DCIT, CHENNAI vs. ALLIANCE RETREAT PRIVATE LIMITED, CHENNAI

The appeal has been filed by the Revenue impugning the order of the Commissioner of Income-tax(Appeals)-III, Chennai dated 10.12.2012 for the assessment year 2009-10. The Revenue has assailed the findings of CIT(A) in deleting the - - 2 ITA 557/13 disallowance of ` 2,17,08,433/- made under Section 36(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

The facts of the case as emanating from the records are:

Shri A.V.Sreekanth, representing the Department, submitted that the assessee had advanced interest free loans to its group companies from interest bearing funds. The assessee has not been able to show business expediency on account of which funds to the tune of ` 49 crores have been advanced as interest free loan to the group companies. The assessee has borrowed funds on which it has paid interest charges of `2,86,80,198/-. The assessee instead of reducing its interest burden by repaying loan amount has diverted funds to the group companies. The ld. DR further pointed out that the assessee has admitted that it has restructured loan as the assessee- company was not able to pay the interest on term loan. The ld. DR vehemently defended the assessment order and prayed for setting aside the findings of the Commissioner of Income- tax(Appeals) on this issue.

Controverting the submissions made by the Revenue, Shri M. Narayanan, appearing on behalf of the assessee, strongly supported the findings of the Commissioner of Income- tax(Appeals). The ld. Authorized Representative of the assessee submitted that the assessee had sufficient own funds.

We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. The Assessing Officer made disallowance u/s.36(1)(iii) of the Act on account of diversion of interest bearing borrowed funds to group companies. The Commissioner of Income-tax(Appeals) after appreciating the facts of the case, placing reliance on the decisions rendered in the case of CIT v.

It is an undisputed fact that the assessee has taken a term loan of `20,03,78,000/- and has paid interest to the tune of `2,86,80,918/- thereon. The Commissioner of Income- tax(Appeals) in the impugned order has observed that the assessee has established that interest bearing term loan was directly utilized for acquisition of land and meeting the cost of construction. He further observed that the Assessing Officer has failed to establish that the loan amount advanced to sister concerns is out of interest bearing funds only. The assessee has given the details of the borrowings and the utilization of same. The assessee has also furnished the details of interest free funds available with the assessee during the relevant period. A perusal of the same shows that a sum of `17 crores sanctioned as term loan was directly disbursed by the bank on behalf of assessee to M/s. Sai Enterprises on different dates for purchase of land. Another sum of `2,54,00,000/- was disbursed by the bank as term loan, that was utilized by the assessee for making payments to M/s. Soorya Developers (`1,48,46,000/-) and M/s.

As far as, the argument of Revenue with respect to utilization of own funds for the repayment of loan instead of advancing to group companies is concerned, we are of the considered opinion that the Revenue should not step into the shoes of assessee. The Revenue cannot dictate the assessee to conduct its business affairs in a particular manner. As long as the assessee is conducting its business affairs within the legal framework, it is at liberty to manage and utilize its resources according to its own prudence and skill. We find no infirmity in the impugned order. The order of the Commissioner of Income- tax(Appeals) is confirmed and the appeal of the Revenue is dismissed being devoid of merit.