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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini: The captioned appeal filed by theRevenue,pertaining to Assessment Year 2012-13, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-12, Kolkata in appeal No.90/CIT(A)-12/Kol/W-8(4)/2016-17, dated 29.06.2017, which in turn arises out of an assessment order passed by the Assessing Officer u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 16.03.2015.
The grievances raised by the Revenue are as follows:
“1) Whether, on the facts and in circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of interest to the tune of Rs.72,47,296/- incurred on interest free loans and advances not related to the purpose of the business of the assessee, out of the interest bearing borrowed funds? 2. That, the assessee craves leave to add, alter and/or further amend grounds of appeal on or before hearing”
M/s. Gour Trading Pvt. Ltd. Assessment Year: 2012-13 3. The brief facts qua the issue are that during the assessment proceedings from the details of the assessee's balance sheet and profit and loss account for the A.Y.2012-13 and A.Y. 2011-12, it was noted by the assessing officer that the assessee had average funds available in the its business amounting to Rs.21,27,46,107/-, which consists of (approx.) 50% of interest bearing borrowed fund from bank and other 50% was from the its own capital fund. From the deployment side of its fund it was found that the assessee had extended short term loans and advances in average to the tune of Rs.7,79,61,637/-. It was also noted that from this particular investment in 'short term loans and advance' the assessee did not earn any income. So, it is implied that the assessee had utilized its capital fund as well as interest bearing borrowed fund for extending such short term loans and advances to other parties which did not yield any income to the assessee company.
Even after repeated opportunities of hearing, the assessee did not comply to the term of the notices of the AO and did not produce books of accounts, cash flow statements and other evidences to justify the source of this deployment of short- term loans and advances which is in average of Rs.7,79,61,637/-, and did not yield any income to its business. So, the assessee failed to discharge its liability or burden of proof that no borrowed fund was utilized for the deployment in 'short term loans and advances’ which did not yield any income to its business.Therefore, AO presumed that some considerable amount of interest borrowing fund was utilized for deployment in such ‘short term loans and advances’, therefore, assessing officer disallowed proportionate reasonable amount of interest to the tune of Rs.72,47,196/-
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which, we have already noted in our earlier para and is not being repeated for the sake of brevity.
5.We have given a careful consideration to the rival submissions and perused the material available on record, we note that the A.O. has disallowed the interest payment to the tune of Rs. 72,47,296/-, out of total interest debited in profit and Page | 2
M/s. Gour Trading Pvt. Ltd. Assessment Year: 2012-13 loss account to the tune of Rs.1,97,76,830/-. The solitary grievance of the assessing officer in disallowing the interest was that the said interest of Rs. 72,47,296/- was not incidental to assessee`s business and these short-term loans and advances did not yield any income to the assessee company. We note that in pursuance of the provisions of section 36(1)(iii) of the Act, the borrowed fund must be utilized for business purpose which includes for acquiring capital asset and working capital of the business.The Assessing Officer had accepted that the borrowed capital had been utilised for business purpose save and except the short term advances which did not yield any revenue to the assessee company. We note that the assessee company extended short term advances for business purpose on securing business interest and the presumption of the Ld. Assessing Officer that the short term advances made by the company out of borrowed capital is not factually correct, since the assessee company had its own share capital and free reserves to the tune of Rs. 10,88,60,195/- as on 31.03.2012 and the balance as on 31.03.2011 being Rs. 10,85,14,398/-. Thus, own share capital and free reserves are more than the short term loans and advances.Therefore, it would be wrong presumption of the AO that only borrowed fund had been utilised to make the advances, which are yielding no revenue income.
We note that the basis adopted by the Ld. Assessing Officer is neither in accordance with the Act nor reasonable since the Assessing Officer failed to acknowledge the facts of the case which suggest that own fund is much greater than the amount extended as ‘loans &advances’. The assessee had enough funds at its disposal. The A.O. has never said that the loans were given for non- business purposes. The AO only stated that there was no revenue from such loans or advances given on interest free basis. It is necessary that if the Assessing Officer disallows part of interest, the Assessing Officer must prove and bring on record that part of borrowed funds which was diverted to non-business use.For this, we rely on the judgment of the Hon`ble Supreme Court in the case of CIT V. Mir Mahammad Ali, 53 ITR 165 (SC). We also note that Hon`ble High Court of Calcutta in the case of CIT vs Britania Industries Ltd. 280 ITR 525 (Calcutta), held that interest on borrowings cannot be disallowed merely because the assessee Page | 3
M/s. Gour Trading Pvt. Ltd. Assessment Year: 2012-13 had given interest free advances for suppliers of raw materials, who were relations of the directors, as long as the amount is borrowed for business, there could be no question of disallowances. We note that Hon`ble High Court of Delhi in the case of CIT Vs. Tin Box Co. 260 ITR 673 (Delhi), held that the Assessing Officer disallowed part of the interest on borrowed capital stating that the assessee had given interest free loans butthere were sufficient capital and interest free funds with the assessee to cover interest free loans and the Revenue had not brought any evidence to indicate that interest bearing borrowings were diverted.That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. His order on this issue is therefore upheld and the grounds of appeal of the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order is pronounced in the open court on 19.12.2018.