M/S. ATS INFRASTRUCTURE LTD.,NEW DELHI vs. ACIT, NOIDA

Briefly stated facts of the case are that the assessee company was engaged in the business of the real estate and filed return of income for the year under consideration on 15/10/2010 declaring total income of ₹ 7,36,59,266/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. During assessment proceedings, the Assessing Officer observed that in the profit and loss account the assessee has debited interest of ₹ 11,49,085/- but in the computation of the income filed, claimed interest of ₹ 2,40,49,065/- on borrowed capital under section 36(1)(iii) of the Act. The Assessing Officer denied this claim as it was not made by way of filing revised return of income. Further, regarding the interest of Rs.11,49,085/- which was debited in the profit and loss account, the Assessing Officer observed that the assessee had given interest-free advances to the sister concern and subsidiary companies, whereas the assessee has paid interest at the rate of 12-14% per annum on the money borrowed. The Assessing Officer has provided the list of the parties to whom interest free advances were given as under:

Before us, the Learned Counsel of the assessee filed a paper- book containing pages 1 to 89 and submitted that a similar issue came up for decision before the Tribunal in assessee’s own case for A.Y. 2012-13 & AY 2013-14 in & 5408/Del/2018 vide order dated 15.01.2020 (PB Page 71-89), wherein also, the Ld. AO made addition u/s 36(1)(iii) of the Act and the Tribunal has deleted the addition. He submitted that the case in hand is squarely covered by the above order as under: (i) In the case of A.Y. 2012-13 & AY 2013-14, the ITAT held that the assessee had sufficient own interest free funds from which the investments were made by the assessee in its sister concern and deleted the addition made by the Ld. AO. (ii) In the case in hand also, the assessee company had sufficient own funds of Rs.30,59,44,905/- which have been used to make these business advances of Rs. 2,98,27,579/- and the same is evident from the balance sheet (PB Pg. 11) that assessee owned surplus funds as under:

The learned Counsel further submitted that it is a settled law that assessee is free to use its own funds the way it wants and the Revenue cannot compel the assessee to do or perform or use its funds in a particular manner. It is also settled law that when own funds are more than the funds utilized towards interest free advances, there cannot be any disallowance. In a scenario, where the interest free advances are given out of interest free funds, there is no need for assessee to prove the business expediency. This issue is squarely covered by the judgment of Hon’ble Apex Court in the case of CIT v. Reliance Industries Ltd. Civil Appeal No. 10 of 2019 dated 02.01.2019, citation 410 ITR 466 (SC).

The Ld. Departmental Representative, on the other hand, submitted that the argument of availability of the interest-free funds with the assessee has been taken for the first time before the Tribunal and no such arguments and the documentary evidence in support thereof have been submitted by the assessee before the lower authorities and, therefore, issue might be restored back either to the Ld. CIT(A) or to the Assessing Officer for deciding afresh in accordance with law.

We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue of availability of interest-free funds has to be decided after verification of facts of the each year and cannot be allowed merely by following the decisions of the Tribunal (supra) in the case of the assessee in earlier years. We agree with the submission of the Learned Departmental Representative that this issue of availability of interest free funds has not been raised by the assessee before the Assessing Officer during assessment proceedings. In view of the decisions cited, if an assessee succeeds in establishing that interest free advances are given out of interest free funds available with him, then no disallowance is required to be made under section 36 (1)(iii) of the Act. If an assessee is unable to satisfy availability of interest free funds, then he may take the ground that loans have been utilized for the purpose of the business. 6.1 We find that before the Assessing Officer, the assessee argued only utilisation of loan funds by the subsidiary companies/sister concern for business purposes and for that too also no documentary evidences were submitted before the Assessing Officer. Before the Ld. CIT(A), the assessee did not appear and not filed any submissions. The argument of availability of interest free funds and giving of loans to subsidiary companies/sister concern out of such interest-free funds, has been raised for the first time before us, therefore in the interest of natural justice, we feel it appropriate to restore this issue back to the file of learned Assessing Officer for deciding afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The grounds raised