M/s. Gaurav Hotels Pvt. Ltd., Baroda V. The Income Tax Officer, Ward-1(1)(3), Baroda

ITA 1041/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0788 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

, SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMEBR & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 1041/AHD/2017 ( / ASSESSMENT YEAR : 2012-13) M/S. GAURAV HOTELS PVT. LTD. PRATAP GUNJ ROAD, NEAR S.T. BUS STAND, BARODA 390 002 / VS. ITO WARD-1(1)(3), BARODA ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.2069/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) M/S. GAURAV HOTELS PVT. LTD. PRATAP GUNJ ROAD, NEAR S.T. BUS STAND, BARODA 390 002 / VS. ITO WARD-1(1)(3), BARODA ./ ./ PAN/GIR NO. : AAA CG7 191 B ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI MUKUND BAKSHI, A.R. / REVENUE BY : SHRI RAJESH KUMAR, SR. D.R. / DATE OF HEARING 14/03/2019 !'# / DATE OF PRONOUNCEMENT 27/03/2019 $%/ O R D E R ITA NOS.1041 & 2069/AHD/17 [GAURAV HOTELS PVT. LTD. VS. ITO] A.YS. 2012-13 & 2012-14 - 2 - PER PRADIP KUMAR KEDIA - AM: BOTH THE CAPTIONED APPEALS HAVE BEEN PREFERRED BY T HE ASSESSEE AGAINST THE RESPECTIVE ORDER OF THE CIT(A) ARISING IN THE ASSESSMENT ORDERS RESPECTIVELY PASSED BY THE AO U/S . 143(3) OF THE ACT FOR ASSESSMENT YEARS 2012-13 AND 2013-14. IT W AS INFORMED IN THE COURSE OF THE HEARING THAT BOTH THE APPEALS ARI SES OWING TO DISALLOWANCE OF INTEREST ON BORROWED FUNDS U/S. 36( 1)(III) OF THE ACT. THUS, THE ISSUE BEING COMMON, BOTH THE APPEAL S WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. ITA NO. 1041/AHD/2017-AY 2012-13 (ASSESSEES APPEAL ) 2. THE ASSESSEE HAS CONTROVERTED THE ACTION OF THE REVENUE TOWARDS DISALLOWANCE OF INTEREST OF RS. 12,00,584/- ON BORROWED FUNDS. WHEN THE MATTER WAS CALLED FOR HEARING, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AO HAS DISALLOWED THE I NTEREST ON THE GROUND THAT BORROWED FUNDS BEARING INTEREST WERE UT ILIZED TOWARDS ADVANCES MADE TO VARIOUS CONCERNS WITHOUT ANY INTER EST AND THUS THE EXPENDITURE INCURRED TOWARDS INTEREST IS FOR NO N-BUSINESS PURPOSE. IN THIS REGARD, THE LD. AR REFERRED TO TH E BALANCE SHEET OF THE ASSESSEE FOR FINANCIAL YEAR 2011-12 TO CONTEND THAT THE ASSESSEE HAS OWN CAPITAL TO MEET THE CORRESPONDING ADVANCES. WHEN ENQUIRED OF FACTS, THE LD. AR FOR THE ASSESSEE HOWEVER FAILED TO DEMONSTRATE THE ASSERTIONS SOUGHT MADE. IT IS N OTICED THAT THE ASSESSEE HAS OWN CAPITAL TO THE EXTENT OF RS. 130.1 3 LAKHS ONLY WHEREAS THE ASSESSEE HAS MADE INVESTMENT IN SHARES TO THE EXTENT OF RS. 187.50 LAKHS WHICH HAS THE POTENTIAL TO YIELD T AX FREE INCOME. BESIDES, THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LOAN OF RS. 121.55 LAKHS TO ONE OF ITS ASSOCIATED CONCERN M/S. OM HOSP ITALITY PVT. LTD. WITHOUT CHARGING IN ANY INTEREST THEREON. ITA NOS.1041 & 2069/AHD/17 [GAURAV HOTELS PVT. LTD. VS. ITO] A.YS. 2012-13 & 2012-14 - 3 - 3. IT IS THEREFORE CLEAR THAT OWN FUNDS CANNOT BE S TATED TO AVAILABLE FOR THE PURPOSES OF ADVANCING INTEREST FR EE LOANS. THE ACT OF ADVANCING INTEREST FREE LOAN THEREFORE HAS NO RE LATION TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDINGLY, WE THUS FIND THAT THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN C IT VS. RAGHUVIR SYNTHETICS LTD. 354 ITR 222 (GUJ.) AS RELIED UPON I S OF NO ASSISTANCE TO THE ASSESSEE. 