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Income Tax Appellate Tribunal, DELHI BENCH “SMC-2”, NEW DELHI
Before: SHRI H.S. SIDHU
ORDER PER H.S. SIDHU, JM
Assessee has filed the Appeal against the Order dated 16.9.2015 passed by the Ld. Commissioner of Income Tax (Appeals)—18, New Delhi pertaining to assessment year 2009-10
The grounds raised by the assessee read as under:-
On the facts and in the circumstances of case and in law the authorities below have erred in reopening the case u/s. 147 of the Income Tax Act, 1961 and notice u/s. 148 is bad at law, misconceived and unjustified. Therefore, it should be quashed.
2. On the facts and in the circumstances of the case and in law the Ld. CIT(A)-18 has erred in confirming the disallowance made by Ld. ACIT, Circle52(1) on account of interest expenses amounting to Rs. 2,10,000/. The action of the authorities below is wrong illegal, misconceived, unjustified and bad at law. Therefore, it should be quashed.
The appellant craves the right to add/ alter/ delete all or any of the ground of appeal at the time of hearing.
3. The brief facts of the case are that assessee filed return of income showing gross total income of Rs. 17,78,715/- and total income of Rs. 16,68,215/- on 30.9.2009 and the same was processed u/s. 143(1) of the Income Tax Act, 1961 on the same income. The assessment in this case was completed u/s. 147/143(3) of the I.T. Act, 1961 vide order dated 24.12.2014 at an income of RS. 18,88,720/-, wherein the AO has disallowed interest expenses of Rs. 2,10,000/- on account of non-business advances. In response to notice u/s. 148 of the I.T. Act, 1961 the assessee has requested to consider original return filed on 30.9.2009 for the same. During the assessment proceedings the AO has asked regarding disallowance of interest expenses on non-business advance. In response thereto the assessee has submitted that during the year the assessee has own funds (capital balance of Rs. 37.14 lacs) against the advance of Rs. 14.00 lacs. In addition to that the assessee has also received the interest free un-secured of Rs. 95.78 lacs from member of HUF.
4. Against the assessment order dated 24.12.2014, assessee appealed before the Ld. CIT(A), who vide impugned order dated 16.9.2015 has dismissed the appeal of the assessee.
5. Aggrieved with the aforesaid order of the Ld. CIT(A), assessee is in appeal before the Tribunal.
During the hearing, Ld. Counsel of the assessee has filed an Application for withdrawal of ground no. 1 and requested that same may be treated as not pressed.
6.1 With regard to ground no. 2 relating to disallowance on account of interest expenses amounting to Rs. 2,10,000/- is concerned, he stated that 2 during the financial year the assessee has paid interest on loan Rs. 20.94 lacs including interest on car loan. The assessee has taken fresh unsecured loan from different bank and institutions during the financial year 2008-09 for financial arrangement to run the business. The amount of unsecured loans has been utilized for the business purpose. During the Financial year 2008-2009 the assessee has not made any fresh investment. The addition in the investment is due to capitalization of interest which has been paid on the loan taken for the Investment. He further stated that during the financial ended 31.03.2009 the Assessee has claim Interest expenses of Rs.20.94 lac on unsecured loan as business expenditure. These loans are exclusively used for the business purposes. In earlier years the Assessee has already added the Interest on non business advance of Rs. 14.00 lac. But during financial year 2008-2009 the assessee has not added the interest on non business advances. It was further stated by the Ld. Counsel of the assessee that as in the beginning of the financial year the assessee has own funds as Capital of Rs. 28.66 lacs and the end of the year Rs. 37.14 lacs after add back the profit and drawing for the year. It was the further contention of the Ld. Counsel of the assessee that during the financial year the assessee has raised interest free unsecured loan from member of HUF amounting to Rs. 95.61 lacs, and out of assessee's own fund on which no interest has been paid is about Rs. 132.75 lacs (closing capital balance plus loan from member of HUF) a meager amount of Rs. 14.00 lacs has been given interest free advance. During the year the assessee has utilized of Rs. 110.27 lacs (opening capital plus loan from member of HUF less interest free advance) in the business on that no interest has been claimed as expenditure and the profit derived from the business has been offered for tax. In view of the above, he requested that disallowance of interest on non-business advances are not justified. In order to support this above contentions, he relied upon the decision of the Coordinate Bench of the ITAT, Ahmedabad in the case of Paresh Lalchand Shah vs. ITO passed in (AY 2007-08) vide order dated 29.4.2013 in which similar and identical issue has been decided by the Tribunal in favour of the assessee. He also relied upon the judgment of the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. Vs. CIT reported in 313 ITR 340 (Bombay) and copy of judgment of the Hon’ble Gujrat High Court in the case of Kajal Exports vs. CIT 49 taxmann.com 217 (Gujrat). In this behalf, he filed the copies of aforesaid judgements / orders before us.
