PARINEE HOUSING PRIVATE LTD , MUMBAI V. DCIT CENTRAL CIRCLE-2(4), MUMBAI

CO 42/MUM/2023

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle-2(4) as the appellant and M/s. Parinee Housing Private Limited as the respondent. The core issue was the addition of notional interest on interest-free loans advanced by the assessee to its directors and a sister concern, which the Assessing Officer had initially added to the income of the assessee. The CIT(A) deleted this addition, leading to the Revenue's appeal. The tribunal examined the financial statements and found that the assessee had sufficient interest-free funds to cover the loans, thus no addition for notional interest was warranted. The tribunal also noted that any breach of the Companies Act regarding loans to directors did not affect the Income Tax assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132075 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-06-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 10-05-2023
• Other Referred Cases: Parinee Realty Pvt. Ltd. vs. ACIT
• Laws Referred To: Companies Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Notional interest

Judgement Text

vk;dj vihyh; vf/kdj.k eqacbZ ihB ßlhÞ eaqcbZ Jh fodkl voLFkh] U;kf;d lnL; ,oa Jh vkse izdk’k dkar] ys[kkdkj lnL; ds le{k IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C” BENCH BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER vk-vk-la- 560@eaqcbZ@2023 ¼fu-oa- 2018&19½ ITA No.560/MUM/2023 (A.Y.2018-19) Deputy Commissioner of Income Tax Central Circle-2(4) 8 th Floor, Room No.802, Aayakar Bhavan, M. K. Road, Mumbai-400 020 ..... vihykFkhZ/Appellant cuke Vs. M/s. Parinee Housing Private Limited C-38 & 39, G Block Crescenzo, BKC, Bandra East, Mumbai-400 051 PAN No. AAGCP0245D ..... izfroknh/Respondent izR;k{ksi-la- 42@eaqcbZ@2023 ¼fu-oa- 2018&19½ CO No.42/MUM/2023 (A.Y.2018-19) M/s. Parinee Housing Private Limited 103, 1st Floor, Smag House, Plot No.157A, Sarojini Road Extn, Opp. Darshana Apt. Vile Parle West, Mumbai-400 056 PAN No. AAGCP0245D ..... vihykFkhZ/Appellant cuke Vs. Deputy Commissioner of Income Tax Central Circle-2(4) 8 th Floor, Room No.802, Aayakar Bhavan, M. K. Road, Mumbai-400 020 ..... izfroknh/Respondent P a g e | 2 ITA No.560/MUM/2023 (A.Y.2018-19) C.O. NO.42/MUM/2023 (A.Y. 2018-19) M/S. PARINEE HOUSING PVT. LTD vihykFkhZ }kjk@Appellant by : S/Shri Rajan Vora & Nikhil Tiwari izfroknh }kjk@Revenue by : Ms. Sudha Ramchandran, Sr. AR lquokbZ dh frfFk@Date of hearing : 06/06/2023 ?kks”k.kk dh frfFk@Date of pronouncement : 23/06/2023 vkns’k/ ORDER PER VIKAS AWASTHY, JM: This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-48, Mumbai (hereinafter referred to as “the CIT(A)”) dated 15.12.2022, for the assessment year 2018-19. 2. The solitary issue raised by the Revenue in appeal is against the findings of CIT(A) in deleting the addition of interest on the loans advanced to the directors and sister concern/related parties. The assessee has filed Cross Objection in appeal filed by the Revenue supporting the order of First Appellate Authority. 3. Ms. Sudha Ramchandran representing the Department submitted that assessee has advanced interest free loans to the directors that is Shri Vipul Shah and Shri Dhaval Shah and a group company M/s. Parnee Homes Pvt. Ltd. No evidence has been brought on record by the assessee to show that the loans advanced to the directors and the sister concern are on account of business exigency. The Assessing Officer (AO) has rightly attributed interest at the rate of 12% on the loans advanced to related parties and made addition of Rs.4,12,28,051/-. The assessee has advanced interest free loans to the Directors in violation of section 185 of the Companies Act. The ld. Departmental Representative P a g e | 3 ITA No.560/MUM/2023 (A.Y.2018-19) C.O. NO.42/MUM/2023 (A.Y. 2018-19) M/S. PARINEE HOUSING PVT. LTD (DR) vehemently supported the assessment order and prayed for reversing the findings of CIT(A) on this issue. 