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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SHRI H.S.SIDHU & SHRI J. SUDHAKAR REDDY
ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee directed against the order dated 10.1.2014 of Ld.CIT(A)-2, Faridabad pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2009-10 on the following grounds.
“1. The Ld.CIT(A) , has erred on facts and in law in confirming the disallowance of Rs.16,16,108/- out of interest expenses by incorrectly applying Proviso to S.36(1)(iii) of the Act. 2. The Ld.A.O. has erred on facts and in law in disallowing interest of Rs.6,88,848/- u/s 40(a)(ia). The assessee has not challenged this disallowance before CIT(A) but in view of amendment made by Finance Act,
ITA 811/Del/2014 A.Y.: 2009-10 Lauls Ltd., Faridabad 2013, since the recipient has furnished the return of income and paid the tax on such income, disallowance made by AO is not sustainable. 3. The assessee craves to amend, add, alter, or modify any of the ground of appeal s.
4. Necessary cost be allowed to the assesse.”
Facts in brief:- The assessee is engaged in the business of manufacturing of ingots and rolled products of iron and steel. The issue that is to be adjudicated by us is the disallowance of Rs.16,16,108/-, being interest expenses claimed by the assessee. The Assessing Officer (hereinafter referred to as the AO) disallowed this claim on the ground that the assessee has claimed that advances were given to three builders, for purchase/construction of guest house, which is a capital asset.
2.1. The assessee carried the matter in appeal without success. Further aggrieved the assessee is before us.
We have heard Shri P.C. Panwal, the Ld.Counsel for the assessee and Ms. Rashmita Jha, Ld.Sr.D.R. on behalf of the Revenue.
3.1. On a careful consideration of the facts and circumstances of the case, orders of lower authorities and case laws cited, we hold as follows.
Ground no.2 is dismissed as ‘not pressed’. Ground nos. 3 and 4 are general in nature which do not require any adjudication.
On ground no.1, we find that the advances were given for the purpose of acquisition of guest house, so as to save expenditure being incurred by the assessee on hotels. In our view these expenses are for the purpose of business. The A.O. as well as the Ld.CIT(A) have wrongly applied the Proviso to S.36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) while disallowing the claim. The Proviso is not attracted for the impugned A.Y. as the amendment is only w.e.f. 1.4.2016, by the Finance
ITA 811/Del/2014 A.Y.: 2009-10 Lauls Ltd., Faridabad Act, 2015. Only when a capital asset is acquired for the extension of existing business or profession, and funds are borrowed for acquisition of the same, the Proviso is attracted and the disallowance can be made. acquisition of guest house cannot be considered as acquisition of an asset for the extension of existing business or profession. Thus the disallowance is wrong.
5.1. Moreover, the assessee has demonstrated that it has interest free funds, in the form of profits during the year to the tune of Rs.1.86 crores. The advances in question are only Rs.1.64 crores. The assessee has also demonstrated that it has sufficient interest free funds in this case. The Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340/221 CTR 435 (Mum) has laid down that if there are interest free funds as well as interest bearing funds and if there are interest free advances given, the presumption should be that interest free funds have been advanced. The decision of Hon’ble Supreme Court in the case of CIT vs. S.A.Builders Ltd. 288 ITR 1 clinches the issue in favour of the assessee. Thus for all these reasons this ground of the assessee is allowed.
In the result assessee’s appeal is allowed in part.
Order pronounced in the Open Court on 05th May, 2016.