DCIT, BHUBANESWAR vs. M/S. A.K.DAS & ASSOCIATES LTD., BHUBANESWAR

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ITA 155/CTK/2015Status: DisposedITAT Cuttack29 May 2017AY 2011-125 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 held that advancing interest-free loans to a sister concern was a business expediency, especially since the assessee had sufficient non-interest-bearing funds. The Revenue cannot dictate how an assessee utilizes its funds for business purposes.

What were the facts?

The assessee took a loan from Federal Bank and advanced it as an interest-free loan to its sister concern, Hotel Sea Pearls. The Assessing Officer disallowed the interest paid on the bank loan, amounting to Rs. 36,97,718, as a deduction.

What were the issues?

Whether the disallowance of interest paid on borrowed funds advanced as interest-free loans to a sister concern is justified under Section 36(1)(iii) of the Income Tax Act.

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, CUTTACK BENCH, CUTTACK

Before: SHRI N.S. SAINI & SHRI KULDIP SINGH

For Respondent: Shri A. Tigga, DR
Hearing: 27.04.2017

PER KULDIP SINGH, JUDICIAL MEMBER :

The Appellant, Deputy Commissioner of Income-tax, Circle

1 (1), Bhubaneswar (hereinafter referred to as ‘the assessee’) by

filing the aforesaid appeal sought to set aside the order dated

28.01.2015 passed by the Commissioner of Income-tax (Appeals)-

2, Bhubaneswar qua the assessment year 2011-12 on the grounds

inter alia that :-

“1. On the facts and in the circumstances of the case, the Ld. CIT (A) is not justified in law as well as on facts by deleting addition of Rs.36,97,718/- made

2 ITA No.155/CTK./2015

by the AO u/s 36(1)(iii) towards deduction of interest.

2.

On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law in not accepting the examination of findings made by the AO on the issues.”

2.

Briefly stated the facts necessary for adjudication of the

controversy at hand are : during the scrutiny proceedings, the

Assessing Officer noticed that the assessee has taken cash credit

loan from Federal Bank and advanced the same as interest free loan

to Hotel Sea Pearls Orissa Pvt. Ltd.. Assessee paid an amount of

Rs.2,50,19,121/- to Hotel Sea Pearls as an advance but has not

charged any interest despite the fact that the assessee had itself paid

interest to the Federal Bank on the loan taken by them and thereby

disallowed the interest amounting to Rs.36,97,718/- and made

addition thereof to the total income of the assessee.

3.

Assessee carried the matter by way of filing an appeal before

the ld. CIT (A) who has deleted the addition by allowing the

appeal. Feeling aggrieved, the Revenue has come up before the

Tribunal by filing the present appeal.

4.

Assessee has not preferred to put in appearance despite

issuance of the notice of 01.03.2017 and consequently, we

proceeded to decide the present appeal with the assistance of the ld.

DR as well as on the basis of documents available on the file.

3 ITA No.155/CTK./2015

5.

We have heard the ld. Departmental Representative for the

revenue to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

6.

Undisputedly, the assessee has taken cash credit loan from

Federal Bank during the year under assessment and has advanced

the loan to Hotel Sea Pearls as under :-

Date Particulars Debit Days Int. Disallowed 31.03.2010 Federal Bank Ltd. 2,60,30,575 31 3,09,514 01.05.2010 Federal Bank Ltd. 2,61,05,575 14 1,40,183 15.05.2010 Federal Bank Ltd. 2,61,55,575 2 20,064 17.05.2010 Federal Bank Ltd. 2,61,95,575 2 20,095 19.05.2010 Federal Bank Ltd. 2,66,35,575 38 3,88,223 26.06.2010 Federal Bank Ltd. 2,66,35,575 19 1,94,111 15.07.2010 Federal Bank Ltd. 2,64,35,575 11 1,11,536 26.07.2010 Federal Bank Ltd. 2,64,39,475 23 2,33,247 18.08.2010 Federal Bank Ltd. 2,63,39,475 13 1,31,337 31.08.2010 Federal Bank Ltd. 2,62,14,475 3 30,165 03.09.2010 Federal Bank Ltd. 2,63,39,475 119 12,02,235 31.12.2010 Federal Bank Ltd. 2,66,69,121 77 7,87,652 18.03.2010 Federal Bank Ltd. 2,62,19,121 7 70,397 25.03.2010 Federal Bank Ltd. 2,56,19,121 6 59,959 Total 36,97,718

7.

It is also not in dispute that the assessee has debited the

interest amount of Rs.2,37,31,348/- from its P&L account. It is

4 ITA No.155/CTK./2015

also not in dispute that Hotel Sea Pearls is a sister concern of the

assessee.

8.

In the backdrop of the aforesaid undisputed facts and

circumstances of the case, the sole question arises for

determination in this case is :-

“as to whether ld. CIT (A) has erred in deleting the addition of Rs.36,97,718/- made by the AO u/s 36(1)(iii) of the Income-tax Act, 1961?”

9.

When the assessee has advanced interest free loan to Hotel

Sea Pearls, its sister concern, with objective of diversifying its

business into hotel industry, the business interest of the assessee as

well as its sister concern Hotel Sea Pearls has become same.

Moreover, the funds available with the assessee are to be used by

the assessee to the best of its business acumen and the Revenue

cannot direct the assessee to utilize the funds available in a

particular manner. Even otherwise, it is not the case of the

Revenue that the funds available with the assessee have been

siphoned of for the activities other than the business activities.

Furthermore, the assessee was having non-interest bearing funds to

the tune of Rs.16,00,00,000/- which is far more than the amounts

advances to Hotel Sea Pearls. So, we are of the considered view

that advancing interest free loans to a sister concern by the assessee

is a business expediency and in the given circumstances, interest

5 ITA No.155/CTK./2015

cannot be disallowed as has been done by the AO u/s 36(1)(iii) of

the Act.

10.

In view of what has been discussed above, finding no

illegality or perversity in the impugned order passed by the ld. CIT

(A), the present appeal filed by the Revenue stands dismissed. Order pronounced in open court on this 29th day of May, 2017.

Sd/- sd/- (N.S. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 29th day of May, 2017 TS

Copy of the order forwarded to: 1.Appellant - DCIT, Circle 1 (1), Bhubaneswar. 2.Respondent - M/s. A.K. Das & Associates Ltd., Plot No.H – 1, Satya Nagar, Bhubaneswar. 3.CIT 4.CIT (A), Bhubaneswar. 5.DR(ITAT), Cuttack. 6.Guard File //True Copy//

BY ORDER

SR. PRIVATE SECRETARY, ITAT, CUTTACK

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