Shikhar Development Foundation, New Delhi V. ITO (E), Trust Ward- II, New Delhi

ITA 2420/DEL/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4005 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA No.2420/Del./2018 (ASSESSMENT YEAR : 2010-11) Shikhar Development Foundation, vs. ITO (E), Trust Ward II, A-113, 3 rd Floor, Behind ICICI Bank, New Delhi. Palam Extension, Sector 7, Dwarka, New Delhi – 110 077. (PAN : AAGTS9404C) (APPELLANT) (RESPONDENT) ASSESSEE BY : None REVENUE BY : Shri Sumit Kumar Verma, Sr. DR Date of Hearing : 21.09.2022 Date of Order : 23.09.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal by the assessee is directed against the order of ld. CIT (Appeals)-36, New Delhi dated 26.02.2018 for the Assessment Year 2010-11. 2. The grounds of appeal raised by the assessee read as under :- “1. The CIT(A) erred in law and on facts in confirming the disallowance of interest of Rs.9,56,529/- on estimated basis (50% of the total interest of Rs.19,13,058/- claimed in the profit on loss account) ignoring the submissions and evidences placed on record. Thus the addition so made should be deleted. ITA No.2420/Del./2018 2 2. The CIT(A) erred in law and on facts in confirming the disallowance of funeral expenses of Rs.4,000/- incurred to maintain clients relationship as per policy of the assessee. Thus the expenses incurred for business expediency should be deleted.” 3. Brief facts of the case are that assessee society is involved in micro finance activities. In the assessment order passed u/s 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’), AO made following additions:- Add : 1. Unexplained cash credits u/s 68 Rs.65,00,000/- (as discussed above) 2. Disallowance of interest 50% of Rs.19,13,058/- Rs.9,56,529/- (as discussed above) 3. Difference in interest income Rs.77,442/- (as discussed above) 4. Provision for loan loss Rs.1,94,877/- (as discussed above) 5. Funeral expenses Rs.4,000/- (as discussed above) 6. General Fund Rs.1,09,790/- (as discussed above) 7. Depreciation Rs.3,46,459/- (as discussed above) 4. Against the above order, assessee filed an appeal before the ld. CIT (A). Ld. CIT (A) granted substantial relief, however confirmed the disallowance of interest of Rs.9,56,529/- and funeral expenses of Rs.4,000/-. ITA No.2420/Del./2018 3 5. Against this order, assessee is in appeal before us. We have heard the ld. DR for the Revenue. Nobody is appearing on behalf of the assessee for the past several occasions. The notices have also returned unserved. In this view of the matter, we are disposing off this appeal by hearing ld. DR for the Revenue and perusing the record. 6. We note that as regards disallowance of interest, the same has been disallowed on the ground that assessee has sufficient fund still the assessee has obtained loan. We may gainfully refer to the order of ld. CIT(A) in this regard as under :- “4.5.3. The facts of the case are that a total sum of Rs. 16.12 lacs was lying in 9 different bank accounts maintained by six branches of the appellant. The average monthly balance per branch ranged between 1 lac to 9.08 lacs. perusal of the assessment order reveals that an amount of Rs. 19,13,058/- has been debited on account of interest paid under the head 'Micro Finance Activity'. It is seen that the' appellant is paying interest on a higher rate i.e. 11 to 13% on loan taken comparing to the interest received on FDRs which is just 6% p.a. The perusal of the-balance sheet reveals that the FDRs and Cash & Bank balances available with the appellant at the end of the period under consideration was Rs.42,12,119/-. It is, apparent that although the appellant is having spare funds lying idle in the form of cash at bank, and FDRs fresh loans were taken during the year ranging interest @ 11 to 14% p.a. Despite of funds available the term loans were taken against the FDRs paying interest ranging 12.5%. to 14%. Hence, there is no justification in borrowing funds ranging @11 to 14% by the appellant when it had sufficient funds on which only interest @6% on FDRs is earned and no interest is being earned on the cash at bank lying idle. The observation of the AO that the appellant is deliberately incurring losses by paying more interest, is correct as borne out by the facts of the case. The AR of the appellant has stated that the funds were taken for micro-financing ITA No.2420/Del./2018 4 programme but despite taking fresh loans amounting Rs.1,44,99,650/- during the year, the micro finance advances reduced to Rs.1,14,32,169/- as compared to Rs.2,14,42,778/- in the preceding year i.e. AY 2009-10 whereas interest paid during the year increased to Rs.19,13,058/- as compared to Rs.17,52,092/- in the preceding year. The total loans taken at the end of the year were Rs.2,32,62,486/- whereas the micro finance advances given were only Rs.1,14,32,169/-. It is apparent that the loans taken by the appellant were not used for the business. Hence, the submissions filed by the appellant are not found to be tenable. The case laws cited are distinguishable in facts. I find no reason to interfere with the addition made by the AO on this issue. Appeal on this ground is dismissed.” 7. A perusal of the above clearly shows that ld. CIT (A) is trying to enter in the shoes of a businessman and decide when the businessman should take loan and when he should not take loan and use his own funds. It is settled law that such an exercise by the Revenue is not at all sustainable if the assessee has sufficient funds and it has not been diverted for activities which could not earn interest, disallowance cannot be made on the ground of prudence which should have been done in the opinion of the Revenue authorities. Hence, we are of the considered opinion that the order of ld. CIT (A) is not sustainable and accordingly we set aside the same on this issue. 8. As regards issue of Rs.4,000/- incurred for funeral expenses, assessee’s claim was that the same was related for business inasmuch as expenditure represents payment mad to microfinance clients on the death of their family members. It was held by the Revenue authorities to be not ITA No.2420/Del./2018 5 related to the business of the assessee. In our considered opinion on the facts and circumstances of the case, this expenditure deserves to be allowed and same is directed to be allowed accordingly. 9. In the result, appeal filed by the assessee stands allowed. Order pronounced in the open court on this 23 rd day of September, 2022. Sd/- sd/- (YOGESH KUMAR US) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 23 rd day of September, 2022 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-36, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.