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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by Assessee against the order of CIT(Appeals)- 4, Pune dated 17.03.2016 for the assessment year 2007-08.
Briefly stated relevant facts include that Assessee-company is dealing in pharmaceutical goods. Assessee filed return of income declaring total
2 ITA No. 1125/PUN/2016 A.Y.2007-08
income at ‘Nil’ for the assessment year under consideration. In the scrutiny
assessment proceedings, Assessing Officer noted that assessee claims of
Rs.28,72,831/-on account of interest paid on loans borrowed for the
purpose of business. Assessee has shown a single transaction of sale and
purchase and that too, on 30th March, 2007 (purchase) and 31st March,
2007 (sale). The sale transaction on the last day of the year was entered
into with one of the sister concerns of the assessee viz. M/s.Briocia Pharma
(I) Pvt. Ltd. There was no other business account undertaken by the
assessee during the year under consideration. It is also noted by the
Assessing Officer that office premises was purchased by the assessee by
utilizing the said interest bearing loans and therefore, claim of expenditure
on account of interest should be allowed. After considering the assessee’s
submission, Assessing Officer proceeded to make addition of
Rs.28,72,831/- u/s.37 of the Income Tax Act, 1961 (hereinafter referred to
as ‘the Act’). The Assessing Officer held that unsecured loans taken by the
assessee was for the purpose of business of assessee. Assessing Officer also
noted that the said office premises at No. 1, Church Road, Pune was used
by sister concerns namely, M/s. Pharmalinks Agency (I) Pvt. Ltd. and M/s.
Biostar Pharmaceuticals Pvt. Ltd.
Aggrieved with the assessment order, Assessee filed an appeal before
the CIT(A). During First Appellate proceedings, on the addition of
Rs.28,72,831/- , Assessee submitted that the unsecured loans were used
for the acquisition of office premises at Church Road, Pune and assessee’s
claim relates to the said unsecured loans. However, CIT(A) held that office
premises utilized by sister concerns, is not ‘Business Asset’ of the
assessee. Regarding applicability of the provisions of section 57 of the Act,
CIT(A) held that the said provision should be applicable in case assessee
3 ITA No. 1125/PUN/2016 A.Y.2007-08
earned any income from the said office premises. The CIT(A) further held
that the single purchase and sale on the last days of the financial year is
nothing but to show that business was carried out by the assessee and
therefore, allowing any expenditure u/s.37 of the Act was denied. The
solitary transaction with the sister concerns was also not considered as
reasonable business transaction. The CIT(A) held that claiming such
expenditure in the factual matrix of business transaction is not bona-fide
one and assessee has failed to provide any evidences before the Assessing
Officer to demonstrate that there was any purchase of furniture and fixture
for the office premises involving banking transactions. The CIT(A) is the of
the view that the ratio laid down by the Hon'ble Jurisdictional High Court
in the case of CIT Vs. Reliance Utilities Ltd. reported as 313 ITR 340 is not
applicable in the case of assessee wherein it has been held that if the
assessee has own as well as borrowed funds, a presumption can be made
that advances for non business purposes have been made out of its own
funds provide that interest free funds were sufficient to meet the
investment. But in the case of assessee, there was own funds to the extent
of Rs.23,93,733/- as on 31.03.2017 whereas the borrowed funds were
Rs.3,73,50,009/-. The CIT(A), accordingly, confirmed the disallowance of
Rs.28,72,831/-.
Aggrieved with the order of CIT(A), Assessee filed appeal before the
Tribunal by raising following grounds :
“1. The learned Commissioner of Income Tax Appeals has erred in law and in facts in confirming the order of Assessing Officer disallowing interest amounting to Rs.6,89,709/-. 2. The learned Commissioner of Income Tax Appeals has erred in confirming the view of the assessing officer that the appellant was not carrying on any business. 3. The learned Commissioner of Income Tax Appeals has erred on relying on the judgment of CIT Vs. Reliance Utilities Ld. 313 ITR 340
4 ITA No. 1125/PUN/2016 A.Y.2007-08
although the same was not relevant to the facts and law applicable to the appellant. 4. The appellant craves leave to add, alter, delete any of the above grounds of appeal during the course of appellate proceedings.”
Ld. Counsel for the assessee reiterated the submissions made before
the Assessing Officer and CIT(A).
Ld. DR for the Revenue heavily placed reliance on the orders of
Assessing Officer and CIT(A).
We have heard both sides and perused the orders of Authorities
below. At the time of hearing, we asked the Ld. Counsel to justify the figure
of Rs.6,89,709/- mentioned in the grounds. In response to the same, Ld.
Counsel stated that the figure is erroneously mentioned otherwise and
Rs.28,72,831/- is the correct figure for consideration. On perusal of the
facts as narrated in the preceding paragraphs, we find that the orders of
Assessing Officer and CIT(A) are not clear as to the application of the
borrowed funds during the year under consideration. The facts relating to
acquisition of the office premises by utilizing unsecured loans are also not
brought on the records. The facts relating to the office premises used for
business purpose and the nature of transactions on purchase and sale
involving the sister concerns are also not clearly demonstrated in the said
orders of Assessing Officer and CIT(A). Therefore, we are of the opinion
that this issue must be remanded to the file of Assessing Officer for want of
facts. Assessing Officer is directed to pass a speaking order narrating all
aspects i.e. i) the details of unsecured loans ; ii) interest income of
Rs.28,72,831/- claimed as interest expenditure; iii) application of the said
unsecured loan for business purpose ; iv) details of income earned by
assessee out of office premises and taxation of the same; v) details of EMI,
5 ITA No. 1125/PUN/2016 A.Y.2007-08
if any, imposed on assessee while granting loans to assessee vi) deduction of TDS as per rules etc. These facts should be brought on record in the set aside proceedings. After considering these facts, Assessing Officer shall pass a speaking order in accordance with law and statute. The Assessing Officer shall grant reasonable opportunity of being heard to the assessee as per set principles of natural justice. Accordingly, grounds raised by assessee are allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced on 05th day of October, 2018.
Sd/- Sd/- (�वकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
पुणे / Pune; �दनांक / Dated : 05th October, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-4, Pune. 4. The Pr. CIT-3, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.