4. Per contra, Shri Rajan Vora appearing on behalf of the assessee emphatically supported the impugned order and prayed for dismissing the appeal of Revenue. The ld. Authorised Representative (AR) submits that the assessee is having interest free funds are much more than interest free loans advanced to directors and the group concern. He further submitted that once the assessee has been able to show that interest free funds are sufficient to cover interest free advances, no addition on account of notional interest can be made by the AO. To substantiate availability of own interest free funds, he referred to the Balance Sheet as on 31.03.2018 of the assessee at page 4 of the Paper Book. He further draws our attention to the notes forming part of the financial statement for the year ended 31.03.2018 Shedule-20 giving details of the related parties’ transactions. In support of his contentions, the ld. AR placed reliance on the decision in the case of assessee’s group company Parinee Realty Pvt. Ltd. vs. ACIT in Writ Petition No. 3638 of 2021 decided on 19.01.2022 by Hon’ble Bombay High Court. 5. We have heard the submissions made by rival sides and have examined the orders of authorities below. Undisputedly, the assessee has advanced interest free loans to the related parties as under: Sr. No. Name/Party Loan Given (Rs.) 1 Shri Vipul Shah 16,51,34,319 2 Shri Dhaval Shah 17,83,10,040 3 Parinee Homes Pvt. Ltd. 1,22,734 Total 34,35,67,093 P a g e | 4 ITA No.560/MUM/2023 (A.Y.2018-19) C.O. NO.42/MUM/2023 (A.Y. 2018-19) M/S. PARINEE HOUSING PVT. LTD Shri Vipul Shah and Shri Dhaval Shah are the directors of the assessee company, M/s. Parinee Homes Pvt. Ltd. is a group company. A close examination of the Balance Sheet as on 31.03.2018 shows availability of sufficient interest free funds with the assessee to fund the loans advanced to related parties. As against interest free loans advanced to related parties Rs.34,35,67,093/-, interest free funds to the tune of Rs.72,09,58,658/- are available with the assessee. The availability of interest free funds with the assessee to cover interest free loans advanced to related parties has not been disputed by the Revenue. Once, the assessee has been able to substantiate availability of sufficient interest free funds, there is no valid reason to make addition of notional interest on advances to related parties. Insofar as the violation of the Companies Act in advancing loans to the Directors u/s 185 of the Companies Act is concerned, infringement of said section, if any has no implication under this Act. The assessee is liable for the consequences for infraction of any provisions under the relevant Act. We find no cogent reason to interfere with the impugned order. 6. In the result, appeal of the Revenue is dismissed, being devoid of any merit. CO No.42/Mum/2021 (AY. 2018-19) 7. The assessee has filed Cross Objections supporting the order of CIT(A). Since, we have dismissed appeal of the Revenue, Cross Objections filed by the assessee have become infructuous, hence, dismissed as such. P a g e | 5 ITA No.560/MUM/2023 (A.Y.2018-19) C.O. NO.42/MUM/2023 (A.Y. 2018-19) M/S. PARINEE HOUSING PVT. LTD 8. In the result, Appeal of the Revenue and Cross Objections by the assessee are dismissed. Order pronounced in the open court on Friday the 23 rd day of June 2023. Sd/- Sd/- (OM PRAKASH KANT) (VIKAS AWASTHY) Yks[kkdkj lnL;/ACCOUNTANT MEMBER U;kf;d lnL;/JUDICIAL MEMBER eaqcbZ/Mumbai, fnukad/Dated: 23/06/2023 Mahesh R. Sonavane P a g e | 6 ITA No.560/MUM/2023 (A.Y.2018-19) C.O. NO.42/MUM/2023 (A.Y. 2018-19) M/S. PARINEE HOUSING PVT. LTD izfrfyih vxzsf”kr Copy of the Order forwarded to: 1. vihykFkh/The Appellant , 2. izfroknh/The Respondent. 3. vk;dj vk;qDr/ CIT 4. foHkkxh; izfrfu/kh] vk;- vih- vf/k-] eqacbZ/DR, ITAT, Mumbai 5. xkMZ QkbZy/Guard file. BY ORDER, //True Copy// (Dy. /Asst. Registrar)/ Sr. Private Secretary ITAT, Mumbai