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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 06/01/2016 of the Ld. First Appellate Authority, Mumbai, confirming the addition of Rs.1,74,546/-, being loan advanced to Shri Amit Durgani, one of the director, for higher studies and further levying interest u/s 234B and C of the Income Tax Act, 1961 (hereinafter the Act)
During hearing of this appeal, the ld. Counsel for the assessee, Shri Vimal Punamiya, contended that the director was sent abroad by the assessee for higher education, who was getting salary of Rs.10,000/- per month and after completing the education, still working with the assessee. It was explained that the capital and reserves of the assessee are much more than the loan amount advanced to the assessee by contending that own funds were used and not the borrowed one. The ld. Counsel explained the availability of capital and reserves as on 31/03/2011. It was pleaded that the loan amount was returned back. Reliance was placed upon the decision from Hon’ble jurisdictional High Court in CIT vs HDFC Bank Ltd. (2014) 49 taxman.com 335 (Bom.), CIT vs Reliance utilities and power Ltd. (2009) 313 ITR 340 (Bom.) and American Express International Banking Corporation vs CIT (2002) 258 ITR 601. On the other hand, the ld. DR, Smt. N.V. Nadkarni, defended the addition and the conclusion arrived at in the impugned order.
M/s Ashraj Foods & Beverages Pvt. Ltd.
2.1. We have considered the rival submissions and perused the material available on record. The facts and brief are that the assessee is engaged in the business of trading in tea and coffee, declared loss of Rs.9,194/- in its return filed on 24/09/2011 under the normal provisions of the Act and income of Rs.1,02,287/- u/s 115JB of the Act. The case of the assessee was selected for scrutiny. The ld. Assessing Officer while framing the assessment made disallowance of interest expenses on the assumption that borrowed funds were utilised for non-business purposes. The assessee advanced loan of Rs.13,67,703/- to Shri Amit Durgani, one of the Director, for higher studies. The stand of the assessee is that so as to managerial expertise Shri Amit was sent for higher studies so as to enhance the business of the assessee. Shri Amit Durgani was paid a salary of Rs.12,000/- per month for his regular employment in the firm. Plea of the Department and the stand of the Assessing Officer was that this was merely an arrangement to facilitate the education of Shri Durgani, thus, the disallowance of Rs.1,76,546/- at the rate of 14.5% per annum was made. Now the question arises, whether the loan was advanced for business purposes. There is no dispute to the fact that after getting higher management education, Shri Amit Durgani, is assisting the assessee firm, thus, the business purposes of the assessee firm is achieved. The assessee paid interest during the year only on cash credit loan/secured loans, which were taken for specific purposes, thus, interest cannot be disallowed on general presumption. Thus, the loan advanced to close relative for education
M/s Ashraj Foods & Beverages Pvt. Ltd. purposes is to be treated as legible business advance. Shri Amit Durgani, Director of the assessee firm was providing service continuously to the assessee and even after completion of education for which loan was taken. Even otherwise, the loan taken from the assessee company was also returned. So far as, availability of funds, with the assessee, is concerned, from the record (page 23 of the paper book), we find that as on 31/03/2011, the share capital was to the tune of Rs.31 crore and the reserve and surplus was Rs.2,48,008/- meaning thereby sufficient funds were available with the assessee, whereas, the loan granted to the Director was only to the tune of Rs.13,67,703/-, thus, there was no question of using interest bearing funds. In such a situation, the decision from Hon’ble jurisdictional High Court in CIT vs HDFC Bank Ltd. (2014) 49 taxman.com 335(Bom.), CIT vs Reliance utilities and power Ltd. (2009) 313 ITR 340 (Bom.) and American Express International Banking Corporation vs CIT (2002) 258 ITR 601, comes to the rescue of the assessee. The sum and substance of the decisions is that if there are interest free funds available with the assessee, which are sufficient to merits investments and at the same time the assessee had raised a loan, it can be presumed that investment was from interest free funds available with the assessee. The principle, therefore, would be that if there were funds available, both interest free and overdraft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the assessee, if the interest free
M/s Ashraj Foods & Beverages Pvt. Ltd. funds are sufficient to meet the investment. Even otherwise, it is settled principle that the businessman (assessee) knows best how to run its business. Once it is established that there is nexus between the expenditure and the purpose of the business, the Revenue cannot, justifiably, claim to put itself in the arm-chair of the businessman to decide as to how to run the business. No businessman can be compelled to maximise its profits. The ratio laid down in CIT vs Dalmia Cement Ltd. (254 ITR 377) (Bom.) and the ratio laid down in Amarjothi Pictures vs CIT 69 ITR 755 (Mad.), CIT vs Gobald Motor Service Pvt. Ltd. 100 ITR 240 (Mad.) comes to the rescue of the assessee. Considering the totality of facts and the judicial pronouncements discussed hereinabove, it is concluded that the expenditure was incurred wholly and exclusively for the purposes of business, therefore, the disallowance/addition is deleted. The appeal of the assessee is, therefore, allowed.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 13/06/2016.