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Income Tax Appellate Tribunal, KOLKATA BENCH, “B” AT KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM
This is an appeal preferred by the Assessee against the order of Ld. CIT(A) – 15, Kolkata dated 01.06.2017 for Assessment Year 2010-11.
At the outset, the learned AR drew our attention to Ground No. 2 which is against the action of the Ld. CIT(A) confirming the action of the AO in disallowing Rs. 45,550/- u/s 14A read with Rule 8D(2)(iii) of the Act and submitted that she does not wishes to press this ground of appeal for smallness of amount and should not come in the way later on as a judicial precedent. In the light of the aforesaid submission, this ground of appeal is dismissed for smallness of amount and will not be treated as judicial precedent on this issue in other assessment years.
3. Coming to Ground No. 1 which is against the action of the Ld. CIT(A) in confirming the action of the AO for disallowing the notional interest on loan of Rs. 15,35,793/- on the reason that the loan amount was advanced to group companies without charging any interest.
Brief facts of the case is that during the assessment proceedings, the AO noted that the assessee company had taken loan from bank by paying huge interest to the tune of Rs. 67,01,604/-. However he noted that the assessee company had shown to have kept security
M/s. LMJ Services Ltd. AY- 2010-11 deposit with M/s. LMJ Projects Pvt. Ltd. to the tune of Rs. 80,78,612/- on which no interest was being charged from M/s. LMJ Projects Pvt. Ltd. which is a sister concern of the same group, so according to the AO, the assessee company is earning notional interest on the security deposit and therefore, he added Rs. 15,35,793/-. On appeal, the Ld. CIT(A) confirmed the order of the AO. Aggrieved the assessee is before us.
We have heard both the parties and perused the record. At the outset itself, the learned counsel for the assessee brought to our notice that the assessee had own funds to the tune of Rs. 9,26,88,324/- and the assessee has given interest free advance to its sister concern only to the tune of Rs. 80,78,612/-. Therefore, applying the ratio laid by the Hon’ble Bombay High Court in Reliance Utility and Powers Ltd. vs CIT 312 ITR 340 (Bom.) wherein their lordship held where the assessee is possessed of mixed funds which includes its own funds in sufficient quantity, the presumption that its own funds were utilized for the advances is to be drawn. We note that the Ld. CIT(A) has not appreciated the fact that the assessee had its own funds is to the tune of Rs. 9.26 crores and the interest free loan to the sister concern is only to the tune of Rs. 80 lacs. We note that since the assessee possessed mixed funds which includes its own funds in sufficient quantity, a presumption that its own funds were utilized for the advances is to be drawn and therefore, question of notional interest being added on the advance given to the sister concern of the assessee on which no interest was charged, does not arise and the case laws referred by the learned DR is not applicable to the facts and law of the case. The addition of Rs. 15,35,793/- is directed to be deleted. Therefore, we allow the appeal of the assessee on this ground.