SHRI GULSHAN BATHLA,SONEPAT vs. JCIT, SONEPAT

This appeal filed by the assessee is directed against the order of the CIT(A), Rohtak, dated 02/05/2013 for A.Y 2009-10 passed in first appeal No. 548/SPT/2011-12.

The grounds raised by the assessee read as follows :

Apropos Ground No. 1, the ld. AR of the assessee contended that the CIT(A), for upholding the impugned addition by disallowing bank interest to the tune of Rs. 8,09,711/- has relied on the decision of the CIT(A) Vs. Abhishek Industries Ltd [2006\ 156 Taxman 257 [P & H] which is not a good law. To this proposition, the ld. AR has placed reliance on the decision of Hon'ble Supreme Court in the case of Munjal Sales Corporation Vs. CIT 298 ITR 298 [SC] and decision of the Hon'ble Punjab High Court in the case of Gurdas Garg Vs. CIT [2015] 63 Taxman.com 289 [P&H]. The ld. AR also submitted that the CIT(A) for A.Y 2011-12 has allowed similar claim of the assessee having similar set of facts and circumstances.

Per contra, the ld. DR of the Revenue supported the action of the AO and contended that no material was brought on record to show that the said interest free loans/advances have been given for business purposes. Thus, the CIT(A) was correct in upholding the addition. 2

On careful consideration of the above, we are of the view that on careful perusal of the Hon'ble Supreme Court order in the case of Munjal Sales [supra], we observe that after referring to the decision of Hon'ble Punjab and Haryana High Court in the case of Abhishek Industries [supra], it was held that interest paid on borrowings can be allowed a deduction in computing the business profits and every assessee, including a firm, ha to establish, in the first instances, that it was allowable u/s 36(1)(iii) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'].

In the present case, as per balance sheet, the facts, as noted by the CIT(A) in para 4 of the impugned order, clearly reveals that as on 31.3.2009, the capital was 11.15 lakhs and interest free unsecured loans were 112.49 lakhs totalling to Rs. 123.64 lakhs. The amount of interest free loans/advances given by the assessee to the sister concern/persons were Rs. 94.53 lakhs which is fully covered by the capital and interest free loans/advances taken by the assessee thus interest paid by the assessee, on the interest bearing loans, taken for the purpose of business of the assessee cannot be disallowed. This claim has been allowed by the CIT(A) for A.Y 2011-12 order dated 30.12.2015. Hence, we are inclined to hold that the issue and contentions of the assessee gets strong support from the decision of the Hon'ble Supreme Court in the case of Munjal Sales Corporation and we allow the same and the AO is directed to delete the disallowance. Accordingly, Ground No. 1 of the assessee is allowed.

Apropos Ground No. 2, the ld. AR contended that the AO was not correct in making adhoc disallowance of 15% out of advertisements, courier charges, miscellaneous expenses, printing of stationery, repair and maintenance, sales promotion, workshop expenses, telephone and car running expenses, as the assessee placed all the relevant bills and vouchers to support these claims and there was no element of personal use.

The ld. DR, on the other hand, supported the impugned order. However, he fairly submitted that the Revenue has no objection if it is found just and proper to reduce the percentage of disallowance. From the above submissions, we are of the view that the assessee could not satisfy us about the possibility of element of personal use. Thus the alternative plea of the assessee also not objected by the ld. DR is accepted and the AO is directed to reduce and restrict the estimated disallowance @ 10% of total impugned claim of the assessee. Accordingly, Ground No. 2 of the assessee is partly allowed as indicated above.

In the result, the appeal of the assessee stands partly allowed as indicated above.