SHRI SOURABH AGRAWAL,KORBA(CG) vs. JCIT, KORBA RANGE, KORBA(CG)

The present appeal filed by the assessee is directed against the order passed by the CIT(Appeal), Bilaspur, dated 05.01.2015, which in turn arises from the order passed by the A.O. u/s. 143(3) of the Income- tax Act, 1961 (for short ‘Act’) dated 28.03.2013 for A.Y. 2010-11.

This is the second round of appeal, wherein the order passed by the Tribunal disposing off the captioned appeal, vide its order passed in dated 25.10.2018 was recalled vide order passed in MA No.02/RPR/2019 dated 12.12.2022 for the limited purpose of adjudicating the Ground of appeal No.4, which reads as under:

The case was called for hearing and in pursuance thereto, the ld. authorized representatives of both the parties advanced their contentions on the aforesaid issue.

We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

Shorn of unnecessary details, the A.O while framing the assessment had observed that the assessee had advanced an interest free loan to Beladevi Memorial Charity, which as per the balance sheet was shown at Rs.19,37,660/- on 31.03.2010. Observing, that the assessee had diverted part of its interest bearing funds on which interest of Rs.13,18,308/- was paid during the year as interest free loan/advance, the A.O called upon him to put forth an explanation as regards the allowability of his claim for deduction of interest expenditure. In reply, it was, inter alia, stated by the assessee, viz. (i) that an amount of Rs.17.76 lac (approx.) was advanced in the preceding year out of his self owned funds; and (ii) that the balance amount of Rs.1.61 lac was advanced during the year under consideration. Apropos the amount of Rs.1.61 lac (supra), though the assessee submitted that an amount of Rs.61,000/- was paid out of its OD account maintained with Bank of Baroda, but he failed to come forth with a specific reply as regards the source of the balance amount of Rs.1 lac so advanced by him.

The A.O did not find favour with the explanation of the assessee as regards the allowability of the interest expenditure that was incurred with respect to interest free loan of Rs.19.37 lac (supra). The A.O was of the view that as the assessee had failed to disclose the source out of which the interest free advance was given, therefore, his claim for deduction of interest expenditure pertaining to the said amount was liable to be 4 Sourabh Agrawal Vs. JCIT, Range-Korba ITA No. 85/RPR/2015 disallowed u/s.36(1)(iii) of the Act. Also, the A.O was of the view that as the advancing of the interest free loans/advances was not a part of the business activity of the assessee, therefore, the corresponding claim for deduction of interest expenditure was liable to be disallowed u/s.37 of the Act. Accordingly, the A.O on the basis of his aforesaid observations, vide his order passed u/s.143(3) dated 28.03.2013, after, inter alia, making disallowance u/ss.36(1)(iii)/37 of the Act of Rs.2,35,430/-, determined the income of the assessee at Rs.59,62,855/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals), who, inter alia, upheld the aforesaid disallowance of Rs.2,35,430/- u/s.36(1)(iii) of the Act.

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have given a thoughtful consideration to the issue in hand in the backdrop of the contentions of the ld. authorized representatives of both the parties. It is the claim of the Ld. Authorized Representative (for short ‘AR’) that as the assessee had own capital of Rs.1.67 crore (Approx.) on 31.03.2009, Page 27 of APB and Rs.1.89 crore on 31.03.2010, Page 16 of APB therefore, pursuant to the availability of sufficient interest free funds no disallowance u/s. 36(1)(iii) of the Act was called for in his case. In support of his aforesaid contention the Ld. AR had relied on the judgment

Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.

Having given a thoughtful consideration to the issue in hand, we find substance in the claim of the Ld. AR that now when the assessee had sufficient interest free funds available with him, which would justifiably explain the interest free loan/advance of Rs.19.37 lac (supra) given to Beladevi Memorial Charity, therefore, no disallowance of any part of the assessee’s claim for deduction of interest expenditure was called for u/s.36(1)(iii) of the Act. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. M/s Reliance Industries Ltd, Civil Appeal No. 10 of 2019, dated 02.01.2019, wherein, the Hon’ble Apex Court while approving the order of the Hon’ble High Court, had observed, that in a case where interest free funds available with the assessee are sufficient to meet its investment, then, it could be presumed that the said investments was made from the interest free funds available with the assessee. For the sake of clarity, the relevant observations of the Hon’ble Apex Court are culled out as under:

We, thus, in terms of our aforesaid observations, find no merit in the view taken by the CIT(Appeals) for upholding the disallowance of Rs.2,35,430/- made by the A.O u/s.36(1)(iii) of the Act. Before parting, we may herein observe that though the A.O had held that the assessee’s claim for deduction of interest expenditure was also not available u/s.37 of the Act, but as the CIT(Appeals) had approved his order only to the extent the disallowance was made by him u/s.36(1)(iii) of the Act, therefore, we confine our adjudication only to the said extent. Thus, the Ground of appeal No.4 raised by the assessee is allowed in terms of our aforesaid observations.

In the result, appeal of the assessee is allowed in terms of our aforesaid observations to the extent relevant.