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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
M/s LMJ Business Centre (P) Ltd. -vs.- I.T.O., Ward-8(3) Kolkata Kolkata [PAN : AAACL 9393 C] (Respondent) (Appellant) For the Appellant : Shri Shital Khemka, FCA & Smt. Arti Debnath, Advocate For the Respondent : Shri Satyajit Mondal, Addl. CIT Date of Hearing : 01.02.2018. Date of Pronouncement : ORDER 18.05.2017 of CIT(A)- 15, Kolkata relating to A.Y.2008-09. is also an appeal by the assessee against the order dated 31.05.2017 of CIT(A)- 15, Kolkata relating to A.Y.2009-10. ITA No.1618/Kol/2017 (A.Y.2008-09) 2. The only ground of appeal raised by the assessee in this appeal reads as follows :-
1. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in confirming the action of the A.O. in disallowing the interest on loan of Rs.12,60,716/- stating that the loan amount was advanced to group companies as “interest free advance”. “
3. The Assessee is a company. In the course of assessment proceedings, the AO noticed that the assessee had claimed as deduction in computing income from business a sum of Rs.12,60,716/- on account of interest paid on loans. The source of income of the assessee is income from house property and trading activity. The AO noticed that the loan on which interest was paid was availed from bank was given to sister concern M/s Octavaius Tea and Industries Ltd without charging any interest. According to the 2 & 1619/Kol/2017 M/s. LMJ Business Centre (P)Ltd. A.Yr.2008-09 & 2009-10 AO the assessee failed to prove the commercial expediency of giving of interest free loan out of the funds that were received by the assessee on availing loan from the bank. The AO was accordingly of the view that the interest expenses claimed as deduction in the profit and loss account should not be allowed as deduction. The AO accordingly added a sum of Rs.12,60,716/- to the total income of the assessee.
4. Before CIT(A) the assessee pointed out that it had its own interest free funds out of which interest free loan was given to one of its sister company viz. M/s Octavius Tea and Industries Ltd. The assessee pointed out that the interest free loan and advance given to the sister company was a sum of Rs.68,00,000/-. The assessee pointed out that the assessee had its own interest free funds in the form of share capital of Rs.1 crore and deposit receipt from various tenants of property owned by it of Rs.85,00,000/-. The assessee pointed out that since it had its own interest free funds which were much more than the interest free advance given to the sister concern the disallowance of interest made by the AO cannot be sustained. In this regard the assessee relied on the following judicial pronouncements : “i) CIT vs Reliance Utilities & Power Ltd. 221 CTR 435 (Bombay HC)
ii)CIT vs Tin Box Co. 182 CYR 171 (Delhi HC) iii) JCIT vs ITC Ltd, 115 TTJ 45 (Kolkata Special Bench).”
In the aforesaid decisions it has been held that where the assessee has interest free fund as well as borrowed funds and where interest free loans are given to the sister concern which are lesser than the interest free funds available with the assessee then it is to be presumed that the loans to given to sister concern out of interest free funds available with the assessee. The assessee also pointed out that on an identical issue in assessee’s own case in A.Y.2004-05 and 2006-07 the Hon’ble ITAT in and 87&88/Kol/2012 vide its order dated 14.09.2015 was pleased to delete similar addition made by the revenue authorities. 2
3 & 1619/Kol/2017 M/s. LMJ Business Centre (P)Ltd. A.Yr.2008-09 & 2009-10 6. The CIT(A) did not agree with the above submissions made by the assessee and confirmed the addition made by the AO. The CIT(A) held that own funds were already invested in Fixed Assets of the assessee found in the Balance Sheet. The CIT(A) made the following observations :- “I have considered the facts of the case and the submissions of the assessee. Kolkata ITATs decision in appellant's own case and the case laws cited by the appellant rest on the premises that- assessee has its own sufficient fund and interest free loans have been given out of its own funds. Now let us look at the factual position. Assessee's balance sheet shows that it has share capital of Rs. 1,00,00,000/-, reserves and surplus of Rs.7.55 lacs and secured loans of Rs. 18.72 lacs. On the assets side assessee has fixed assets of Rs. 2.08 crores (gross value). Thus it is seen that entire share capital of the appellant along with reserves and surplus and deposits from the tenants are lodged in creation of fixed assets. Assessee's claim that it had surplus funds of its own, is not supported by facts. Hence, ratios of the judgments and decision of the Hon'ble ITAT in assessee's own case for earlier year is not applicable. On the other hand, AO has mentioned that loans were taken from the bank and this amount was passed on to the sister concerns as interest free loans. Balance Sheet also shows that assessee had overdrawn its account in Indusind bank by Rs. 12,81,695/-. As it is apparent that assessee had passed on borrowed funds as interest free loans to its sister concerns, AO is justified in disallowing the interest on loans taken from bank corresponding to the interest free loan given. Hence, disallowance of Rs. 12,60,716/- is confirmed.”
Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.
I have heard the rival submissions. A copy of the balance sheet of the assessee as on 31.03.2008 is available at page no.9 of the assessee’s paper book. A perusal of the same shows that the contention of the assessee with regard to availability of own funds is true. Even the CIT(A) has not disputed this fact. The only reason assigned by the CIT(A) for disregarding the plea of availability of own funds of the assessee was that the own funds already stood invested in the various fixed assets shown in the balance sheet. We find that this tribunal in assessee’s own case on identical facts came to the following conclusion :-
4 & 1619/Kol/2017 M/s. LMJ Business Centre (P)Ltd. A.Yr.2008-09 & 2009-10 “8. We have heard rival submissions and gone through facts and circumstances of the case that the assessee has advanced interest free loans to its sister concerns to the extent of Rs.1.06 cr. And assessee now before us claimed that it has interest free funds available i.e. total fund of Rs.l.39 cr. In the shape of share capital of Rs. 1 cr., deposits of Rs. 0.19 cr. And advance of Rs.0.10 cr. And PBT fund of Rs.0.I0 cr. According to assessee, the total funds availability i.e. interest free fund of Rs.l.39 cr. is more than the loan given to its sister concerns at Rs.1.60 cr. and hence, following the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Powers Ltd. (2009) 313 ITR 340 (Born.) as well as the decision of Kolkata ITAT 3rd Member in the case of S. P. Jaiswal Estate reported in 147 TTJ 649 there cannot be any disallowance. We find that the loan given to sister concern is less than the interest free fund available with the assessee and accordingly, this issue is covered in favour of the assessee by the decision of Hon'ble Bombay High court in the case of Reliance Utilities & Powers Ltd., supra wherein it is held as under:
"If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. "
Further, the assessee also argued the commercial expediency for giving interest free loans to sister concern M1s. LMJ International Ltd. as the assessee's sister concern is engaged in the same nature of business and also utilization. As the issue we have decided in favour of the assessee on the factual aspect of availability of interest free fund, we need not to go on commercial expediency. Accordingly, this issue of assessee's appeal is allowed. Similar is the facts in other appeals also as noted above, and Ld. Counsel for the assessee as well as Ld. Sr. DR admitted that the facts are exactly identical in other appeals also. Taking a consistent view, we allow this common issue of assessee's appeals for all the years in entirety.
Respectfully following the decision of the tribunal, I direct the AO to delete the addition made on disallowance of interest. The appeal of the assessee is accordingly stand allowed. (A.Y. 2009-10) 10. Ground No.1 raised by the assessee reads as follows :- “1. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in confirming the action of the A.O. in disallowing the interest on loan of Rs.9,28,501/- stating that the loan amount was advanced to group companies as "interest free advance". 4
5 & 1619/Kol/2017 M/s. LMJ Business Centre (P)Ltd. A.Yr.2008-09 & 2009-10 11. This ground of appeal is identical to ground no.1 raised by the assessee in A.Y.2008-09. For the reasons given while deciding ground no.1 in A.Y.2008-09, I direct the AO to delete the disallowance of interest on loan. I may also add that the facts with regard to availability of own funds vis-à-vis the interest free loans to the sister company in this assessment year are also identical as in A.Y.2008-09. Ground no.1 is accordingly allowed.
12. Ground No.2 raised by the assessee reads as follows :- “2. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in confirming the disallowance of trading loss of Rs. 3,66,780/- from the business of trading of wheat.”
13. The assessee claimed that it purchased wheat of about 28.9295 metric tones from M/s Namaskar Tour Pvt. Ltd. and M/s Amodini Computers Pvt. Ltd. The assessee further claimed that it sold wheat purchased to various persons. The assessee claimed that due to deterioration in quantity of wheat purchased due to improper storage for three months prior to sale and resulting in poor quality the whea, they were sold at a lesser price. The assessee claimed that it had incurred a loss of Rs.3,66,780/- in the trading activity of purchase and sale of wheat. The AO found that the evidence with regard to sale of wheat was only in the form of cash bills and did not contain the name of the parties to whom wheat was sold and the address at which it was delivered. The AO called upon the assessee to furnish the details of the parties to whom sale of wheat was made. The assessee did not furnish the required details. In the above circumstances, the AO treated the loss from the business of trading in wheat as not a genuine loss and accordingly disallowed the claim of the assessee for deduction of the aforesaid loss.
14. On appeal by the assessee the CIT(A) confirmed the order of the AO. Before me the ld. Counsel for the assessee submitted that since the sales were made in cash no details of the sellers could be furnished. In my view this explanation of the assessee could not be accepted. The burden was on the assessee to show that it had incurred a 5 6 & 1619/Kol/2017 M/s. LMJ Business Centre (P)Ltd. A.Yr.2008-09 & 2009-10 loss in the business trading in wheat. For establishing its case the assessee has to not only identify the persons to whom wheat was sold but also the price at which it was sold. The additional fact in the present case is that the assessee in the past did not do any trading in wheat. In the given facts and circumstances of the case, I am of the view that the loss claimed as deduction by the assessee was rightly held to be not proved and not allowed by the revenue authorities. I may add that there is no material on record to say that the loss claimed was bogus. Ground no.2 raised by the assessee is dismissed. In the result the appeal of the assessee is partly allowed.
In the result ITA No.1619/Kol/2017 is partly allowed. Order pronounced in the Court on 09.02.2018.