UMESH CHANDRASHEKHAR KABBUR,,SATARA vs. INCOME TAX OFFICER,, SATARA

Before the Commissioner of Income Tax (Appeals) the assessee pleaded that it had interest free own funds i.e. capital balance of Rs.42,47,024/- and unsecured loan taken without interest is Rs.41,45,650/-, total Rs.83,92,674/- as against the advancement of loan of Rs.56,23,925/-. Reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Reliance Capital Ltd. Mumbai. The Commissioner of Income Tax (Appeals) was of the view that even if the total own funds were more than the amount lent but in the absence of any material placed on record to co-relate the funds, the plea of the assessee could not be accepted. The addition made by the Assessing Officer was upheld.

The ld. AR for the assessee before the Tribunal pointed out that the issue stands covered by the ratio laid down by the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Bombay) where the own funds were more than the interest free funds made by the assessee.

The learned Departmental Representative for the Revenue on the other hand placed reliance on the order of Commissioner of Income Tax (Appeals).

The issue arising in the present appeal is against the disallowance made under section 36(1)(iii) of the Act where the assessee had made interest free advances totaling Rs.56.23 lakhs. The Assessing Officer was of the view that where there was interest burden upon the assessee then interest relatable to such interest free advances merits to be disallowed in the hands of the assessee. The Commissioner of Income Tax (Appeals) though accepted the plea of the assessee of availability of interest free funds with the assessee but upheld the disallowance made under section 36(1)(iii) of the Act, in the absence of establishing any nexus between the interest free funds available and the interest free advances made.

The issue raised in the present appeal is squarely covered by the ratio laid down by the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd. (supra) wherein it has been held that where the assessee has interest free funds on its own it can be presumed that the investments were from the interest free funds available.

In the facts of the present case and as pointed out by the Commissioner of Income Tax (Appeals) the assessee had interest free funds available in the form of own capital of Rs.42.47 lakhs and unsecured loan raised on which no interest was being paid to the tune of Rs.41.45 lakhs totaling Rs.83.92 lakhs as against which the assessee had advanced interest free funds of Rs.56.23 lakhs. The availability of interest free funds was sufficient to meet the interest free advances made by the assessee and applying the ratio laid down by the Hon’ble Bombay High Court, there is no merit in the disallowance made under

In the result, appeal of assessee is allowed.