DCIT, NEW DELHI vs. SH. SUMEET BAWA, NEW DELHI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the assessee had sufficient interest-free funds and substantial shareholding in the companies receiving interest-free loans, which were engaged in real estate business. Therefore, the commercial expediency of the loans was established.
What were the facts?
The Assessing Officer disallowed interest expenses of Rs. 33,48,531/- by linking borrowed funds with interest-free loans advanced to various companies. The assessee argued these loans were for business expediency, particularly in the property segment.
What were the issues?
Whether interest on borrowed funds can be disallowed when interest-free loans are advanced to related entities, and if the assessee has established the business expediency for such advances.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(3)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Reliance Utilities & Power Ltd.2,118 citing313 ITR 340 · 2009 · HC
- S.A. Builders Ltd. v. CIT1,484 citing288 ITR 1 · 2007 · SC · Read judgment
- CIT v. HDFC Bank Ltd.1,261 citing366 ITR 505 · 2014 · HC
Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: SHRI H.S. SIDHU, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
With this appeal the Revenue has challenged the order of the CIT(A)-VI, New Delhi dated 11.11.2013 pertaining to A.Y 2009-10.
The sum and substance of the grievance of the Revenue is that the ld. CIT(A) erred in deleting the addition of Rs. 33,48,531/- on the issue of disallowance of interest by ignoring the fact that the Assessing Officer has established the nexus between the borrowed funds and interest free loans advanced to concerns and the assessee could not establish that the interest free loans were for business purposes.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has paid interest on loan to banks amounting to Rs. 64.86 lakhs. The Assessing Officer further noticed that the assessee has advanced interest free loans amounting to Rs. 17.27 crores. The assessee was asked to explain as to why interest should not be disallowed for using borrowed funds in advancing interest free loans.
In its reply, the assessee stated that loans have been given for furthering the business activity in the property segment. It was explained that the assessee used the companies to which interest free loans were given for the purchase of properties and, therefore, loans were given for business expediency.
The Assessing Officer rubbished the claim of the assessee and examined the bank statements and formed a belief that the borrowings were simultaneously advanced to various companies on which no interest was charged. Drawing supporting from various judicial decisions discussed in the assessment order, the Assessing Officer disallowed interest of Rs. 33,48,531/-.
The assessee assailed the assessment before the ld. CIT(A) and reiterated the contentions.
After considering the submissions and facts and after drawing support from the judgment of the Hon'ble Supreme Court in the case of SA Builders 288 ITR 1, the ld. CIT(A) deleted the disallowance made by the Assessing Officer.
Aggrieved by this, the Revenue is before us.
The ld. DR strongly supported the order of the Assessing Officer. It is the say of the ld. DR that the Assessing Officer has clearly established the nexus between the borrowed funds and advancement of interest free loans.
Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
We have given thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee had capital to the extent of Rs. 8.31 crores. The assessee had also interest free deposits from associated concerns to the extent of Rs. 17.01 crores. Thus, the assessee had its own interest free funds to the extent of Rs. 25.32 crores. The details of interest free advances given during the year under consideration are as under:
Details of Interest Free Advances given during the year under consideration: S.No. Particulars Amount (Rs.) Percen Business tage Activities Holding 1 Arnav Constructions P. 7,10,92,719 80% Real Estate Holding 2 Aastha Garments P. Ltd. 71,70,000 50% Real Estate Ltd. 3 Geetanjali Builders P. 1,36,53,439 80% Real Estate 4 N.B. Textiles P. Ltd. 55,73,483 50% Real Estate Ltd. 5 Pride Towel 3,30,42,250 90% Real Estate Manufacturing P. Ltd. 6 SAB Apparels P. Ltd. 1,59,82,868 90% Real Estate 7 SNB Overseas P. Ltd. 1,01,76,187 50% Export 8 SYB Properties P. Ltd. 1,31,05,670 90% Real Estate 9 SYB Real Estates P. Ltd. 26,00,776 90% Real Estate 10 Sh. R.S. Bhalla & Others 3,04,050 21% Real Estate
Total 17,27,01,442
From the above chart it can be seen that in all these companies, the assessee was having substantial share holding. All these companies are engaged in the business of real estate. Since the interest of the assessee in these companies have been established by share holding, therefore, it cannot be said that the assessee has not established the commercial expediency of advancing interest free loans. This, couples with the fact that the assessee was having sufficient interest free funds available with it, we do not find any merit in the disallowance. We draw support from the judgment of the Hon'ble Bombay High Court in the case of Reliance Utility and Power Ltd 313 ITR 340 followed in the case of CIT Vs. HDFC Bank Ltd 366 ITR 505. Considering the facts in totality, we do not find any cause of interference with the findings of the ld. CIT(A).
In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 24.05.2018.
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