DCIT, CHENNAI vs. DIAMOND ENGINEERING (CHENNAI) P LTD., CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

ITA No. 936/CHNY /2018 :- 2 -:

Assessing Officer u/s.36(1) (iii) of the Income Tax Act, 1961 (in short ‘’the Act’’).

Ld. Counsel for the Revenue submitted that assessee had 2. advanced money to group concerns without charging interest. As per the ld. DR, the Assessing Officer had made a pro-rata disallowance of interest. Contention of the ld. Departmental Representative was that ld. Commissioner of Income Tax (Appeals) had deleted the addition made by the ld. Assessing Officer, relying on a decision of Tribunal in assessee’s own case for assessment year 2009-2010 in dated 11.11.2015. As per the ld. DR, the Tribunal had remitted the issue back to the ld. Assessing Officer, only for verifying the amount of equity capital and reserve disclosed in the Balance sheet of the assessee so as to check whether any interest bearing advance was used for giving interest free loans to sister concerns.

Per contra, ld. Authorised Representative submitted that the 3.

issue was very similar to what was considered by the Tribunal in assessee’s appeal for assessment year 2009-2010 and similar directions could be given here also.

We have considered the rival contentions and perused the 4. orders of the authorities below. There is no dispute that disallowance

ITA No. 936/CHNY /2018 :- 3 -: of interest made by the ld. Assessing Officer for the impugned assessment year were based on very same fact situation which prevailed for assessment year 2009-2010. In the said year also, assessee had given interest free advance to M/s. Emerala Engineering Unit-II and M/s. Ruby Engineering. Assessee had also availed loan worth �65/- crores on which interest was paid. What was held by the Tribunal at para 4 & 5 of the order is reproduced hereunder:-

‘’4.At the time of hearing, the Ld. A.R. at the outset submitted that the assessee company had sufficient reserves and surplus coupled with equity over and above ₹31 crores as on 01.04.2008 while as the amount advanced to its sister concerns was only about ₹21.6 crores approximately. Therefore, it could be construed that the assessee had advanced loan to its sister concerns from its non-interest bearing funds. Hence it was pleaded that the addition made by the Ld. Assessing Officer by disallowing the interest aggregating to ₹3,27,78,927/- in view of the non-interest bearing loan to sister concerns is not warranted. Ld. D.R vehemently argued in support of the orders of the Revenue and also relied on decision of S.A. Builders Vs. CIT(A) reported in 288 ITR 1.

ITA No. 936/CHNY /2018 :- 4 -: that the assessee is having reserves and surplus of ₹11.8 crores approximately and ₹20/- crore equity as on 01.04.2008. This fund of the assessee is non-interest bearing and available to the assessee for deploying in the business as it deems fit. Therefore, the non-interest bearing fund of the assessee company viz. equity and reserves/surplus of Rs.31.8 crores (approx.) can be presumed to have be advanced as the interest free advances to the sister company of ₹21.6 crores(approx.) which is far less than the non-interest bearing fund available with the assessee company. Hence, the addition made by the Ld. Assessing Officer by disallowing the interest is not warranted. Since these facts were not examined by the Revenue, we hereby remit the matter back to the file of the Ld. Assessing Officer for the limited purposes of verifying the amount of equity capital & reserves/surplus disclosed in the balance sheet and if the Ld.A.O finds that the non-interest bearing fund of the assessee is more than the interest free advance extended to its sister concern then the Ld .A.O shall delete the addition made by him of ₹3,27,78,927/- towards disallowance of proportionate interest on interest- free fund diverted to sister concerns. However if found otherwise he shall pass appropriate order as per law and merits‘’.

Fact situation being same, we are of the opinion that ends of justice will be met if similar direction, as given by the Tribunal for assessment year 2009-2010, is given for impugned assessment year

ITA No. 936/CHNY /2018 :- 5 -: also. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the Assessing Officer for consideration afresh, in accordance with the directions given by the Tribunal in its order for assessment year 2009-2010 in dated 11.11.2015.

In the result, the appeal of the Revenue is allowed for 5. statistical purpose.

Order pronounced in the open court at the time of hearing on Tuesday, the 13th day of February, 2018, at Chennai.