4. THUS, WE DO NOT SEE ANY INFIRMITY IN THE ORDER O F THE CIT(A). ACCORDINGLY, WE DECLINE TO INTERFERE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1041/AHD/2017 CONCERNING ASSESSMENT YEAR 2012-13 IS DISMISSED. ITA NO. 2069/AHD/2017-AY 2013-14 (ASSESSEES APPEAL ) 6. THE ISSUE INVOLVED IN THIS APPEAL IS ALSO TOWARD S DISALLOWANCE OF INTEREST OF RS. 20,41,867/- ON BORROWED FUNDS. 7. WITH THE ASSISTANCE OF THE LD. AR FOR THE ASSESS EE, WE FIND SLIGHT DEVIATION IN FACTS IN THE INSTANT CASE. IN THE FINANCIAL YEAR 2012-13 RELEVANT TO ASSESSMENT YEAR 2013-14 IT IS C ONTENDED THAT THE ASSESSEE HAS OWN CAPITAL OF RS. 131.70 LAKHS. THE INVESTMENT IN SHARES STANDS AT RS. 187.50 LAKHS AS IN THE ASSE SSMENT YEAR 2012- 13 SUPRA. IT IS HOWEVER ALSO CONTENDED THAT DURING THE YEAR, THE ASSESSEE HAS ALSO RECEIVED 413.06 LAKHS ON WHICH NO INTEREST HAS BEEN PAID. THEREFORE, A PRESUMPTION WOULD FOLLOW T HAT INTEREST FREE FUNDS IS AVAILABLE FOR UTILIZATION TOWARDS FRE E ADVANCES COMBINED WITH TAX FREE INVESTMENT. 8. THE FACTUAL SITUATION THUS EMERGES IS THAT THE A SSESSEE HAS 131.70 LAKHS TOWARDS SHARE CAPITAL AND RESERVES AND RS. 413.06 LAKHS BEING INTEREST FREE LOANS RECEIVED AS CLAIMED . THE ASSESSEE ITA NOS.1041 & 2069/AHD/17 [GAURAV HOTELS PVT. LTD. VS. ITO] A.YS. 2012-13 & 2012-14 - 4 - HAS ALSO INVESTED 187.50 LAKHS TOWARDS SHARE INVEST MENT WHICH REQUIRES TO BE EXCLUDED THERE FROM. THE REMAINING AMOUNT IS AVAILABLE FOR THE PRESUMPTION OF INVESTMENT IN INTE REST FREE ADVANCES OF RS. 318.60 LAKHS. THE ASSESSEE WOULD T HUS WOULD BE ENTITLED TO PROPORTIONATE RELIEF WHERE INTEREST FRE E FUNDS AVAILABLE EXCEEDS THE AMOUNT ADVANCED TOGETHER WITH SHARE INV ESTMENT. HOWEVER, IT IS NOT KNOWN AS TO AT WHAT POINT OF TIM E DURING THE YEAR, THE ASSESSEE HAS RECEIVED INTEREST FREE UNSEC URED LOANS. THE RECEIPT OF INTEREST FREE LOAN CAN BE AT THE BEGINNI NG OF THE YEAR OR CAN ALSO BE AT THE END OF THE YEAR. THEREFORE, THE DISALLOWANCE OF INTEREST IS REQUIRED TO BE CALCULATED ONLY UP TO TH E DATE OF INFUSION OF INTEREST FREE FUNDS TO THE ASSESSEE COMPANY. TH IS ASPECT WILL REQUIRE FACTUAL VERIFICATION. THE ISSUE IS ACCORDI NGLY REMITTING BACK TO THE FILE OF THE AO FOR EXAMINATION OF FACTU AL MATRIX. THE AO SHALL COMPUTE THE DISALLOWANCE OF INTEREST ON EX CESS INTEREST FREE ADVANCED OVER INTEREST FREE FUNDS AVAILABLE (N ET OF INVESTMENT YIELDING THE FREE INCOME) UP TO THE DATE OF RECEIPT OF INTEREST FREE FUNDS. THE ISSUE IS ACCORDINGLY REMITTED BACK TO T HE FILE OF THE AO IN TERMS OF THE DIRECTION NOTED ABOVE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 2069/AHD/2017 CONCERNING ASSESSMENT YEAR 2013-14 IS ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (RAJPAL YADAV) (PRADIP KU MAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 27/03/2019 TANMAY TRUE COPY !' #' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE THIS ORDER PRONOUNCED IN OPEN COURT ON 27/03 /2019 ITA NOS.1041 & 2069/AHD/17 [GAURAV HOTELS PVT. LTD. VS. ITO] A.YS. 2012-13 & 2012-14 - 5 - 3. ) *+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, 56$)$ / DR, ITAT, AHMEDABAD 6. 289 : / GUARD FILE. BY ORDER / $% , ;/5 *+#, 56$)$ < 1.DATE OF DICTATION ON 15.03.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 25.03.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 26.03.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 26 .03.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 27.03.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.03.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER