D.C.I.T CIR - 4,KOLKATA, KOLKATA vs. M/S KANOI PLANTATIONS PVT LTD, KOLKATA

The assessee in the present case is a Company, which is engaged in the business of growing and manufacturing of tea. The return of income for the year under consideration was filed by it on 01.12.2003 declaring a loss of Rs.1,27,47,600/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed deduction on account of interest of Rs.1,19,62,858/- on the one hand and ./2013 Assessment year: 2003-2004 Page 2 of 4 on the other, has advanced interest-free loans of Rs.8,50,04,739/- to its sister concern. He, therefore, required the assesese to show-cause as to why proportionate interest attributable to the loans given to sister concern free of interest should not be disallowed. Since the explanation offered by the assessee in this regard was not found acceptable by him, the Assessing Officer worked out the interest attributable to interest-free loans given by the assessee-Company to its sister concern by applying the rate of 15% at Rs.1,27,50,710/- and since the said amount was more than the interest expenditure of Rs.1,19,62,858/- claimed by the assessee, he disallowed the claim of the assessee for the entire interest expenditure.

The disallowance made by the Assessing Officer on account of interest was challenged by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings, reliance was placed by the assessee on the decision of the Tribunal in its own case for A.Y. 2002-03 rendered vide its order dated 26.03.2008 wherein, a similar disallowance made on account of interest was held to be unsustainable by the Tribunal after having found that total interest bearing loans taken by the assessee at Rs.10,23,65,456/- were less than the net investment made by the assessee in the business assets at the relevant time. It was held by the Tribunal that the investment in business assets (excluding granting of interest free loans given by the assessee-company to its sister concern) thus was more than the interest bearing funds borrowed by the assessee and it could not be said that the interest free loans given by the assessee- company to its sister concern were out of borrowed funds. Keeping in view this decision of the Tribunal in assessee’s own case for A.Y. 2002-03, the ld. CIT(Appeals) verified the relevant facts involved in the year under consideration, i.e. A.Y. 2003-04 and found that the net investment made by the assessee-company in the business assets was to the tune of Rs.12,42,08,145/-, whereas the total interest bearing loans were to the extent of Rs.13,66,69,174/-. He, therefore, held that the interest bearing funds only to the extent of Rs.12,42,08,145/- were utilized by the assessee-company for the purpose of its business while the balance ./2013 Assessment year: 2003-2004 Page 3 of 4 amount of Rs.1,24,61,029/- was not utilized for business purpose. Accordingly, interest attributable to the said amount calculated by applying the interest rate of 15% at Rs.18,69,154/- was held to be not allowable by the ld. CIT(Appeals) and the disallowance of Rs.1,19,62.858/- made by the Assessing Officer on this issue was restricted by him to Rs.18,69,154/-. Aggrieved by this relief given by the ld. CIT(Appeals) to the assessee, the revenue has preferred this appeal before the Tribunal.

At the time of hearing before us, nobody has appeared on behalf of the assessee despite the fact that notice of the said hearing is duly served on the assessee, the proof of which is placed on record. This appeal of the Revenue is, therefore, being disposed of ex-parte qua the respondent- assessee after perusing the relevant material available on record and considering the submissions made by the ld. D.R., who has mainly relied on the order of the Assessing Officer in support of the revenue’s case on the issue under consideration. It is observed that a similar issue was involved in assessee’s own case for AY 2002-03 and vide its order dated 26.03.2008, the Tribunal deleted the entire disallowance made by the Assessing Officer on account of interest after having found that the total interest bearing loans were utilized by the assessee for the purpose of its business. As found by the ld. CIT(Appeals), the fact situation involved in the year under consideration i.e. AY 2003-04, however, is slightly different, inasmuch as, out of the total interest bearing loans of Rs.13,66,69,174/-, a sum of Rs.12,42,08,145/- was actually utilized by the assessee for the purpose of its business and accordingly the ld. CIT(Appeals) by following the decision of the Tribunal in assessee’s own case for AY 2002-03, deleted the disallowance made by the Assessing Officer on account of interest to the extent it was attributable to the amount of loan of Rs.12,42,08,145/- found to be utilized by the assessee for the purpose of its business. At the time of hearing before us, the ld. D.R. has not been able to dispute or controvert the finding recorded by the ld. CIT(Appeals) that the interest bearing loans to the extent of ./2013 Assessment year: 2003-2004 Page 4 of 4 Rs.12,42,08,145/- were utilized by the assessee for the purpose of its business. We, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of interest to the extent of Rs.1,00,93,704/- and upholding the same, we dismiss this appeal filed by the Revenue.

In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on March 11, 2016.