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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Satbeer Singh Godara & Shri Amarjit Singh
Appellant by : Sri.Anil D.Nair, Advocate Respondent by : Smt.V.Swarnalatha, Sr.DR Date of Pronouncement : 06.11. 2024 Date of Hearing : 16.08.2024 O R D E R Per Bench : This assessee’s appeal in 2012-2013 arises out of the order of the Commissioner of Income-tax (Appeals) / NFAC vide DIN & Order No.ITBA/NFAC/S/250/2023-24/1055157496(1) dated 16.08.2023 in proceedings u/s.143(3) r.w.s. 147 of the Income-tax Act, 1961; in short “the Act” hereinafter.
Delay of 63 days is condoned by considering the assessee’s condonation petitions, supported by an affidavit of Dr.A.Marthanda Pillai, Managing Director of the assessee, explaining the delay(s) as well as going by the decision in the case of Collector Land Acquisition v. Mst.Katiji & Ors. (1987) 167 ITR 471 (SC) settling the issue long back that all such . Ananthapuri Hospitals Private Limited. technical aspects must make way for the cause of substantial justice the delay is condoned and the appeal is admitted for adjudication.
It emerges at the outset that the assessee’s sole substantive grievance canvassed in the instant appeal challenges sec.36(1)(iii) interest disallowance of Rs.48,03,852 made by the Assessing Officer in his assessment dated 27.12.2018, as upheld to Rs.45,30,588 in the CIT(A)/NFAC’s lower appeal discussion, reading as under:-
“4. Decision: The only issue involved in this appeal is disallowance of Rs.48,03,852/- u/s 36(1)(iii) of the Act. After due consideration of facts of the case and submissions filed by the appellant along with appeal memo, statement of facts and grounds of appeal, the appeal is decided on merits as under: 4.1 While completing the assessment, the AO noted that the appellant has diverted funds to Ananthapuri Education Trust (AET) and Ananthapuri Medical & Education Services (AMES) without charging any interest. Hence, the AO disallowed proportionate interest u/s 36(1)(iii) of the Act to the tune of Rs.48,03,852/- due to diversion of borrowed funds to Ananthapuri Education Trust (AET) and Ananthapuri Medical & Education Services (AMES): 4.2 During the course of appeal proceedings, the appellant submitted a detailed note along with supporting documents which have been perused. 4.3. As per appellant, Ananthapuri Education Trust (AET) is the nursing college division of Ananthapuri Hospitals Private Limited (AHPL). As per the directions of Government of Kerala, the appellant started nursing college under Ananthapuri Education Trust (AET). Further, it is observed that Directors of Ananthapuri Hospitals Private Limited (AHPL) are members of Ananthaputi Education Trust (AET).
. Ananthapuri Hospitals Private Limited. 4.4 Similarly, Ananthapuri Medical & Education Services (AMES) is a company registered u/s 8 of the Companies Act, 2013: The objective of the company is to undertake and assist in improving the health conditions of the rural, tribal and low income segments of the society by all conceivable means and especially by providing medical care, medical attention and medical facilities free of cost including surgery, treatment and therapy, inpatient care, outpatient care and conducting free medical camps, imparting education in the field of nursing, paramedics, etc. 4.5 From the submissions, it is noticed that the assets purchased for Nursing College is transferred to Ananthapuri Education Trust (AET) and the total amount transferred upto 31.03.2012 is Rs.3,36,20,380/- and initial expenses met for Ananthapuri Medical & Education Services (AMES) is Rs.22,33,244/-, both totalling to Rs.3,58,53,624/-. 4.6 The appellant submitted that as per P&L a/c., the total finance cost claimed is Rs.2,96,61,938/- being term loan interest and the amount is erroneously taken by the Assessing Officer as Rs.3,41,62,506/-. Apart from term loan amounting to Rs.2.96,61,938/-, finance cost includes Rs.21,69,861/- being bank charges (cash credit amount), Rs.4,44,974/-being credit card charges, Rs.819.313/- being bank charges, others Rs.2,474/- being interest on vehicle finance and Rs.10,63,946/- being interest on loan - Philips. Short term borrowing amounting to Rs.2,30,73,102/- is cash credit from Union Bank of India and directly relates to the day to day operations of the appellant. Hence, cash credit charges amounting to Rs.21,69,861/- is fully allowable. 4.7 The submission of the appellant along with materials available on record is duly considered. On perusal of the same, the appellant's submission is not accepted for the following reasons: (i) Both Ananthapuri Education. Trust (AET) and Ananthapuri Medical & Education Services (AMES) are separate entities. (ii) From the grounds of appeal, it is observed that the appellant has not granted or taken any loan from these entities, instead the appellant has transferred assets purchased by them where the appellant company is not a member of the trust. (iii) Further for purchase of assets, the appellant claims that the assets are purchased out of own funds but fails to prove with credible evidence. An analysis of balance sheet of the . Ananthapuri Hospitals Private Limited. appellant company reveals that there is no sufficient reserves & surplus. (iv) Further in the grounds of appeal, the appellant states that the assets are transferred in lieu of share capital whereas the appellant. company is not a shareholder/member of the trust, only directors of the appellant company are members. Since the appellant fails to prove the source for the purchase of the impugned assets out of own funds, the appellant's claim for expenditure on interest payment u/s 36(1)(i) is not acceptable. It clearly proves that the borrowed funds were not exclusively utilised for the business purpose of the appellant company. (v) Similarly, the appellant has not submitted any conclusive proc for initial investments made in Ananthapuri, Medica! & Education Services (AMES): VE TẠX DEPAR 4.8 In the assessment order, the AO has calculated average borrowings at Rs.25,49,73,840/- as shown. below: The assessee has debited Rs.3,41,62,506/- as Finance Cost in the P&L account. Average Borrowings with financial institutions and others during the previous years is worked. out to Rs. 25,49,73,840/- as shown below : Particulars Balance as on Balance as on 31.03.2012 31.03.2011 Long Term Borrowings Rs.20,04,02,502 27,43,37,534 Short Term Borrowings Rs.2,30,73,102 Rs.1,21,34,541 Total amount diverted Rs.22,34,75,602 Rs.28,64,72,075 Average Rs.48,03,852 Proportionate interest disallowable : Rs.48,03,852/- is worked out as under:- 3,41,62,506 x 3,58,53,624 -------------------------------- = Rs.48,03,852/- 25,49,73,840 4.9 The Assessing Officer has taken the entire long term borrowings and short term borrowings while calculating average borrowings. Some of the borrowings are directly related to specific assets such as Philips Electronics India Ltd. (Loan). Similarly, the short term borrowings are for day to day functioning. of the appellant, which are secured by hypothecation of inventories.
. Ananthapuri Hospitals Private Limited. 4.10 In this regard, loans for specific purpose and short term borrowing have to be excluded while calculating average borrowings which are as under: Particulars 31.03.2012 31.03.2011 Long Term Borrowings Rs.19,85,85,607 Rs.27,11,84,715 Average Balance Rs.23,47,35,161 4.11 Similarly, with respect to finance cost incurred above, specific interest payment has to be excluded - only term loan interest has to be considered for calculation. Hence, proportionate disallowance to be made is as under: Term Loan interest Rs.2,96,61,938/- 2,96,61,938 x 3,58,53,624 ----------------------------------------- Rs.45,30,586/- 23,47,35,161 5.0 Considering the above facts and circumstances of the case, the Assessing Officer is directed to adopt the figure of Rs.45,30,586/- as disallowance u/s 36(1)(ii) of the Act (instead of Rs.48,03,852/-) and recompute the taxes accordingly. The grounds taken in the appeal are Partly allowed.”
Particulars Balance as on Balance as on 31.03.2012 31.03.2011 Long Term Borrowings Rs.20,04,02,502 27,43,37,534 Short Term Borrowings Rs.2,30,73,102 Rs.1,21,34,541 Total amount diverted Rs.22,34,75,602 Rs.28,64,72,075 Average Rs.48,03,852 Proportionate interest disallowable : Rs.48,03,852/- is worked out as under:- 3,41,62,506 x 3,58,53,624 -------------------------------- = Rs.48,03,852/- 25,49,73,840
We have given a thoughtful consideration to the rival submissions reiterated by both the parties, inter alia, against and in support of the impugned disallowance. There would be . Ananthapuri Hospitals Private Limited. hardly any dispute regarding the settled position that sec.36(1)(ii) interest disallowance comes into play when it is found that an assessee has diverted his business funds carrying interest liability for non-business purposes. We further deem it appropriate to quote CIT v. Reliance Utility and Power Ltd., [2009] 313 ITR 340 (Bom.) that even in such instances, a presumption arises that in case when interest free funds are available, the same only have been diverted for non-business purposes. When we invited the Revenue’s attention to the relevant facts herein, learned DR vehement argues that the assessee had in fact transferred the corresponding fixed asset in favour of other group party, and therefore, this disallowance has been rightly computed in his hands. It could not satisfactorily explain the fact that both the lower authorities have neither examined issue vis-à-vis sister concerns commercial expediency nor the fund position for the purpose of correct computation of the impugned disallowance. We, thus, deem it appropriate to restore this issue to the file of the Assessing Officer for his fresh appropriate adjudication as per law subject to rider that the taxpayer itself shall plead and prove its case within three effective opportunities only; at it’s own risk and responsibility in consequential proceedings. Ordered accordingly.
This, assessee’s appeal ITA.No.867/Coch/2023 is accepted for statistical purposes.
Order pronounced in the open court on this 6th Day of November, 2024.