AURO MATRIX HOTELS PVT. LTD., CHENNAI V. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

ITA 3020/CHNY/2019

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The case involves Auro Matrix Hotels Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals)-1, Chennai, concerning the disallowance of a portion of interest under section 36(1)(iii) of the Income Tax Act, 1961. The AO had initially disallowed interest amounting to Rs.1,12,32,118/- on the grounds that the company had advanced interest-free loans to its group concerns out of interest-bearing funds. The CIT(A) enhanced this disallowance to Rs.1,35,16,882/-. The Tribunal, after hearing the submissions and examining the details, partly allowed the appeal, directing the AO to recompute the disallowance only on the working capital loans.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134871 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 15-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 24-10-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest; Condonation of delay

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी मनोज कुमार अᮕवाल, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 3020/CHNY/2019 िनधाᭅरण वषᭅ/Assessment Year: 2015-16 Auro Matrix Hotels Pvt. Ltd., 129, Estate Main Road, Industrial Estate, Perungudi, Chennai – 600 096. PAN: AADCA 7153J vs. The DCIT, Corporate Circle 1(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : None ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri AR.V. Sreenivasan, Addl.CIT सुनवाई कᳱ तारीख/Date of Hearing : 16.01.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 16.01.2023 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-1, Chennai in ITA No.284/CIT(A)-1/17-18 dated 30.07.2019. The assessment was framed by the DCIT, Corporate Circle 1(1), Chennai for the assessment year 2015-16 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 29.12.2017. 2 ITA No. 3020/Chny/2019 2. At the outset it is noticed that this appeal of assessee is barred by limitation by 24 days. The impugned appellate order of CIT(A) was communicated to the assessee on 02.08.2019 and assessee filed this appeal before Tribunal only on 25.10.2019 as against the due date of filing of appeal on 301.09.2019 thereby there is a delay of 24 days in filing of this appeal. The assessee has filed affidavit for condonation of delay and stated the reason that the assessee being Director of assessee-company, was out of station during the months of August & September, 2019 due to official commitments and hence, could not lay his hand on the appellate order. After coming back from outstation, he came to know of the appellate order and immediately proceeded to file the appeal. There caused delay of 24 days. When this was pointed out to ld. Senior DR, he could not controvert the above fact situation. We find the cause reasonable and hence, condone the delay and admit the appeal. 3. The only issue in this appeal of assessee is as regards to the disallowance of portion of interest u/s.36(1))(iii) of the Act by the AO and the CIT(A) confirmed portion of interest in partly allowing the same. For this assessee has raised various grounds which need not be reproduced. 3 ITA No. 3020/Chny/2019 4. We have heard ld. Senior DR. There is none present from assessee side and from the order sheet entries, we noticed that none is coming forward to argue this appeal as and when this appeal was fixed for hearing many times. 5. Brief facts are that the AO during the course of assessment proceedings noticed that the assessee company has advanced interest free loans to its group concerns to an extent of Rs.6,62,18,536/- and there is secured borrowing of Rs.29,75,70,584/-. According to AO, the assessee has debited the interest expenditure in the profit & loss account for an amount of Rs.5,04,74,508/-. According to AO, the assessee has advanced interest free loans to its group concerns out of interest bearing funds to the extent of Rs.6,62,18,536/- thereby he disallowed the proportionate interest of Rs.1,12,32,118/- by noting the fact as under:- Interest debited in P&L : Rs. 50474508/- ----(A) Loan advanced to its group concerns : Rs. 66218536/- ----(B) Borrowings of the company : Rs.297570584/- ----(C) Proportionate interest disallowance =(A)X(B)/(C) = Rs.11232118/- Aggrieved assessee preferred appeal before CIT(A). 6. The CIT(A), after considering the submissions of the assessee instead of partly allowing enhanced the disallowance of interest to a 4 ITA No. 3020/Chny/2019 sum of Rs.1,35,16,882/- as against disallowance made by AO at Rs.1,12,32,118/- by observing as under:- “The submissions of the appellant were considered vis-à-vis the findings of the AO. During the appellate proceedings, the appellant furnished a break- up of the interest which was debited in the P&L Account during the relevant previous year. The total interest of RS.5,04,74,509/- comprised interest on car loan, interest on term loan and interest on working capital loans. It was submitted that interest payments on vehicle loans and term loans had gone directly to the builder/vehicle dealer. The appellant maintained that there could not be any diversion of funds to sister concerns in such instances. The details pertaining to the working capital loans were examined during the appellate proceedings. The break-up of the said interest is as follows:- Interest on working capital loan Interest on Axis CC loan Rs. 74,27,169 Interest on Decan Rs. 11,16,799 Interest on Easty Access Rs. 49,72,914 Total Rs.1,35,16,882 Taking into account the nature of these loans, the interest amounting to Rs.1,35,16,882/- is required to be taken into account by the A.O for computing the disallowance under 36(1)(iii) as the other loans were utilized for specific purposes. The A.O. is directed to re-compute the disallowance accordingly. This ground of appeal is partly allowed. Aggrieved, now assessee is in appeal before the Tribunal. 7. The assessee before CIT(A) has contended that for the year ended 31.03.2015, the interest free funds available with the assessee company is Rs.59,37,76,743/- which was more than the amount lent to sister concerns than charging of interest which is amounting to Rs.6,62,18,536/-. Neither the AO nor the CIT(A) has considered this aspect but AO has disallowed interest on 5 ITA No. 3020/Chny/2019 proportionate loan lent to sister concerns to the extent of Rs.5,04,74,508/- which is on account of interest on car loan (vehicle loan), interest on term loan and interest on working capital. We noted that the interest payment on vehicle loans and term loan has directly gone to builders and vehicle dealers and proportionate disallowance could be made only on interest on working capital loan that comes to Rs.1,35,16,882/- qua borrowing of the company i.e., Rs.29,75,70,584/- that means, the borrowings will be almost 1/5 th of the interest bearing funds diverted to sister concerns. The AO will recompute the disallowance to the extent of interest debited on Axis CC loan, Decan and Easty Access. The AO will recompute the disallowance and accordingly, decide the issue. The appeal of the assessee is partly allowed. 8. In the result, the appeal filed by the assessee is partly-allowed. Order pronounced in the open court on 16 th January, 2023 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य/ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 16 th January, 2023 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकरआयुᲦ (अपील)/CIT(A) 4. आयकरआयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.