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Income Tax Appellate Tribunal, BANGALORE BENCH ‘SMC’, BANGALORE
Before: SHRI A.K.GARODIA, ACCOUNANT MEMBER
O R D E R PER A. K. GARODIA, A. M.: This is an assessee’s appeal directed against the order of the ld. CIT(A), Hubli dated 30-11-2015 for the assessment year : 2011-12. 2.The assessee has raised the following grounds:
“ 1. That the order of the ld.CIT(A) in so far it is prejudicial to the interest f the appellant, is bad and erroneous in law and against the facts and circumstances of the case. 2. That the order u/s 143(3) passed by the JCIT, Range-3, Hubli is without jurisdiction as the jurisdiction was already assumed by ITO, Ward-3(2), Hubli.
3. That the ld. CIT(A) erred in law and on facts in holding that the advances given to software engineers are not for business purpose.
4. That the ld. CIT(A) erred in law and on facts in disallowing the interest on the advances given to software engineers even though the appellant has received interest on such funds. 5. That the ld. CIT(A) erred in law and on facts in disallowing the interest on the advance given to Mr. Yashkaran Singh on the ground that it is repaid in the subsequent years even though the advance was paid for business purposes. 6. That the ld. CIT(A) erred in law and on facts in disallowing the interest on the advance given to Mr. D.A.Ratan (supplier of raw material) on the ground that such an advance is very high even though the advance was paid for business purposes. 7. That the ld. CIT(A) ought to have held that the advanc3es given to AICE India (P)Ltd., and B.R.Patil is for the purpose of the business. 8. That the ld. CIT(A) denied the explanation of the appellant that the interest free funds available are more than the advance made to all the parties. Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon’ble IT^AT, Bangalore to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal”. on ought not have given adequate opportunity to the appellant to produce Sri Sameer Arora before the AO. Thus, the addition made has to be deleted.
6. The ld. CIT(A) erred in confirming the interest u/s 234A, 234B and 234C of the Act.
7. Without prejudice, the additions are excessive, arbitrary and unreasonable and ought to be deleted. 8. For these and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed”.
It was submitted by the ld. AR of the assessee that ground no.1 is general and ground no.2 is not pressed. Accordingly, ground no.2 is rejected as not pressed.
Regarding remaining grounds, he submitted that software engineers to whom the money was advanced were working for the assessee and therefore, the advance are for business expediency and hence, this addition made by the A. O. is not justified in respect of such interest free advances. Reliance has been placed by him on the judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs Sridev Enterprises as reported in 192 ITR 165.
The ld. DR of the revenue supported the orders of the authorities below.
I have considered the rival submissions. I find that it is noted by the AO on page no.2 & 3 of the assessment order that advances were given to various parties with whom the assessee does not have regular business transaction. On page-8 of the order of held. CIT(A), it is noted by the ld.CIT(A) that the amounts given to two software engineers of Rs.5.00 lakhs are stated to be advances pending settlement of their bills.
The ld. CIT(A) held that this is not acceptable without giving any valid reasons for the same. Ld. CIT(A) further stated that the assessee has not proved that these two engineers have exclusively worked for the assessee in the development of software for them and the assessee may be one of the customers of these engineers and these persons are involved in development of various software to sell in the open market for profit.
Even if this observation of the ld.CIT(A) is true then also, it cannot be said that the advances in question are without business expediency. It is settled position of law now that if interest free advances are given for business expediency, interest on borrowing to give such advances cannot be disallowed. This was so held by the Hon’ble Apex Court in the case of SA Builders reported in 288 ITR 1.
Regarding advances of Rs.25.00 lakhs to Shri Yashkaran Singh, this is the case of the assessee that this amount was given to him for purchase of land for the firm. Regarding payment of Rs.32.00 lakhs to Shri D.A.Ratan, it is the statement of the assessee that this person is a supplier of raw materials. Regarding advances to AICE India (P)Ltd., and Shri B.R.Patil, it was the contention of the assessee that the advances to these persons were given to get more business from them because they are dealers of the assessee’s goods.
In my considered opinion, all these advances are on account of business expediency and therefore, interest on borrowings for giving these advances cannot be disallowed. Accordingly, I delete the disallowances and ground no. 3 to 7 are allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on the date mentioned on the caption page.