PRINCIPAL COMMISSIONER OF INCOME TAX II vs. M/S TRANS ASIA CORPORATION LTD.

ITA 58-2019 ( 1 ) HIGH COURT OF MADHYA PRADESH: INDORE BENCH (Division Bench) Income Tax Appeal No. 58/2019 Principal Commissioner of Income Tax-II, …Appellant/Revenue Indore versus M/s Trans Asia Corporation Ltd., Indore …Respondent/Assessee ******* Coram: Hon’ble Mr. Justice Ajay Kumar Mittal, Chief Justice Hon’ble Miss Justice Vandana Kasrekar, Judge ******* Presence: Shri V.N. Dubey, Advocate for the appellant. None for the respondent. ******* JUDGMENT (Oral) (05.12.2019) Per: Ajay Kumar Mittal, CJ: Challenge in the present appeal preferred under Section 260A of the Income Tax Act, 1961 (for short “the Act”) is to an order dated 25.09.2018 passed by the Income Tax Appellate Tribunal, Indore Bench, Indore (for brevity “the Tribunal”) in I.T.A.No.242/Ind/2017 relating to Assessment Year 2007-08, whereby the appeal filed by the respondent-assessee has been partly allowed. 2. This appeal was admitted on 17.09.2019 for determination of the following substantial questions of law:-

ITA 58-2019 ( 2 ) “(i) Whether on the facts and in the circumstances of the case the ITAT was justified in deleting the addition of Rs.74,30,109 made on account of interest not being charged on loan and advances given amounting to Rs.6,19,17,572/- to the various parties without charging any interest? (ii) Whether on the facts and circumstances of the case, the ITAT was justified in allowing the assessee’s request for deleting the addition, when the assessee failed to discharge the onus to prove that the interest was not charged on loan and advances were for business purpose?” 3. The facts, in brief, are that the respondent-assessee, which is a Limited Company engaged in the business of trading coil sheet and oil filed Income Tax return on 31.10.2007 declaring the income of Rs.10,21,802/- for the assessment year 2007-08. Initially assessment under Section 143(2) of the Act was made at a total income of Rs.12,35,790/- but subsequently, the Assessing Officer found that the assessee failed to disclose full and true material facts for assessment. Accordingly, notice under Section 148 and also under Sections 143(2) and 142(1) of the Act were issued and served upon the assessee. On 30.03.2015, on reassessment, various additions totalling to Rs.3,04,48,677/- were found, which included addition towards notional interest of Rs.74,30,109/- being not charged by the assessee on loan and advances given to various persons. 4. Being aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], who partly allowed the appeal on 31.01.2017 and confirmed the action of the Assessing Officer for reopening the assessment under Section 147 of the Act and also confirmed the addition for notional

ITA 58-2019 ( 3 ) interest income of Rs.74,30,109/- on the alleged loans and advances of Rs.6,19,17,572/- given to various parties. 5. Against the order of the CIT(A) dated 31.01.2017, the respondent- assessee filed an appeal before the Tribunal. The Tribunal vide order dated 25.09.2018 allowed the appeal of the assessee in part and thereby reversing the finding of the Assessing Officer and the CIT(A), deleted the addition of Rs.74,30,109/-. In this manner, the present appeal has been filed by the Revenue. 6. Learned counsel for the appellant-Revenue has contended that the order of the Tribunal regarding deletion of notional interest income of Rs.74,30,109/- on account of various loans and advances to 11 entities amounting to Rs.6,19,17,572/- given by the assessee is erroneous as in the remand report, the Assessing Officer has clearly mentioned that the loan and advances were given by the assessee to various persons for business purpose. It was argued that the Tribunal has failed to consider that the assessee ought to have charged interest on the alleged loan and advances, because giving loan and advances for such a huge amount and not charging interest thereupon is not justified particularly when there is substantial liability in balance sheet. It was further contended that the assessee did not give any satisfactory reply or justification regarding interest free loan and advances, though the onus to prove the said fact was upon the assessee. According to the Revenue, the tax effect involved in the present case is of Rs.22,95,903/- which is below the prescribed monetary limit for filing the present appeal, but the appeal under section 260A of the Act can be filed as

