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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Shri Waseem Ahmed, AM]
ORDER
Per Shri A.T.Varkey, JM
This is an appeal filed by the revenue against the order of Ld. CIT(A)-1, Kolkata dated 25.03.2013 for AY 2009-10.
The only issue that has been assailed by the revenue is against the action of the Ld. CIT(A) deleting the disallowance of interest made by AO of Rs.37,36,802/- being interest attributable to interest free loan given to sister concern M/s. M/S. NLBED Marketing (P) Ltd. (in short M/S. NLBED).
The brief facts of the case is that the AO observed that in the relevant assessment year, the assessee had advanced to M/S. NLBED a sister concern Rs.4,62,96,917/- as per an MOU for purchase of property and the assessee had incurred huge interest liability on borrowed funds. It was brought to the knowledge of the AO by the assessee that this amount was an advance given to the sister concern for buying a property in the instant assessment year and it was given to the sister concern because of commercial expediency. Before the AO, the Ld. AR of the assessee relied on the decision of the Hon’ble Supreme Court in the case of M/s. S. A. Builders Ltd. Vs. CIT 2 Rajashree Vanijya Pvt. Ltd., AY 2009-10 208 ITR 1 (SC) and argued that the loan was borrowed by the assessee, which have been given to the sister concern due to commercial expediency and the amount was utilized for the business purpose and there was direct nexus between the borrowing and the advance given to the sister concern and demonstrated by evidences that the assessee got back the entire advance and the transaction resulted in assessee getting huge profits in AY 2011-12. However, the AO did not accept the claim made by the assessee and disallowed the interest paid on such borrowed capital. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the claim in respect to loan given to M/s NLBED. However, we note that against the loan given to M/s. Phool Commercial Pvt. Ltd. the assessee got only part relief.
Aggrieved, the assessee preferred appeal an before the Ld. CIT(A), who was pleased to allow the claim of the assessee by holding as under:
“After careful consideration of the assessment order and the written submission filed by assessee, it is noticed that the AO disallowed the whole of interest debited in P&L a/c for Rs.45,01,802/- u/s 36(1)(iii) on account of interest free loan given to sister concerns viz, M/s. Phool Commercial Pvt. Ltd. and M/s NLBD Marketing Pvt. t.td. As per P &L a/c for March, 2009 assessee was trading of Iron & Steel and other textile products with turnover of Rs.109.26 cores, The paid-up share capital and reserves available with the assessee were to the tune of Rs.2.2 crores and balance of Rs.2.86 crores was secured loans on which interest of Rs. 45,01,802/- was debited as per schedule -14 of an annual report and assessee had advanced a sum of Rs.4,62,96,917/-as on 31.03,2009 to M/s NLBD Marketing Pvt. Ltd. As per MOU dated 21.04,2008 and this advance was given to M/s NLBD Marketing Pvt. Ltd. for purchase of land and assessee-company earned a profit of Rs.55,96,500/- on account of sale of property in Fy. 2010-11 which was duly reflected in the computation of income for Ay-2011-12 and further a sum of Rs.30 lacs was received ill form of a plot on 04.10.2012 after receiving the principal amount advance to M/s. NLBD Marketing Pvt. Ltd. on the basis of above MOU. It was contended that advance given to M/s. NLBD Marketing Pvt. Ltd. was for the purpose of the business carried by the assessee company. Keeping in view the above factual matrix it cannot be said that transactions with M/s. NLBD Marketing Pvt. Ltd. was not for the purpose of business of the assessee company as assessee earned business profits from the above advances given which were reflected in the books of accounts for next financial year. Regarding the advance given to M/s Phool Commercial Pvt. Ltd. for Rs.2.71crores it was contended that this advance was given for purchase of property out of the reserves and equity capital available for Rs.2.2crores as on 31.03.2009.This deal could not be materialized and the above advance was given from overdraft facility with Allahabad Bank. The sate proceeds and relevant purchase an expense of trading activity was also reflected in this very account maintained with Allahabad Bank. It was further contended that AO has not been able to prove direct nexus between the borrowed funds and the 3 Rajashree Vanijya Pvt. Ltd., AY 2009-10 interest free advances given and reliance was placed on the Supreme Court decision in the case of S.A Builders. The contention of assessee is not acceptable as the amount of the interest free for Rs.2.71 crores exceeded the reserves and equity by an amount of Rs.51,00,000/- for the whole financial year. Therefore, keeping in view the facts and Circumstances and amount of Rs.51 Lac was diverted out of cash credit account for giving interest free advance to M/s Phool Commercial Pvt. Ltd. and accordingly interest @ of 15% p.a. is disallowed on amount of Rs.51,00,000/-and this is quantified at Rs.7,65, 000/ -.” Aggrieved, by the aforesaid order of the ld CIT(A), the revenue is before us.
We have heard rival submissions and perused the material available on record. The AO disallowed the whole of interest debited in P&L Account for Rs.45,01,802/- u/s. 36(1)(iii) of the Act on account of interest free loan given to sister concerns viz., M/s. Phool Commercial Pvt. Ltd. and M/S. NLBED. The Ld. CIT(A) took note of the fact that assessee’s turnover was of Rs.109.26 cr. and its paid up share capital and reserves available with the assessee were to the tune of Rs.2.2 cr. Rs. 2.86 cr. was secured loans on which interest of Rs.45,01,802/- was debited as per Schedule 14 of the Annual Report. The assessee had advanced a sum of Rs. 4,62,96,917/- as on 31.03.2009 to M/S. NLBED and as per the MOU dated 21.04.2008 this advance was given to M/S. NLBED for purchase of land. The Ld. CIT(A) has taken note of the fact that the assessee company earned profit of Rs.55,96,500/- on account of sale of property in FY 2010-11, which fact is discernable from a perusal of page 43 of the paper book and that the said profit has been duly reflected in the computation of income for AY 2011-12. The Ld. CIT(A) has also taken note of the fact that the assessee received further Rs. 30 lacs on 04.10.2012 from the sale of a plot after receiving the principal amount advanced to M/S. NLBED. From the aforesaid facts and the MOU between the assessee and the sister concern M/S. NLBED, it is clear that the assessee has advanced the amount for the purpose of business and that it was for commercial expediency that the amount was advanced by the assessee. The decision of the assessee to give advance of the amount has fructified and the assessee is in receipt of profit in the FY 2010-11 which fact could not be controverted by the Ld. DR before us. In the facts and circumstances of the case, the assessee’s case falls in the ratio laid down by the Hon’ble Supreme Court in the case of S. A. Builders (supra) and, 4 Rajashree Vanijya Pvt. Ltd., AY 2009-10 therefore, we do not find any infirmity in the order passed by the ld. CIT(A) and we confirm the same and dismiss the appeal of the revenue.
In the result, the appeal of revenue is dismissed.