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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND ASHWANI TANEJA, AM (A.Y:2009-10) M/s Shah Tokarshi keshavji & Commissioner of Income Tax Co.88/89, IRLa, S.V.Road, Ville (A)-32 Vs. Parle-West, Mumbai-400056 PAN No.AACFS4359Q Appellant .. Respondent .. Assessee by None. Revenue by .. Miss. Anupama Singla, DR .. Date of hearing 23-11-2016 Date of pronouncement .. 23-11-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-32, Mumbai in appeal No.CIT(A)32/ITO-21(2)(4)/IT-193/2011-12 dated 11-10-2012. The Assessment was framed by ITO ward-21(2)(4), Mumbai for the A.Y. 2009- 10 vide order dated 26.12.2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT (A) confirming the disallowance of interest amounting to Rs.2.52 lakhs on the loan advance free of interest amounting to Rs.21 lacs by invoking the provisions of Section 36(i)(iii) of the Act.
Briefly stated facts are that the AO noticed that the assessee has debited interest expenses in the P&L A/c at Rs.6,23,866/-. Further, he noticed from the balance-sheet that the assessee has given advance of Rs.22 lacs to 3 persons free of interest. The AO therefore disallowed the proportionate expenses of interest amounting to Rs.2.64 lacs being 12% of the advance to these three persons amounting to Rs.22 lacs being interest debited u/s 36(i)(iii) of the Act. Aggrieved assessee preferred the appeal before CIT (A), who also confirmed the action of the AO.
We have heard the rival contentions and gone through the facts and circumstances of the case, we noticed that the assessee has given interest free advances to these three parties Veeraj Trading Co., Vajra Book and Rakesh Desai
and this fact is admitted from records. We find from the records that the assessee was having sundry creditors to the extent of 13.59 lacs i.e. source of funds which was interest free available with the assessee. We are of the view that the AO has rightly disallowed the interest but only proportionate disallowed should have been made and to the extent interest free funds are available in the shape of sundry creditors amounting to Rs.13.59 lacs, there should not have been any disallowance. We direct the AO to re-compute this disallowance proportionately and allow interest free fund in shape of sundry creditors available with the assessee amounting to Rs.13.59 lacs. The AO will decide the issue in term of the above direction. Appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 23-11-2016.