ITA 58-2019 ( 4 ) the case is covered under Para 10(c) of the CBDT Circular No.03/2018 dated 11.07.2018, amendment dated 20.08.2018 and also the latest circular No.17/2019 dated 08.08.2019, inasmuch as in this case there was an audit objection by RAP. Due to Revenue audit objection, the limit prescribed under the latest circular dated 08.08.2019 as well is not applicable in the present case. 7. Coming to the substantial questions of law as framed in the present appeal, it would be expedient to examine the findings recorded by the Tribunal. A perusal of the impugned order passed by the Tribunal shows that the Tribunal after considering the facts and circumstances of the case has arrived at the conclusion that the alleged loans and advances of Rs.6,19,17,572/- were purely for business and other purposes and ordered for deletion of addition of notional interest income of Rs.74,30,109/-. Most of the advances have either been received back in the subsequent years or the assessee has received the goods against them and moreover, the assessee has not claimed any interest expenditure during the said year, which shows that no interest bearing funds have been given as loans and advances without charging interest. Still further, it has been found that the audited balance sheet for the relevant year clearly depicted that the assessee possessed share capital and reserves and surplus totalling to Rs.7,12,75,957/-, which was more than the alleged loans and advances. The findings recorded by the Tribunal in the impugned order read as under:- “10. Before proceeding, we will first like to go through the observation given in remand report by the Assessing Officer vide

ITA 58-2019 ( 5 ) letter dated 06.07.2016 placed at page 39 of the paper book which was called by Ld.CIT(A) for deciding for the issue: “During assessment proceeding, the assessee had filed details of purpose of giving advances to various parties totaling to Rs.6,19,17,572/- and the same submission was made before the Ld. CIT (A)-2, Indore. It is seen that the assessee has mentioned the purpose of advances given as miscellaneous business purpose’ in respect of four parties namely M/s Krishna Kripa Holding Pvt. Ltd., M/s Ruchi Strip and Alloys Ltd., M/s Shreenath Enterprises and M/s Tuti Recyclers Pvt. Ltd. whereas the assessee has mentioned specific purpose of giving advances to other seven parties. Under these circumstances, the assessee should have charged interest from such four parties. However, this may be decided on merits.” 11. On perusal of this remand report along with list of loans and advances of 11 parties as well as ledger accounts, debit notes, purchase bills placed at pages 41 to 52 of the paper book, we observe that the alleged advances are either for purchase of business assets/goods, debit notes for sale of shares and other business purposes. Most of the advances have either been received back in the subsequent years or the assessee have received the goods against them. No material is available on record by the lower authorities which could prove that the alleged loans and advances are not for business purposes. Coupled with this it is an undisputed fact that the assessee has not claimed any interest expenditure during the year, which in itself depict that no interest bearing funds has been given as loans and advances without charging interest. Audited balances sheet at page 3 shows that at the year end the assessee possessed share capital and reserves and surplus totaling to Rs.7,12,75,957/- which is more than the alleged loans and advances. 12. We, therefore, in the given facts and circumstances of the case, are of the considered view that both the lower authorities erred in confirming the addition for notional interest income of Rs.74,30,109/- on the alleged loans and advances of Rs.6,19,17,572/- which were purely for business purpose. We,

ITA 58-2019 ( 6 ) accordingly set aside the finding of the lower authorities and deleted the addition of Rs.74,30,109/-. Ground No.2 of the assessee’s appeal is allowed.” 8. In exercise of jurisdiction under Section 260A of the Act, this Court is required to deal with the substantial questions of law, which arise in the appeal. The Revenue is unable to show that the findings recorded by the Tribunal are unreasonable and erroneous or are based on misreading or misappreciation of material on record. In absence of any illegality or perversity being pointed out by the learned counsel for the appellant in the findings recorded by the Tribunal, we find no reason to interfere with the order impugned herein. Accordingly, we answer the substantial questions of law against the appellant-Revenue. Consequently, the appeal stands dismissed. (AJAY KUMAR MITTAL) (MISS VANDANA KASREKAR) CHIEF JUSTICE JUDGE s/ Digitally signed by SACHIN CHAUDHARY Date: 2020.01.21 16:30:33 +05'30'