amod Stamping (P.) Ltd. (2014) 223 Taxman 256; (vii) CIT v. Consumer Marking (India) (P.) Ltd. of 2015; (viii) M/s. R.N. Gupta and Co. Ltd. v. Addl. CIT ITA No. 848/Chd/2015; (ix) Hotz Industries Ltd. vs. DCIT 2018 (5) TMI 1630; and (x) Surrender Kumar Bhuraria v. ITO 2018 (5) TMI 1083.
Ld. SR DR relied upon the impugned order.
I have heard the submissions and perused the material on record. It is seen that the issue was considered by the AO in the following manner :-
“Further it is submitted that the assessee is having interest free funds i.e.
Unsecured loans amounting to Rs. 2,45,78,000/- and Capital balance of partners Rs. 11,10,92,695/- amounting to (as on 1.4.2012)
Refer Capital Account and Unsecured Loans as per balance sheet already filed
In view of the above facts it is submitted that the assessee has not charged interest on advances given in the normal course of business and as adequate interest free funds were available with the firm which have been used to make the advances by the assessee.”
I find that it is not in dispute that the advance was given to M/s. Shri Sidhbali Ispat Ltd. who was a supplier of sponge iron to the assessee. The advance admittedly was in the normal course of business. Even otherwise, it is seen that the assessee had more than adequate unsecured funds available at its disposal. It is also seen that the term secured loans obtained for working capital have been utilized in the inventories. In the face of these facts which the assessee has consistently canvassed before the AO and CIT (A) which have not been rebutted, I find that the addition made in the peculiar facts and 3
circumstances and the judicial precedent available cannot be sustained. The addition is directed to be deleted. 6. In the result, the appeal of the assessee is allowed. Order pronounced in open court on this 31st day of July, 2018.