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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI NABIN KUMAR PRADHAN
Instant appeal by the assessee is directed against the order dated 21st November 2013, passed by the learned Commissioner (Appeals)–10, Mumbai, for the assessment year 2009–10.
The only issue arising for consideration in the present appeal relates to disallowance of interest expenditure amounting to ` 4,82,867.
2 Mrs. Renu S. Kochhar
Brief facts are, the assessee an individual is engaged in the business of travel agent through her proprietary concern Jai Ambe Tours & Travels. For the assessment year under consideration, assessee filed her return of income on 22nd September 2009, declaring loss of ` 2,99,697. In the course of assessment proceedings, the Assessing Officer, on examining the Profit & Loss account found that assessee had debited ` 2,03,247 towards interest paid to bank and ` 2,79,620 being interest paid to Jai Ambe Consultancy Services Ltd., on the unsecured loan taken by them. On a perusal of the Balance Sheet of the assessee, the Assessing Officer found a debit balance of ` 84,27,875 in the capital account. He found that assessee had taken unsecured loan of ` 1,26,26,600 and paid interest on it. Whereas, the assessee had given interest free loan of ` 87,44,852. He, therefore, called upon the assessee to explain why interest expenditure should not be disallowed under section 36(1)(iii) as the assessee has diverted the interest bearing fund towards interest free loan advanced to others. In response, it was submitted that the assessee had a commercial relationship with M/s. Jai Ambe Consultancy Pvt. Ltd. It was submitted, while the assessee is in the business of travel agency, Jai Ambe Consultancy Pvt. Ltd., is in the business of supplying manpower overseas and the assessee provides air tickets to the concerned persons. Therefore, there is a commercial relationship
3 Mrs. Renu S. Kochhar between the assessee and Jai Ambe Consultancy Pvt. Ltd. Hence, the fund advanced to the concerned party is on account of business / commercial expediency. It was also submitted by the assessee that it has sufficient interest free funds available to provide interest free advance to others, therefore, no disallowance out of interest expenditure can be made. The Assessing Officer, however, did not find merit in the submissions of the assessee. He held that as the interest free advances were not for business purpose, proportionate interest relatable to such advance has to be disallowed under section 36(1)(iii) and accordingly, added back the amount of ` 4,82,867 to the income of the assessee.
Though, the assessee challenged the disallowance by preferring appeal before the learned Commissioner (Appeals), he also sustained the disallowance made by the Assessing Officer.
Learned Authorised Representative drawing our attention to the Schedule–A of the Profit & Loss account submitted that interest of ` 2,03,247 was on over draft account which proves that it was incurred for the purpose of the business. As far as payment of interest of ` 2,79,620 on loan received from Jai Ambe Consultancy Pvt. Ltd., learned Authorised Representative submitted the assessee has a commercial relationship with the concerned party, hence, interest
4 Mrs. Renu S. Kochhar payment cannot be disallowed under section 36(1)(iii). Further, referring to the Schedule–B of Balance Sheet of the company, learned Authorised Representative submitted that the assessee had sufficient interest free funds available with him to make interest free advance to the relatives, hence, no disallowance out of the interest expenditure can be made as the interest free advances deemed to have been made from the interest free funds available with the assessee. Learned Authorised Representative submitted, as the interest payments were made for the purpose of business, they have to be allowed. In support of his contention, learned Authorised Representative relied upon the following decisions:– i) S.A. Builders v/s CIT, [2007] 288 ITR 001 (SC); and ii) CIT v/s Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.).
Learned Departmental Representative on the other hand, relying upon the observations of the learned Commissioner (Appeals) submitted, the assessee having diverted interest bearing funds for non–business purpose disallowance of interest expenditure is justified.
We have considered the submissions of the parties and perused the material available on record. The submissions of the assessee are twofold. Firstly, the interest payments made by the assessee being wholly and exclusively for the purpose of business, no disallowance
5 Mrs. Renu S. Kochhar could be made. The second argument of the assessee is, the assessee having sufficient interest free funds available with her to make interest free advance to friends / relatives, no disallowance could be made. On a perusal of the assessment order, we have noted that the Assessing Officer has not established the fact that interest bearing funds have been diverted by the assessee towards interest free advances to friends / relatives. Therefore, unless a nexus is established between the interest bearing funds and advances made, no disallowance out of interest expenditure can be made if it is otherwise proved that the interest expenditure is incurred wholly and exclusively for the purpose of assessee’s business. On a perusal of the Profit & Loss account and other materials placed before us, we have noted that interest payment of ` 2,03,247, made to the bank on overdraft account. Thus, it prima– facie proves that such interest payment is connected with the business activities of the assessee. As far as interest payment to Jai Ambe Consultancy Pvt. Ltd. is concerned, it appears that the assessee has a commercial / business relationship with the said entity as assessee provides air tickets to the concerned party who is in the business of supplying manpower. Thus, interest payments are for the business of the assessee. Even otherwise also, the assessee has demonstrated before us that it is having sufficient interest free surplus funds available with her which can take care of the interest free advances.
6 Mrs. Renu S. Kochhar That being the case, applying the principle laid down by the Hon'ble Supreme Court in S.A. Builders (supra) and the decision of Hon'ble Jurisdictional High Court in Reliance Utilities & Power Ltd. (supra), we hold that no disallowance of interest expenditure can be made. Accordingly, we delete the same.
In the result, appeal stands allowed. Order pronounced in the open Court on 19.08.2016