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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
The instant appeals are filed by the assessee and the revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana [in brevity the CIT(A)], bearing Appeal No. 30/IT/CIT(A)-5/LDH/2017-18 dated 29.08.2018 u/s 250(6) of the Income Tax Act, 1961 [in brevity the Act], for Assessment Year 2015-16.
Brief fact is that the addition was made by the ld. Assessing Officer [in brevity the AO] amount of Rs. 2,05,81,728/- u/s 36(1)(iii) of the Act for disallowance of interest expenditure related to interest free non business advance to the different parties.
The assessee filed an appeal before the ld. CIT(A) and Appellate Authority after considering the submission of the assessee the addition was reduced Rs.8,39,490/- violation of section 36(i)(iii) related to interest free non business advance to the parties. As per the counsel of the assessee, the whole advance was utilized from surplus funds for the commercial expediencies.
After receiving the order of the Commissioner of the ld. CIT(A), the assessee filed an appeal before us.
As per the counsel of the assessee, the assessee has a loan amount of Rs.63,61,86,021/- which was utilized for addition of fixed assets, amount of Rs.63,93,93,679/-. So, the interest free advance is from business surplus funds. Accordingly, for commercial expediency no interest was charged to the parties. So, the violation of section 36(1)(iii) of the Act is arbitrary bad in law.
3 K.C. Educational Social Welfare Society v. DCIT 6. Further the counsel of the assessee submitted the assessee’s own case bearing ITA No. 348/Asr/2018 assessment year 2014-15 order dated 25.08.2019 in which the matter is covered in favour of the assessee.
The ld. DR vehemently argued and relied on the assessment order and appeal order. As per the ld. DR, the amount was paid in different dates from bank loan account of assessee to the parties for interest free advance. As per the ld. DR, the assessee utilized the amount from its loan/CC limit account directly from transferring the fund to different entities. The utilization of the interest free fund is from the loan account of the assessee accordingly the addition is sustained.
We have heard both the parties & considered the available records. The same issue is covered by our coordinate Bench, supra. Apparently the assessee’s utilization of the loan fund to its fixed asset vide page 23 of the paper book of the assessee. So, the assessee made its payment from his surplus funds. On the other hand, the Revenue also pointed out that the amount utilized from assessee’s loan account directly. So, the matter is further to be considered by the ld. AO by verifying the nature of payment and mode of payment related to interest free advance. Therefore, we are setting aside the matter to the ld. AO for further verification only related above said matter. Accordingly, the appeal of the assessee is allowed for statistical purposes.
For adjudication of cross appeal of the revenue, the Ld CIT(A) in his order, page-9 elaborated the facts related the advance to parties. The findings of the Ld. CIT(A) is as follows:
“The facts of the case, the basis of disallowance/addition made by the A.O. and arguments of the AR during the course of appellate proceedings have been considered. The AR repeated the argument that only the interest free funds were used for making these advances and no borrowed
4 K.C. Educational Social Welfare Society v. DCIT funds was utilized. It was also submitted that in the past similar disallowances were made, however relief was granted in respect of loans outstanding in the names of M/s. Sutlej Service Station (P) Ltd., M/s. Walia Traders Ltd., M/s. Indigo Fincap Pvt. Ltd. The AR has filed the copies of accounts of the sister concerns/persons in respect of which disallowances have been made by the AO. A perusal of the ledger accounts filed by the AR shows that the accounts of M/s. Indigo Fincap Pvt. Ltd., M/s. Sutlej Service Station (P) Ltd. and M/s. Walia Traders Ltd. are running accounts having both credit and debit entries as in the preceding years also. This gives support to the contention of the AR that these are the business transactions and the balances were on account of business purposes/expediency. Hence, the disallowance made by the AO in respect of these three parties is not found sustainable and thus deleted. However, as regard advance given to Smt. Kamal Gandhi, Sh. Kapil Chadha, M/s. Khushal Chand Educational Society, M/s. Dee Enn Knitwear and Sh. Gopal Krishan Bhagat, no business purpose/expediency has been established. The amounts to them have been given from interest bearing funds leading to extra interest burden without any gains in return. The argument of the assessee regarding advance out of interest free funds has been rebutted by the AO in the assessment order by showing that the amounts have been transferred directly from Loan/CC accounts and the assessee has not received any interest free funds for making these advances. A perusal of the ledger accounts shows that in the case of Smt. Kamal Gandhi, apart from opening balance of Rs. 19,35,500/- further loan of Rs. 3,50,000/- was given leading to a closing balance of Rs. 22,85,000/- Similarly, in the case of Sh. Kapil Chadha, a loan of Rs. 10,00,000/- was given on 07.06.2014 in one go. In the case of Sh. Khushal Chand Educational Society, the total loan of Rs. 20,32,000/- was given out of which Rs. 75,000/- was received back leaving a balance of Rs. 19,57,000/- as on 31.03.2015. Similarly, in the case of M/s. Dee Enn Knitwear a total loan of Rs. 11,00,000/- was given and there is no further transactions and the same amount was outstanding as on 31.03.2015 also. Same is the position with respect to Sh. Gopal Krishan Bhagat where a loan of Rs. 2,00,000/- was outstanding through-out the year. Therefore, the disallowance made in respect of advance to Smt. Kamal Gandhi, Sh. Kapil Chadha, M/s. Khushal Chand Educational Society, M/s. Dee Enn Knitwear and Sh. Gopal Krishan Bhagat, is found sustainable and hence confirmed.
The parties like M/s Indigo Fincap Pvt Ltd, M/s Sutlej Service Station (P) Ltd & M/s Walia Traders Ltd, had regular transaction with assessee. Accordingly, this can be considered as business expediency related these three parties. Here, we are inclining on observation of the Ld CIT(A).
In the result, the appeal of the assessee is allowed for statistical purposes and the appeal of the Revenue is dismissed.