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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & AMARJIT SINGH
आदेश / O R D E R PER AMARJIT SINGH, JM:
This is an appeal directed against the order dated 03.092013 passed by the Commissioner of Income Tax (Appeals)-29, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2009-10.
The facts of the case are that the assessee is an individual carrying on business of manufacturing of cable trays, bus ducts etc. and filed his return of income declaring income to the tune of Rs.3,73,42,609/- for the year under consideration. At the time of assessment of income of the assessee. It was found that the assessee has debited amount of Rs.36,88,744/- as interest expenses to the Profit & Loss Account. The balance sheet of the assessee speaks that the assessee has given interest free advances to the following parties from whom no interest was charged.
No Name of the party Amount (Rs) I Abhishek Builders and Developers 12,85,500/- II Globe Electrical Inds Pvt. Ltd.(sister concern) 69,00,000/- III Mahavir Enterprises 14,57,500/- IV Punit R. Gupta (Son of the assessee) 92,314/- V Unique Consultant & Cont. Pvt. Ltd. 7,40,000/- VI Bombay Commercial Syndicate 1,00,000/- Total 1,05,75,314/- The assessee has debited the interest of Rs.36,88,744/- @ 15.52% on the loan/advances taken from various parties, therefore, considering all these facts that the assessee has given the loan to the tune of Rs.1,05,75,314 to the above mentioned parties. The interest @ 15.52% i.e. to the tune of Rs.16,41,288/- was disallowed u/s 36(1)(iii) and added back to the income of the assessee. Thereafter assessee filed the appeal before the learned CIT(A) and learned CIT(A) allowed the appeal of the assessee on the basis of the facts that the assessee could give interest free loan because he was having sufficient funds. Feeling aggrieved revenue has filed the present appeal before us.
We have heard the arguments advanced by the learned representative of the parties and have gone through the record carefully. The learned DR contended that the learned CIT(A) has wrongly allowed the interest expenditure on the basis of this fact that the assessee was having sufficient funds and nexus of any kind with the borrowed funds and interest free loan has been established therefore the order of learned CIT(A) under challenge is wrong against law and facts and is liable to be set aside. Contrary to it the learned representative of the assessee has refuted the said contentions. It is necessary to advert the findings of learned CIT(A) on record to arrived at this conclusion that whether the learned CIT(A) has rightly allowed the interest to the tune of Rs.16,41,288/- or not. The observation of the learned CIT(A) has as under:
“The above report of the Assessing Officer is considered and it is evident from the report that he has not accepted the contention of the appellant that the interest free advances were given to the parties in question out of the capital of the appellant and not from the interest bearing borrowed funds. According to AO, the capital balance of Rs.4.3 crores has been adjusted against the fixed assets of Rs.3.5 crores, investments of Rs.40 lakhs and other current assets such as fixed deposits with banks etc. The interest free advances have been given out of the sale proceeds and the cost of goods sold are funded by the interest-bearing loans, which proves that the advances have been given from the borrowed funds. In response to the above observations of the AO in the remand report, the AR of the appellate has objected to the above comments of the AO and contended that the appellant has enough funds at its disposal in the capital account which are more than 4 crores and even the during the year under consideration the appellant has a net profit of Rs.1.24 crores which is sufficient to advance a loan of Rs.69,00,000/- to the sister concern. As far as the advances for business purposes and are not the loan and no interest was chargeable on these advances.
The above contentions have been considered and there is a merit in the above arguments of the AR of the appellant. The appellant has given first set of advances to the following parties: 1. Abhishek Builders & Developers 12,85,000/- 2. Mahavir Enterprises 14,57,500/- 3. Unique Consultants & Cont. Pvt. Ltd. 7,40,000/-
From the ledger account of the above first two parties, it can be observed that the above money has been given to these parties as advance for the purchase of business office premise. These are not the loans but advances for the properties to be purchased by the appellant for the business. The payment to third party M/s. Unique Consultants and Cont. Pvt. Ltd., is a deposit for the renting of premises given by this party to the appellant for office premises which is a practice for renting any property in this area. The rent to this party has also been paid during the year under consideration and shown in the books of accounts. In view of the facts stated above, in my considered opinion, there is no scope of charging interest, keeping in view the nature of the above advances.
The other set of advance of Rs.1,00,000/- is given to Bombay Commercial Syndicate, which is also an advance for business purposes. The next advance of Rs.92,314/- is given by the appellant to his son who is also working with the appellant for day to day office expense and the same is given for the business purposes. The entries of these advances, which are for business purposes, are recorded in the books of account by the appellant.
As far as the advance of Rs.69,00,000/- given to the Global Electrical Industries Pvt. is concerned, it is the sister concern of the appellant and has been given for business expediency. It is a new corporate entity of the appellant and need funds from time to time. To support the business activities of the sister concern, which is also dealing in the same line of business, the company Global Electrical Industries Pvt. Ltd. has a running account with the appellant. As and when needed, the appellant advances money out of his own capital in the Global Electrical Industries to the above company, keeping in view the business requirements. The opening capital balance of the appellant as on 01/04/2008 is at Rs.3.34 crores and during the year under consideration the appellant has further net profit of Rs.1.24 crores. The total capita balance available is more than enough to give the interest free advances to the sister concern amounting to Rs.69,00,000/- for business needs. The AO has not established any nexus between the funds borrowed and the interest free advances given to the sister concern. The appellant is providing some business funds to the sister concern, which is a new corporate entity and require funds for day to day business activities out of the capital available which is in order and no adverse inference can be drawn for such interest free advances given for business purposes. Once there is no such nexus and the appellant has sufficient capital balance to give the interest free advances to sister concern, there appears to be no reason for disallowing any proportionate interest paid during the period under consideration. In the case of CIT Vs Reliance Utilities and Power Ltd.: (2009)313 ITR 340, the Hon’ble High Court of Bombay, while dealing with an identical issue has held that “Tribunal having recorded a clear finding that the assessee possessed sufficient interest-free funds of its own which were generated in the course of the relevant financial year, apart from substantial shareholders fund, presumption stands established that the investments in sister concerns were made by the assessee out of interest-free funds and therefore no part of interest on borrowings can be disallowed on the basis that the investment were made out interest bearing funds.”
In view of the facts and circumstances judicial pronouncements cited above, in my considered opinion, the action of the AO charging interest on the interest free advances amounting to Rs.16,41,288/- is not in order and the addition made therefore is deleted.”
Now coming to the facts and circumstances mentioned above, it is apparent from record specifically in view of the balance sheet lied at page 30 of the paper book that the assessee was having sufficient funds to the tune of Rs.43,632,363.92 meaning thereby the assessee was having the sufficient fund to give the interest free loan to the parties whose name has been mentioned above. The learned CIT(A) while passing the order in question place reliance upon the law settled in CIT Vs. Reliance Utility & Power Ltd. (2009) 313 ITR 340. Moreover, it is also required to establish that the assessee has given the loan from the borrowed funds therefore the interest is not liable to be allowable. Since the order passed by the learned CIT(A) is quite correct and legal who has rightly allowed the interest to the tune of Res.16,41,288/- Therefore, the said order does not requires any interference at this appellant stage.
In result the appeal of the revenue is hereby dismissed.