OPT TRADING PVT. LTD., ,KOLKATA vs. DCIT, CIRCLE - 10(2), KOLKATA , KOLKATA

The assessee company and is in the business of trading in shares, commission and brokerage for arranging short terms loans and purchase and sale of properties, both commercial and residential, for resale. The issue before me is the disallowance of Rs.10,24,283/-, claimed as interest paid in relation to borrowed funds. The Assessing Officer as well as the ld. CIT(A) have disallowed this amount on the ground that, borrowed funds were not utilized for the business or profession of the assessee. The ld. CIT(A) further states that the assessee has admitted that the money in question was borrowed for investment in the properties, hence the amount was disallowed.

After hearing rival contentions, I find that the assessee had clearly stated before the Assessing Officer that the borrowed funds have been utilized for the Assessment Year: 2012-13 OPT Trading Pvt. Ltd company’s own business activities. It had stated that the amounts were given as advances for properties which were held by the assessee for resale. The assessee clearly stated that it had ventured into purchase and sale of business assets, i.e., properties, which are currently under construction phase and held the same as stock in trade. Before the ld. CIT(A), the assessee had stated the manner in which it had disclosed these advances given towards acquisition/purchase of properties intended for resale for the earlier year as well as the current year. It has also given the details of funds borrowed, both interest free and interest bearing, to demonstrate the genuineness of the payment of interest. As stated by the ld. Counsel for the assessee, the ld. CIT(A) was wrong in recording that the assessee had admitted that the money borrowed was invested in properties. It was a case of purchase of properties for resale and not a case of investments in properties for holding the same as an asset. As clearly stated by the assessee, it had not claimed depreciation and had declared the advances as a current asset. One of the grounds on which the ld. CIT(A) denied the claim of the assessee was that, only one property was sold by it in the last 6 ½ years. The assessee has led evidence in support of its contentions. The ld. D/R could not controvert these submissions. 3.1. Thus, in my view, the reason for sustaining the disallowance given by the ld. CIT(A) i.e., the assessee has not done such transactions in the last 6 ½ years, cannot be a ground for disallowance. As the assessee has borrowed the money and utilized the same for acquiring current asset for the resale, the interest paid on the same should be allowed u/s 36(1)(iii) of the Act, as the borrowing are for the purpose of business. Accordingly, we delete the disallowance in question and allow this ground of the assessee.

In the result, appeal of the assessee is allowed. Kolkata, the 26th day of April, 2019. Sd/- [J. Sudhakar Reddy] Accountant Member Dated :26.04.2019 {SC SPS}