DCIT 17(2), MUMBAI vs. RUPJI CONSTRUCTIONS, MUMBAI

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ITA 6596/MUM/2014Status: DisposedITAT Mumbai22 June 2016AY 2010-115 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 allow partial relief. It found that the assessee had sufficient interest-free funds, including advances for flat bookings, to cover the advances made for non-business purposes.

What were the facts?

The Assessing Officer disallowed a portion of interest paid on loans, alleging diversion of interest-bearing funds for non-business purposes. The assessee had advanced funds and claimed these were from interest-free sources.

What were the issues?

Whether interest paid on loans can be disallowed when interest-bearing funds are allegedly used for non-business advances, and if there were sufficient interest-free funds available.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI “SMC” BENCH, MUMBAI

Before: SHRI SHAILENDRA KUMAR YADAV,

Hearing: 20.06.2016Pronounced: 22.06.2016

अपीलाथ� क� ओर से /By Appellant : Mrs. Neelima Nadkarni, D.R. ��यथ� क� ओर से/By Respondent : Mr. Rajesh B. Gupte, A.R. सुनवाई क� तार�ख/Date of Hearing : 20.06.2016 घोषणा क� तार�ख/Date of Pronouncement : 22.06.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M:

This appeal has been filed by Revenue against the order of Commissioner of Income-Tax (Appeals)-29, Mumbai, dated 26.08.2014 for A.Y. 2010-11 on following grounds:

A.Y. 10-11 [DCIT vs. M/s. Rupji Constructions] Page 2

“(1) On the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate the fact that the assessee himself, during the assessment proceedings, conceded to interest disallowance to the extent of Rs.52,00,000/- given as advances for non-business purposes.

(2) On the fact and in the circumstances of the case and in law the Ld. CIT(A) erred in not taking cognizance of the fact that the assessee could not furnish any substantive evidenced to account of the substantially low rate at which the flat was sold.”

2.

During the course of assessment proceedings, it was noted by the Assessing Officer that the asessee had taken secured loans amounting to Rs. 52,71,936/- and unsecured loans amounting to Rs.1,47,43,672/-. The interest paid on such loans came up to Rs 49,34,352/- during year under consideration. Assessing Officer further observed that assessee had advanced funds amounting to Rs 1,57,46,026/- on which an amount of Rs.2,72,658/- has been received as interest. Assessing Officer asked the assessee to explain the reasons as to why the proportionate interest should not be disallowed for diversion of interest bearing funds for non-business purposes. According to Assessing Officer, assessee conceded for disallowance of interest to the extent of Rs. 52,00,000/- given as advances for non business purposes and accordingly an amount of Rs. 12,81,931/- (49,34,352/20015608) X 52,00,000/-) was disallowed. Accordingly, Assessing Officer added back the amount of Rs. 12,81,931/- to the income of the assesee. A.Y. 10-11 [DCIT vs. M/s. Rupji Constructions] Page 3 2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted partial relief to the assessee.

2.2 Same has been opposed on behalf of Revenue inter alia stated that CIT(A) has failed to appreciate the fact that the assessee himself, during the assessment proceedings, conceded to interest disallowance to the extent of Rs.52,00,000/- given as advances for non-business purposes. Accordingly, order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld. Authorized Representative supported the order of CIT(A).

2.3 After going through rival submissions and material on record, I find that the stand of assessee has been contended that assessee firm had advanced an amount of Rs.1,57,46,026/- to various parties and had received an interest on such advances at Rs.2,72,658/-. Further, assessee firm had its own interest free funds to the tune of Rs. 3,53,66,572/- received as advances for the purchase of flats. The advances amounting to Rs.52,00,000/- were made from the above interest free funds available with the assessee. In this background, CIT(A) observed that the position of total funds available with the assessee as per balance sheet as on 31/03/2010 is as under:-

Secured loans 52,71,936 Unsecured loans 1,47,43,672 A.Y. 10-11 [DCIT vs. M/s. Rupji Constructions] Page 4

Advance against flat booking 13,48,93,762 (A) 15,49,09,3 Total funds available as on 31/03/2010 70

Interest on Secured loans 6,23,007 Interest on Unsecured loans 29,11,345 Interest on cancellation of flat booking 14,00,000 Total interest paid during F.Y. 2009-10 (B) 49,34,352 From this, CIT(A) observed that there was enough funds available with assessee firm which can be used for advancing the interest free loans. Total advances for flats received by assessee were at Rs. 13,48,93,762/-, which have been used for advancing the interest free loans amounting to Rs. 52,00,000/- during the period under consideration. Apart from the above, capital available with the partners of the firm stood at Rs. 1,00,00,000/- as on 31/03/2010, part of which was available for advancing the interest free loans. Further, it was rightly observed by CIT(A) that the total the total interest paid by assessee during year under consideration was at Rs. 49,34,352/-, which was about 3% of the total funds available with the assessee firm to the tune of Rs.15,49,09,370/- which was inclusive of the interest bearing funds. Thus if at all the proportionate interest has to be disallowed, it can only 3% of the total interest paid by the appellant firm during year under consideration, which comes to Rs. 1,48,030/- (3% of 49,34,352), which can be disallowed. Therefore, the proportionate disallowable interest comes to Rs.1,48,030/- and the addition on account of proportionate disallowance A.Y. 10-11 [DCIT vs. M/s. Rupji Constructions] Page 5 of interest made to this extent is confirmed and the balance addition made was deleted. This reasoned finding of CIT(A) needs no interference from our side. I uphold the same.

3.

In the result, the appeal of Revenue is dismissed.

Pronounced in the open Court on this the 22nd day of June, 2016.

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