On the contrary, Ld. DR opposed the request of the Ld. Counsel of the assessee and relied upon the orders of the authorities below and requested that the same may be upheld.
I have heard both the parties and perused the relevant records available with me, especially the orders passed by the revenue authorities and the case laws cited by the Ld. Counsel of the Assessee. I find that Ld. Counsel of the assessee has filed an Application praying therein to withdraw the Ground No. 1, the same is accepted and the ground no. 1 is accordingly dismissed as not pressed.
8.1 With regard to ground no. 2 relating to disallowance on account of interest expenses amounting to Rs. 2,10,000/- is concerned, I find that the assessee has taken fresh unsecured loan from different bank and institutions during the financial year 2008-09 for financial arrangement to run the business. The amount of unsecured loans has been utilized for the business purpose. During the Financial year 2008-2009 the assessee has not made any fresh investment. The addition in the investment is due to capitalization of interest which has been paid on the loan taken for the Investment. During the financial ending i.e on 31.03.2009 the Assessee has claimed Interest expenses of Rs.20.94 lac on unsecured loan as business expenditure. These loans are exclusively used for the business purposes. In 4 earlier years the Assessee has already added the Interest on non business advance of Rs. 14.00 lac. But during financial year 2008-2009 the assessee has not added the interest on non business advances. In the beginning of the financial year the assessee has own funds as Capital of Rs. 28.66 lacs and the end of the year Rs. 37.14 lacs after add back the profit and drawing for the year. During the financial year the assessee has raised interest free unsecured loan from member of HUF amounting to Rs. 95.61 lacs, and out of assessee's own fund on which no interest has been paid is about Rs. 132.75 lacs (closing capital balance plus loan from member of HUF) a meager amount of Rs. 14.00 lacs has been given interest free advance. It was found that during the year the assessee has utilized of Rs. 110.27 lacs (opening capital plus loan from member of HUF less interest free advance) in the business on that no interest has been claimed as expenditure and the profit derived from the business has been offered for tax. In view of the above, I am of the considered view that that disallowance of interest on non-business advances are not justified hence, the same are deleted. My aforesaid view is fully supported by the following judgments:- a) Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Bom) wherein it has been held as under:-
“8. We have heard learned counsel for both the parties. In our opinion the very basis on which the revenue had sought to contend or argue their case that the shareholder funds to the tune of over Rs. 172 crores was utilised for the purpose of fixed assets in terms of the balance sheet as on 31st March, 1999, is fallacious. Firstly, we are not concerned with the balance sheet as of 31-3-1999. What would be relevant would be balance sheet as on 31-3-
2000. Apart from that, the learned counsel has been unable to point out to us from the balance sheet that the balance sheet as on 31-3-1999 showed that the shareholders funds were utilized for the purpose of fixed assets. To our mind the profit and loss account and the balance sheet would not show whether share holders funds have been utilized for investments. The argument has to be rejected on this count also.
9. Apart from that we have noted earlier that both in the order of the CIT (Appeals) as also the Appellate Tribunal, a clear finding is recorded that the assessee had interest- free funds of its own which had been generated in the course of the year commencing from 1-4-1999. Apart from that in terms of the balance sheet there was, a further availability of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, in our opinion, the finding of fact recorded by CIT (Appeals) and ITAT as to availability of interest-free funds really cannot be faulted.
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. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. 's case (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. 's case (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence
and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd. 's case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT.
Considering the above, in our opinion, there is no merit in this appeal which is accordingly dismissed.”
b) ITAT, Ahmedabad in the case of Paresh Lalchand Shah vs. ITO passed in (AY 2007-08) vide order dated 29.4.2013 wherein it has been held that if funds are available both interest free and overdraft and loans taken, then a presumption would arise that investment ould be out of interest free fund generated available or with the company, if the interest free funds sufficient to meet the investments.
8.2. In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, I delete the addition in dispute and accordingly decide the issue in dispute in favour of the assessee and against the Revenue.
In the result, the Appeal filed by the Assessee stands partly allowed.
Order pronounced in the Open Court on 18/10/2016.