GANESH GUPTA,WANI vs. PRINCIPAL COMMISSIONER OF INCOME TAX-2, NAGPUR

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH : NAGPUR THROUGH VIRTUAL HEARING At ITAT :Pune Bench BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No.54/NAG./2021 Assessment Year 2016-2017 Shri Ganesh Gupta, The Principal Commissioner of Income Tax, Nagpur-2, Saraf Rudhra Sales, Chikhalgain, Chambers, Sadar, Nagpur. Wani – 445 304 vs Maharashtra. State of Maharashtra. PIN 440 001 PAN ABGPG6048Q Appellant Respondent For Assessee : Shri Mahavir Atal, C.A. For Revenue : Shri Kailash Kanojiya, Sr. DR CIT Date of Hearing : 22.09.2023 Date of Pronouncement : 28.11.2023 ORDER PER DR. DIPAK P. RIPOTE A.M. :

This is an appeal filed by the assessee against the order u/s 263 of the Income tax Act 1961 passed by Pr. Commissioner of Income tax Nagpur-2 on 16/02/2021.

1) Brief facts : The assessee had filed Return of Income electronically on 13/10/2016 declaring total income at Rs.4,93,510/-.The Assessing Officer passed assessment order u/s 143(3)assessing total income at Rs.5,21,350/-, thus making an addition of Rs.27840/- on account of Interest on Income tax refund.The LD.PR.CIT initiated proceedings u/s 263 of the Income tax Act

2 Ganesh Gupta ITA.No.54/Nag./2021 on the ground that the Assessee had paid interest of Rs.1,13,36,189/- on secured loan of Rs.6.52 crores, where as Assessee had given interest free unsecured Advance/Loan of Rs.93,85,510/- and Assessing Officer had not disallowed the proportionate interest . The Assessee submitted reply in response to notice u/s 263. Assessee submitted to Ld.Pr.CIT that the Assessee had sufficient own capital of Rs.1,49,59,897/- and the Loan of Rs.9385510/- was out of own fund. The Assessee also pleaded before the Ld.Pr.CIT that the AO had verified this issue during the scrutiny assessment hence the Assessment order was not erroneous. However, the Ld.Pr.CIT passed the order u/s 263 holding that the Assessment order was erroneous and prejudicial to the interest of revenue. Aggrieved by the order u/s 263 the Assessee filed an appeal before this Tribunal.

2)Submission of Ld.Authorised Representative of the Assessee :

Ld.AR for the Assessee filed a paper book. Ld.AR submitted that the Assessee had opening capital as on 1/4/2015 of Rs.1,49,59,897/- and closing Capital as on 31/3/2016 of Rs.1,54,67,775/-. AR relied on the decision of Hon’ble Bombay High Court that once assessee had own funds then the presumption is that the loans were advanced from own fund .Ld.AR took us through the notice u/s 142 dated 12/06/2018 issued by Income tax officer Yavatmal ,to demonstrate that the specific question was asked by the AO regarding the Interest expenses and its allowability. The Ld.AR also took us through the reply filed by the assessee. The Ld.AR submitted that the AO had 3 Ganesh Gupta ITA.No.54/Nag./2021 carried out necessary inquiries and after satisfying himself about the allowability of Interest Expenses, the assessment order was passed. Hence the assessment order was not erroneous.

3.Submission of Ld.Departmental representative (DR):

Ld.DR relied on the order of the Pr.CIT. Ld DR submitted that the own capital was used by the Assessee for the investments made by the assessee hence it was not available to advance interest free loan. L.dDR also pleaded that no prudent business man will borrow Rs.6.5 crores and pay interest if he had sufficient funds.

We have heard both the parties and perused the records. On perusal of the Balance Sheet as on 31/3/2016 which was at page 16 of the Paper Book, it is observed that Opening Capital was Rs. 1,49,59,897/-. The Ld.Pr.CIT has mentioned that the Assessee had given Interest free Loans of Rs. 93,85,510/- . Thus, prima facia assessee had sufficient capital to advance the interest free advances of Rs.93,85,510/-. Therefore, the assumption will be that the Interest Free Advances have been given out of own funds. We find support from the order ofthe Hon’ble Bombay High Court in the case of CIT vs Reliance Industries Ltd [2017] 86 taxmann.com 24 (Bombay)[23-08-2017].

4.1. The Hon’ble Bombay High Court in the case of CIT vs Reliance Industries Ltd [2017] 86 taxmann.com 24 (Bombay)[23-08-2017]has held as under :

4 Ganesh Gupta ITA.No.54/Nag./2021 “ 33. ……. This view of the Assessing Officer is ex facie contrary to the settled principle that a presumption would arise that the investment would be out of the interest free funds generated or available with the company. Then, the borrowed capital in hand in that case and interest expenditure was deductible under Section 36(1)(iii) of the I.T. Act, 1961. The Tribunal held that the interest free fund available to the assessee is sufficient to meet its investment. It can be presumed that investments were made from interest free funds available with the assessee. This position clearly emerges from the record and for the current assessment year as well. We do not see how a different view in the facts and circumstances can be taken…….”

4.2. The said decision of Hon’ble Bombay High Court has been upheld by Hon’ble Supreme Court in[2019] 102 taxmann.com 52 (SC).

4.3. Thus, the principal laid down by Hon’ble Bombay High Court is that once assessee have sufficient own capital and it is a mixed bag of funds the presumption is that the Interest Free Advance have been given out of Own Capital.

4.4. On perusal of the notice u/s 142 (1) of the Act dated 12/06/2018 which is at page 11,12 of the paper book, it is observed that the AO had asked specific question to the assessee. The Assessee had filed a reply. It means the AO had arrived at the decision that the impugned interest expenses are allowable in the facts and circumstances. Whenever the AO had taken a conscious view which is legally one of the possible views then the 5 Ganesh Gupta ITA.No.54/Nag./2021 Assessment Order cannot be held as erroneous. In this case the AO had taken a view which is legally possible view.

4.5. Before we discuss the case further, we will like to mentions the relevant case laws on this issue.

4.6. The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachchan,384ITR 200(SC) observed as under :

“21. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from.”

4.7. Thus, the principal of the law emanating from the above decision of the Hon’ble SC is that when two views are legally possible and AO adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s 263.

4.8. In this case the AO has taken a view after analysing the facts that the interest expenses are allowable as business expenses and the said view is supported by the Decision of Hon’ble Bombay High Court in the case of Reliance Industries Ltd. (supra).

6 Ganesh Gupta ITA.No.54/Nag./2021 4.9. Hence, we are of the considered opinion that the Assessment Order is not erroneous and prejudicial to the interest of the revenue. Therefore, the Order u/s 263 dated 16/02/2021 for AY 2016-17 is set aside.

Order pronounced in the open Court on 28.11.2023.