SURESH BHAGWANDAS AHUJA,SANGLI vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 2, SANGLI

This is an appeal filed by the assessee directed against the order of the Learned Commissioner of Income Tax (Appeals)- 1, Kolhapur (‘CIT(A)’ for short) dated 04.12.2017 for the assessment year 2013-14.

Briefly, the facts of the case are as under :- The appellant is an individual running a wholesale business in Sarees in the name of his proprietary concern, M/s. Vijay Textiles. The assessee filed E-return for the assessment year 2013-14 on 19.09.2013 declaring total income of Rs.69,58,120/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-2, Sangli (‘the Assessing Officer’) vide order dated 22.03.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.77,78,610/- after making the following additions :- (i) Addition u/s 37(1) of the I.T. Act Rs.5,39,080/- (ii) Addition u/s 50C of the I.T. Act Rs.45,000/- (iii) Addition on account of Agril. expenses Rs.79,335/- (iv) Addition on account of Depreciation Rs.66,583/- (v) Disallowance u/s 37(1) of the I.T. Act 90,492/-

Being aggrieved by the above additions, an appeal was preferred before the ld. CIT(A) contesting the addition of disallowance of interest of Rs.5,39,080/- and addition on account of agricultural income. The ld. CIT(A) had confirmed the disallowance of interest following his order in earlier assessment years without dealing with the submission of the appellant that no disallowance of interest is warranted, inasmuch as, interest free funds available were more than the advances given for non-business purposes since the interest free funds were utilized for the purpose of making the advances. The ld. CIT(A) deleted the addition on account of disallowance of agricultural expenses.

Being aggrieved by the order the ld. CIT(A) in confirming the disallowance of interest, the appellant is before us in the present appeal. 5. It is contended before us that the submission of the appellant that interest free funds were utilized for the purpose of making interest free advances had not been dealt with by either the Assessing Officer or the ld. CIT(A). He also drawn our attention to the financial statements filed in the Paper Book at page no.3 to demonstrate that the interest free funds are available at Rs.1,71,21,752/- as against the advance made of Rs.55,60,000/-. He further submitted that mere fact that the assessee had agreed for disallowance of interest in respect of the parties no.3 to 8 cannot be form the basis for making addition as there can be no estoppels against the settled position of law.

On the other hand, ld. Sr. DR placed reliance on the order of the ld. CIT(A).

We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to the disallowance of interest on the ground that the interest bearing funds have diverted for the purpose of making the advances on which no interest is earned. During the course of assessment proceedings, the Assessing Officer noticed that the assessee made the following interest free advances to the following parties :- Sr. Names Loan Interest No. Amount Amount 1 Bharatkumat B Ahuja 700000 105000 2 A V Hero 50000 7500 3 M B Dhere 10000 497 4 Girish Enterprises 200000 30000 5 Laxmi Sarees 1000000 2466 6 Kishor Warik 100000 8137 7 Girish Bachani 1500000 184932 8 Dhananjay Gadadwar 2000000 200548 Total 539080 8. It is contended before us that the above advances were made out of own funds not out of the borrowed funds. Therefore, there is no warrant to disallow any part of the interest expenditure claim. However, the appellant expressed no objection for disallowance of interest in respect of parties at sl. no. 3 to 8. Even the ld. CIT(A) confirmed the addition. From perusal of the orders of the lower authorities, it is evident that the appellant made a categorical statement that no interest bearing funds were utilized for the purpose of making the abovementioned advances. This submission had not been dealt with by the lower authorities. On perusal of the Balance Sheet placed at page no.3 of the Paper Book, it is evident that the interest free bearing funds were available to the extent of Rs.1,71,21,752/- as against the