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Income Tax Appellate Tribunal, A Bench, Mumbai
Before: Shri Pawan Singh & Shri N.K. Pradhan
O R D E R Per Pawan Singh, Judicial Member
This appeal filed by assessee under section 253 of the Income Tax Act, 1961 (in short, 'the Act') is directed against the order of the CIT(A)-26, Mumbai dated 13.01.2012 and it relates to A.Y. 2006-07, which in turn arises from the order passed by the AO on 21.12.2009 under section 143(3) of the Act. 2. Assessee has raised the following Grounds of appeal: - “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the additions to the extent of Rs.1,24,386/- on account of interest paid on borrowed funds.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the additions to the extent of Rs.37,50,000/- on account of unsecured loans received by the appellant.
3. Against confirmation of above additions, the appellant is in appeal before the Hon'ble Tribunal with a prayer to delete such additions.
3. Brief facts of the case are that the assessee firm engaged in the business of builder and developer filed its return of income for A.Y. 2007-08 on 23.10.2007 declaring taxable income of Rs. 17,95,060/-. The return of income was selected for scrutiny. Assessment was completed under section 143(3) on 21.12.2009. The AO, while passing the assessment order, made
M/s. Akruti Builders and Developers addition of Rs. 44,50,000/- on account of unsecured loans and disallowed interest expenditure of Rs. 8,20,915/-. On appeal before the CIT(A) addition on account of unsecured loans was restricted to Rs. 37,50,000/- and interest expenditure was restricted to Rs. 1,24,386/-. Further aggrieved by the order of the learned CIT(A), assessee has filed the present appeal before us.
We have heard the learned counsel for the assessee and the learned D.R. for the Revenue and perused the material available on record. Ground No. 1 relates to disallowance of interest of Rs. 1,24,386/-. The learned counsel for the assessee submitted that the assessee has taken interest bearing funds for the purpose of business and claimed the expenses in the Profit & Loss Account. The assessee has also given interest free advances to Shree Krishna Developers. Two partners of the assessee, namely Shri Ashok Patel and Shri Mohanlal Gopalbhai Ramjiyani held profit sharing in the said firm (Shree Krishna Developers) of 25% and 20% respectively. The advance was given to Shri Krishna Developer as business advance. The amount was utilised by Shree Krishna Developers for commercial purposes. The assessee was having surplus interest free funds available with it. The assessee has capital of Rs. 32,37,799/- as on 31st March, 2007. The lower authorities have not rejected the Balance Sheet of the assessee. The assessee has given interest free advance of Rs. 22,50,000/- only. The assessee has sufficient interest free funds available with it, therefore no disallowance on account of interest expenses was warranted. The learned counsel for the assessee has shown us a copy of the Balance Sheet as on 31st March, 2007. In support of his submission the learned counsel for the assessee relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities and Power Ltd. in of 2008.
On the other hand, the learned D.R. supported the order of the CIT(A). The learned D.R. further submitted that the fact that the assessee was having sufficient interest free funds with it may be verified by the AO.
We have heard the rival contentions and gone through the orders of the Authorities below. We have noticed that the assessee has paid interest of Rs. 8,20,915/- on unsecured loans. The unsecured loans as on 31st March,
M/s. Akruti Builders and Developers 2007 was Rs. 42,50,000/-. The assessee has given advances to Shree Krishna Developers, a firm in which two the partners of the assessee firm are having 45% share. The assessee has given interest free loans of Rs. 22,50,000/-. The AO disallowed the entire interest paid by the assessee. The learned CIT(A) partly allowed interest disallowance on his observation that the disallowance of interest should be proportionate to the amount of loan for the period for which it was advanced and not for whole of the year. Before us the learned A.R. vehemently submitted that the assessee has interest free funds available in its capital account and in view of the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (supra) no disallowance on account of interest expenditure is warranted. The lower authorities have not disputed the fact that the assessee was having sufficient interest free funds available in its capital account to meet the requirement of interest free advanced made by the assessee to group concern/sister concern. The assessee has interest free fund of Rs. 32,37,799/- and the assessee has given interest free loans of Rs. 22,50,000/- only. Therefore, respectfully following the decision of the Hon'ble Jurisdictional High Court the disallowance restricted by the learned CIT(A) to the extent of Rs. 1.24 lakhs is also deleted. Ground No. 1 of the appeal is allowed.
Ground No. 2 relates to confirmation of addition of Rs. 37.50 lakhs on account of unsecured loans. The learned A.R. of the assessee submits that during the relevant period the assessee received certain unsecured loans amounting to Rs. 44,50,000/- from 10 parties. The AO added the entire amount under Section 68 of the Act holding that the loan transactions were not genuine. The CIT(A) confirmed the addition with respect to 6 parties. The learned A.R. further submits that the assessee has furnished all documentary evidences in respect of lenders to prove the capacity of lender, identity and genuineness of transactions. The loan was taken through account payee cheques. Assessee paid interest through account payee cheques after deducting TDS in accordance with law. All documentary evidences were furnished before the lower authorities. The assessee has furnished complete name, address, PAN and loan confirmation of all the creditors. The learned A.R. further submits that subsequently the assessee has repaid the loans. The learned A.R. of the assessee furnished details of M/s. Akruti Builders and Developers repayment of loan and prayed that the details about repayment was not furnished before the lower authorities and the issue may be restored to the file of the AO for verification of facts and for passing appropriate order in accordance with law.
On the other hand, the Revenue submits that the assessee has not given details and confirmation of the parties to prove the genuineness of the transaction. The assessee has not discharged his onus by filing sufficient documentary evidences.
In the rejoinder submitted, the learned A.R. submits that the assessee had furnished complete details of all the creditors, which is summarised by the learned CIT(A) in para 4.1.1 of his order.
We have heard the rival contentions and gone through the orders of the Authorities below. We have noted that the assessee has furnished the details of repayment of loan, which was admittedly not before the lower authorities. Considering the relevancy of the details regarding repayment of loans in subsequent period, we deem it appropriate to restore this ground of appeal to the file of AO to verify the facts and pass appropriate order in accordance with law. Ground No. 2 of the appeal is allowed statistically.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 19th September, 2018.