NAHAR POLY FILMS LTD.,LUDHIANA vs. ACIT, LUDHIANA

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 30.09.2016 of the Commissioner of Income Tax(Appeals)-4, Ludhiana [hereinafter referred to as ‘CIT(A)’].

ITA No.1340//Chd/2016- M/s Nahar Poly Films Ltd.., Ludhiana 2

except financial activities for which the expenses were claimed by the assessee.

Directions be given to the Assessing Officer to allow the whole expenditure incurred by the Appellant, during the year in its normal course of Investment activity, done by the company as adopted after demerger scheme.

b) That the Worthy CIT(A)-4, Ludhiana, has further, erred by not directed the Assessing Officer to capitalize the expenses disallowed, when the project of BOPP films starts.

Directions may be given to the A.O. not to reduce any amount of interest paid to banks as the amount was paid to the party out of its own funds.

Assessing officer during the course of assessment proceedings

observed that the assessee during the year had not carried out any

business activity. The Ld. CIT(A), however, restricted the disallowance to the 2/3rd of the total expenditure following the

order of his predecessor for assessment year 2007-08 which was

further confirmed by the Tribunal. The Ld. Counsel for the assessee

could not convince us as to the business activity carried out by the

assessee requiring the allowance of the entire expenditure claimed.

We, therefore, do not find any reason to interfere with the above

ITA No.1340//Chd/2016- M/s Nahar Poly Films Ltd.., Ludhiana 3

order of CIT(A) on this issue. Ground No.1 of the appeal is

therefore, dismissed.

disallowance of the interest expenditure under section 36(i)(iii) of

the Act. The Assessing officer observed that during the year it had

obtained term loan on which the assessee had paid interest @ 11% to

the bank. However, the assessee during the year had also given loan

/ advance to its sister concern and charged interest @ 8%. The

Assessing officer disallowed the difference in the interest paid and

interest charged u/s 36(i)(iii) of the Act.

27:73 and observed that from the above ratio the assessee company

had paid 27% of the total loan out of borrowed funds. he, therefore,

restricted the disallowance to 27% of the total disallowance made by

the Assessing officer at Rs. 3,66,531/- which came out at Rs.

98,963/- and restricted the disallowance to that extent.

assessee had own reserves and surpluses of 142 crores whereas the

amount advanced during the year was only Rs. 3 crores and that the

amount was advanced out of the said interest free reserves and

surpluses. The Ld. Counsel has further submitted that the amount of

term loan was utilized by the assessee for purchase of capital assets

and was not diverted for loan to sister concern. He further

submitted that even otherwise the assessee has its own reserves

ITA No.1340//Chd/2016- M/s Nahar Poly Films Ltd.., Ludhiana 4

and surpluses much more than the aforesaid advance and has

relied upon the decision of the Hon’ble Punjab & Haryana High

Court in the case of ‘Bright Enterprises Pvt Ltd Vs. CIT’, 381 ITR

107 and of Hon'ble Supreme Court in the case of ‘Hero Cycles P. Ltd

Vs. CIT’, 379 ITR 347 (SC) and of the Hon'ble Bombay High Court

on in the case of ‘CIT Vs. Reliance Utilities & Power Ltd.’ 313 ITR

340.

assessee which shows a reserve and surplus of Rs. 142.47 crores.

The advanced amount against the said reserves and surpluses was Rs.

3 cores only, that too, was advanced by the assessee on an interest of

8%, which the assessee claimed was out of business expediency. We

find that the case of the assessee is thus squarely covered by the

aforesaid decisions of the Hon'ble Supreme Court in the case of

‘Hero Cycles P. Ltd v CIT’ (SC) and of Hon'ble Punjab &

Haryana High Court in the case of ‘Bright Enterprises Pvt Ltd

Vs. CIT’ (supra) and of the Bombay High Court in the case of

‘CIT Vs. Reliance Utilities and Power Ltd.’ (supra), wherein

the Hon'ble Courts have held that where the own funds of the

assessee were sufficient to meet the interest free advances given

during the year, then the presumption would arise that such

advances or investments had been made out of the own funds of

the assessee. Hence, respectfully following the aforesaid

decisions, and in view of the facts and circumstances of the

case, we do not find any justification on the part of the lower

authorities in making the disallowance on this issue. The

ITA No.1340//Chd/2016- M/s Nahar Poly Films Ltd.., Ludhiana 5

disallowance made on this issue, therefore, is ordered to the deleted.

(B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 15.05.2018 Rkk

Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR