Sri Gokul Auto , Eluru V. The Income Tax Officer, Ward-2, , Eluru

ITA 111/VIZ/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2251 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 26-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest
• Section: 263; 2; 143(3); 142(1); 143(2)

Judgement Text

आयकर अपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No.111/Viz/2021 (ननधधारण वर्ा / Assessment Year : 2015-16) Sri Gokul Auto, Eluru. PAN: ABZFS 0221K P Vs. Income Tax Officer, Ward-2, Eluru. (अपीलधथी/ Appellant) (प्रत्यथी/ Respondent) अपीलधथी की ओर से/ Appellant by : Sri C. Subrahmanyam, CA प्रत्यधथी की ओर से / Respondent by : Sri MN Murthy Naik, CIT-DR सुनवधई की तधरीख / Date of Hearing : 06/06/2022 घोर्णध की तधरीख/Date of Pronouncement : 28/06/2022 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the assessee is against the order of the Ld. Pr. CIT, Visakhapatnam vide DIN & Letter No. ITBA/COM/F/17/2020-21/1031811911(1), dated 26/03/2021 passed U/s. 263 of the Act. 2 2. Brief facts of the case are that the assessee is a trader in automobile vehicles business who filed its return of income for the AY 2015-16 admitting a taxable income of Rs. 13,71,500/-. Subsequently, the case was selected for complete scrutiny under CASS and statutory notices U/s. 143(2) and 142(1) were issued and served on the assessee called for certain information. In response to the notices, the assessee submitted the information called for and produced the relevant records before the Assessing Officer. The Assessing Officer considering the submissions made by the assessee assessed the income at Rs. 40,85,220/-. Thereafter, the Ld. Pr. CIT under the powers vested U/s. 263 of the Act issued a show cause notice dated 7/2/2020 considering the order passed by the AO u/s. 143(3) is prima facie erroneous in law and prejudicial to the interests of the Revenue. In response to the show cause notice, the assessee made certain submissions and replies before the Ld. Pr. CIT. After considering the submissions made by the assessee, the Ld. Pr. CIT set-aside the order of the Ld. AO with a direction to disallow the proportionate interest in respect of the interest free advance/loan given to related concerns out of interest bearing funds taken by the assessee. Aggrieved by the order of the Ld. Pr. CIT, the assessee is in appeal before us. 3 3. The assessee has raised the following grounds of appeal: “1. That under the f acts and circumstances of the case the orders passed under the provisions of section 263 of the Act is contrary to the provisions of law. 2. The impugned order passed U/s. 263 of the Act is barred by limitation in vie w of the provisions of sub-section 2 of section 26 3 of the IT Act. T heref ore, the impugned order is to be quashed as not maintainable. 3. The Ld. Pr. C IT f ail ed to appreciate the submissions of the assessee in judicious manner, theref ore, his direction to Assessing Of f icer to disallo w a proportionate interest in respect of interest f ree advan ces is perverse and cannot be accepted. 4. The Ld. C IT f ailed to take cognizance of the f act that in the assessment proceedings the AO has applied his mind on the issue of interest bearing f unds vis-à-vis application of f unds an d when such is the case giving a f inding that assessment wa s completed without verif ication of these f acts itself is erroneous and such a f inding has no legs to stand. 5. For these and other reasons th at are to be urged at the time of hearing of the appeal the appell ant prays that the order passed by the Ld. Pr. C IT is erroneous both on f acts as well as in l a w, theref ore the same needs to be set aside in the interest of justice.” 4. Before us, the assessee has also raised the additional grounds of appeal as follows: “The Ld. Pr. CIT under the facts and circumstances of the case, is not correct in directing the AO to disallow interest of Rs. 33,63,521/- (12% on Rs. 2,80,29,345/-) when the AO in the order passed U/s. 143(3) of the Act has rightly disallowed interest of Rs. 96,616/- calculated at 12% on the net amount of interest f ree advances given of Rs. 8,05,137.” 5. The Ld. AR submitted before us a statement containing the interest free loans and advances taken and given during the previous year and the relevant AY. The Ld. AR pleaded that in 4 the earlier AY there was a difference of 2.80 Crs on the interest free advances given to sister concerns and accordingly the AO has disallowed the interest on the interest free advances given to sister concerns for the earlier AY. Similar statement was also provided before the Ld. AO for the current AY and the Ld. AR submitted that the AO has rightly disallowed the interest on the excess amount of Rs. 8,05,137/- and hence the order of the Ld. AO is neither erroneous nor prejudicial to the interests of the Revenue. The Ld. AR further pleaded that the order of the Ld. PCIT may be quashed. 6. Per contra, the Ld. DR submitted that with respect to addition made during the AY for Rs. 2.80 Crs the same balance is still carried forward for the current AY also and hence the action of the Ld. Pr. CIT be upheld. 7. We have heard the rival contentions and perused the materials available on record and the orders of the Authorities below. We find from the statement submitted by the Ld. AR that the assessee has taken a sum of Rs. 2,16,62,590/- during the relevant assessment year as interest free loans and advances. The Ld. AR’s contention is that these interest free loans and advances have been utilized to reduce the cost of interest arising 5 out of interest bearing funds taken by the assessee. We find from the submissions made by the Ld. AR that the interest free advance is being utilized in the business which reduced the cost of interest of the assessee arising out of interest bearing advances. We also find merit in the argument of the Ld. AR that there is no “one to one” matching of the interest free advances given and taken and hence it is considered from the own pool of funds available with the assessee. We also find from the order of the Ld. AO that the AO has rightly disallowed the sum of Rs. 96,616/- @ 12% on the difference between the interest free advances taken and given amounting to Rs. 8,05,137/-. In view of the above discussions, we find that prima facie the order of the Ld. AO is not erroneous in law and prejudicial to the interests of the Revenue and hence the order of the Pr. CIT is hereby quashed. 8. In the result, appeal of the assessee is allowed. Pronounced in the open Court on the 28 th June, 2022. Sd/- Sd/- (द ु व्वूरु आर.एल रेड्डी) (एस बालाकृ ष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याधयकसदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 28.06.2022 6 OKK - SPS आदेश की प्रनतनलनप अग्रेनर्त/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee – Sri Gokul Auto, D.No.17-15-1, ASR Stadium Road Near HP Petrol Bunk, Lakshmivarapupet, Eluru, Andhra Pradesh – 534005. 2. रधजस्व/The Revenue – Income Tax Officer, Ward-2, Eluru, Andhra Pradesh. 3. The Principal Commissioner of Income Tax, Visakhapatnam-1. 4. आयकर आयुक्त (अपील)/ The Commissioner of Income Tax 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR, ITAT, Visakhapatnam 6. गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam