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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
सुनवाई की तारीख / Date of Hearing : 3.8.2016 घोषणा की तारीख /Date of Pronouncement : 25.8.2016 आदेश / O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the assessee against the order dated 2.7.2010 passed by the ld.CIT(A)-30, Mumbai for the assessment year 2001-02. 2. The issue raised in the ground of appeal is in respect of upholding the order of AO disallowing the interest of Rs.2,18,618/- considering the same as non-business expenditure.
2 7181/Mum/2010
Facts of the case are that this is second round of litigation. In the first round, the co-ordinate bench of the Tribunal in vide order dated 4.1.2008 set aside the addition of Rs.2,18,168/- on account of disallowance of interest made by the AO and restored the issue to the file of the AO to decide the issue afresh after verifying the source of funds. Similarly, the issue raised in ground No.2 regarding addition of Rs.27,477/- as unexplained investment was also restored to the file of the AO. The AO again disallowed the said interest for the reasons that the assessee could not bring any evidence on record which will prove that these advances were given out of interest free advances to the family members of the assessee and out of capital available in the business. The ld. CIT(A) during the appellate proceedings, also confirmed the addition as made by the AO as under : “2.6 It is also seen that good part of interest bearing funds are shown as received during the current financial year. It is Rs.6,99,000/- received on 3.12.2000. Perusal of the bank account shows that the amount has gone to Vandana Enterprises. Appellant is partner in that firm. Share of income from a partnership firm is exempt from tax in terms of section 10(2A) of the Act. No interest expenses can therefore be allowed on the amount of Rs.6,99,000/- in terms of section 36(1 )(iii) of the Act in view of the specific provisions of section 14A of the Act. Balance interest bearing loans are shown as opening balances which have been carried forward from the preceding years. The utilization of or the purposes of appellant's business is not explained and 2.7 It is a settled law that to claim deduction u/s.36(1)(iii), the onus is on the assessee to prove that all the three necessary conditions are fulfilled. The conditions are that the capital was 3 7181/Mum/2010 borrowed which was paid/payable on such borrowed capital and finally such borrowed capital was used for the purposes of the business. In this case, the appellant had failed to discharge the onus. In view of the above, the addition of Rs.2,18,130/- is confirmed. The ground of appeal No.1 is dismissed.”
4. We have carefully considered the submissions of the parties, perused the material placed before us including the orders of authorities below. The ld.AR strongly submitted before us that the assessee has its own sufficient capital balance and interest free funds available in the business out of which the interest free loans were given to the family members and therefore the addition as made by the AO and sustained by the ld.CIT(A) was totally wrong and against the facts of the case. The ld. AR drew our attention to the page 46 of the paper book wherein the source of fund and application of funds which is reproduced as under for the sake of convenience :
Interest free funds Capital account Rs.58,09,192 Ritaben M Shah Rs.4,14,095 Rahul M Shah Rs.2,65,000 Total interest free fund 64,84,288 Investment-land 16,25,,381 Right in flat 12,11,000 Namrata Investment 4,12,,450 Ravi Nirman Grah 90,000 Loans on which interest not paid 23,87,945 Balance 2,18,762 Total interest free investments 59,43,521 4 7181/Mum/2010 The ld. AR while explaining the sources and utilization of the funds argued that since the assessee has sufficient capital funds of Rs.58,09,192/-and other free loans Rs.6,79,096/- thereby making total interest free funds available with the assessee at Rs. 64,84,288/-. The assessee has given interest free loans of Rs.23,87,945/- and made other investments aggregating to Rs.59,42,520/-. A perusal of the above facts reveals that the assessee has sufficient interest free funds available with him out of which he advanced interest free loans and there revenue could controvert the arguments coupled with facts and also bring on records any materials to the contrary and therefore the addition as made by the AO and sustained by the ld.CIT(A) is not justified and cannot be sustained. We also find strong support from the decision of jurisdictional High Court in the case of CIT V/s RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (Bom) in which it has been held that if the assessee has mixed funds i.e. interest bearing and interest free funds and he has made some investment on which there is no income or the income is earned then the presumption shall be that the assessee has made investment out of interest free funds. Applying the same analogy here we are inclined to hold that the interest free advances to family members were given out of interest free funds available with the assessee. We, therefore, following the 5 7181/Mum/2010 ratio laid down by the Hon’ble jurisdictional High Court set aside the order of the ld.CIT(A) and direct the AO to delete the addition.
As regards the second issue raised by the assessee, we find that the said addition represents the difference in the opening balance as per the assessee’s books of accounts and confirmation which is issued by the third party in respect of account of minor son Rahul M Shah which was added to the total income of the assessee as unexplained investment. We find that the addition has been made by the AO on the basis of third party confirmation though the difference related to the opening balance of the assessee’s son account in the books of the assessee. We find that the AO has rightly made the addition and ld.CIT(A) rightly upheld the same.In our opinion the order passed by the ld. CIT(A) does not call for our interference from our side. Accordingly the same is upheld by dismissing the ground of the assessee.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 25.08.2016. sd (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER म ंबई MUMBAI; ददनधंक DATED :25th Aug .2016 Sr.PS:SRL: