DCIT CEN CIR 9, MUMBAI vs. RAWASSA CONSTRUCTION, MUMBAI

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ITA 1065/MUM/2014Status: DisposedITAT Mumbai22 July 2016AY 2009-105 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The tribunal upheld the CIT(A)'s decision to delete the majority of the interest disallowance. It found that the assessee had sufficient interest-free funds available to make the advances and that the AO had not established a nexus between borrowed funds and the advances.

What were the facts?

The Assessing Officer (AO) disallowed interest expenditure of Rs. 89,72,725/- on interest-free loans and advances given by the assessee to its sister concerns. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted most of this disallowance, restricting it to Rs. 4,20,000/-.

What were the issues?

Whether the CIT(A) was justified in deleting the addition of interest on loans/advances made to sister concerns, considering the availability of interest-free funds.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI

Before: Shri Joginder Singh, & Shri Ashwani Taneja

For Respondent: Shri Omprakash, Shri R.C. Jain (AR)

आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the revenue against order of Ld. order of Ld. Commissioner of Income Tax (Appeals)-37 Mumbai, {(in short ‘CIT(A)’}, passed against assessment order

2 Rawassa Construction u/s 143(3) of the Act, for the A.Y 2009-10 on the following grounds: “

1.

On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated. 1.Whether on the facts and circumstances of the case, the learned CIT(A) was right in deleting addition of interest to the extent of Rs. 89,72,725/- computed by the AO on loans/advances made to sister concerns. 2.Whether on the facts and in the circumstances of the case, the learned CIT(A) was right in stating that loan / advance was pertaining to earlier year and as such no disallowance is warranted. 3.Whether on the facts and in the circumstances of the case, the learned CIT(A) was right in invoking principle laid down in the case of Radhaswami Satsang Vs. CIT (1991) 100 CIR (SC) 267 and jurisdictional High Court judgment in the case of H.A. Shah & Co. Vs. CIT / CEPT 1956) 30 ITR 618 (Bom).”

2. During the course of hearing, arguments were made by Shri Omprakash Meena, Authorised Representative (AR) on behalf of the Assessee and by Shri R.C. Jain, Departmental Representative (DR) on behalf of the Revenue.

3.

We have heard both the parties and gone through the orders passed by the lower authorities. The only effective issue raised by the Revenue in this appeal is with regard to disallowance made by the AO out of interest to the extent of Rs.89,72,725/- which has been deleted by the Ld. CIT(A). 3.1. The brief background of the case is that during the year under consideration. It was noted by the AO that the assessee had given interest free loans and advances to its sister concern and on the other hand, the assessee paid interest expenditure

3 Rawassa Construction aggregating to Rs.1.72 crores and therefore, he made disallowance @ 12% on prorate basis for an aggregate amount of Rs.93,92,725/-. 3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein detailed submission were filed submitting that the advances were given for commercial expediency and in any case the assessee had availability of sufficient amount of interest free funds, out of which the impugned advances were given and it was also submitted that no disallowance has been made in any of the past years and therefore, no disallowance should be made in the year under consideration. 3.3. The Ld. CIT(A) considered the entire submissions of the assessee and found that assessee had sufficient funds of interest free funds out of which advances could have been given. However, it was also noted by the Ld. CIT(A) that since the assessee had paid interest upon the partners’ capital, therefore, to the extent of advances given out of partners capital, the disallowance of interest was upheld proportionately. Thus, he restricted the disallowance to Rs.4,20,000/- and deleted the balance amount for which revenue is aggrieved before us. It was stated that the assessee accepted the order of Ld. CIT(A). 3.4. It is noted that Ld. CIT(A) has made factual analysis of financial statements of the assessee and found that assessee had interest-free funds in the form of current liabilities to the extent of Rs.7.42 crores whereas increase in current assets was not more than Rs.5.48 crores. It was further noted that there was no increase in secured loans and unsecured loans

4 Rawassa Construction during the year under consideration on which interest has been paid by the assessee. In the earlier years, no disallowance was made. Under these circumstances, it was clearly noted that the advances to the sister concerns were given out of non- interest bearing funds. It was further noted that the AO had made no nexus between the interest bearing borrowed funds and interest free advances. Thus, taking into account totality of facts and circumstances of the case, we find that Ld. CIT(A) has rightly deleted the interest disallowance on proportionate basis. The order of Ld. CIT(A) is quite fair and justified and no interference is called for therein and therefore, appeal of the assessee is dismissed.

4.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 22nd July, 2016.

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