Devfun Point Reality Pvt. Ltd., Ahmedabad V. The Deputy Commissioner of Income Tax, Central Circle-2(1), Ahmedabad

ITSSA 208/AHD/2017

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9502 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 10-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: Business expenditure; Commercial expediency; Capital expenditure; Set aside
• Section: 143(3); 43; 13

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ A” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./IT(SS)A Nos. 207-208/AHD/2017 िनधाᭅरण वषᭅ/Asstt. Years: 2012-2013 & 2013-14 Devfun Point Reality Pvt. Ltd., Survey No.3/c/1, F.P. No.5/2, Devnandan Palace, Nr. J.P. Farm Bopal, Ahmedabad. PAN: AADCD1874F Vs. D.C.I.T. Central Circle-2(1) Ahmedabad. (Applicant) (Respondent) Assessee by : Shri Biren Shah, A.R Revenue by : Shri Vijay Kumar Jaiswal, CIT. D.R सुनवाई कᳱ तारीख/Date of Hearing : 11/10/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 31/10/2022 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned two appeals have been filed at the instance of the Assessee against the common order of the Learned Commissioner of Income Tax (Appeals)- 6, Ahmedabad, dated 29/03/2017 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2012-2013 & 2013-2014. IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 2 ITA No. 207/AHD/2017 for the AY 2012-13 2. The assessee has raised the following grounds of appeal: 1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in rejecting Ground No. 1 of the appellant's appeal before him challenging the validity of the assessment order passed u/s. 143(3) of the Act, passed by Ld. Assessing Officer. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT (A) has grossly erred in upholding disallowance made by the Ld. Assessing Officer u/s 36(1)(iii) of the Act for Rs. 1,03,57,221/-without appreciating the fact that own capital and reserves of the appellant company are sufficient enough to give interest free fund to Dev Procom Pvt Ltd and even such loan was out of commercial expediency. Therefore, the same deserves to be deleted. 3. The appellant craves leave to add, alter, amend and/or withdraw any of the ground or grounds either before or at the time of hearing of the appeal. 3. The issue raised by the assessee is that the learned CIT-A erred in sustaining the disallowance of Rs. 1,03,57,221/- under section 36(1)(iii) of the Act. 4. The facts in brief are that the assessee is a private limited company and engaged in the activity of Hotel and Resorts business. The AO during the assessment proceedings found that the assessee has taken secured loan from Central Bank of India amounting to Rs. 12,37,57,388/- on which an interest cost of Rs. 2,15,00,763/- was incurred. The assessee, on the other hand, has given interest free loans and advances to the group company namely M/s Dev Procorn Pvt Ltd. amounting to Rs. 8,57,82,182/- without having any business transaction. 5. On question by the AO, the assessee submitted that the term loan from Central Bank of India was availed in the year 2009-10 for the purchase of fixed assets. The same can be verified from the fact that an addition of Rs. 12.88 crores was made in fixed assets in the year 2009-10. The assessee further submitted that interest free loan & advance to M/s Dev Procorn Pvt Ltd. was provided in the year 2010-11. Therefore, considering the fact that borrowed fund already utilized in the acquisition of fixed assets before making interest free advance, no disallowance of IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 3 any interest under section 36(1)(iii) is called for the diversion of interest bearing fund. 5.1 However, the AO held that the assessee failed to establish the business expediency for providing interest free advance/ loan to M/s Dev Procorn Pvt Ltd. The assessee also failed to establish that borrowed fund was not utilized in making impugned interest free advance as the own fund of the assessee has already been invested in fixed assets. Thus, the AO after placing reliance on various judgments disallowed the interest amount of Rs. 1,03,57,221/- being @ 12% attributable to the interest free loans/advances given to M/s Dev Procorn Pvt Ltd. 6. The aggrieved assessee preferred an appeal to the learned CIT(A). 7. The assessee before the ld. CIT-A submitted that it has borrowed money for acquisition of fixed assets for the business. Thus, the conditions to claim deduction of interest cost provided under section 36(1)(iii) of the Act i.e. the money borrowed and interest paid for the purpose of business get fulfilled. 8. Without prejudice to above, the assessee also submitted that it has adequate interest free fund in form of capital and interest free unsecured loan. Therefore it cannot be inferred that interest bearing funds were diverted for non-business purposes. 9. However, the learned CIT (A) confirmed the disallowance made by the AO by observing as under: 6.12 Seen in this context, I find that the appellant has not been able to \establish that the loan were taken for the purpose of its business or by its own conduct failed to establish that the interest on the same was paid as an item of expenditure. Therefore the contention of the appellant is factually misleading as it is seen that the appellant has given interest free advance to sister concern Dev Procon Pvt. Ltd. but could not give any fund flow statement and justification that the borrowed money was given out of interest free fund or own capital available or the sister concern used the advance taken for the business purpose. The appellant could not file fund flow statement and justification that the borrowed money was IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 4 used for the business purpose and interest free advance was given out of the interest free fund and own capital available. 6.13 The appellant relied on the decision of Supreme Court in the case '' of Madhav Prasad Jatia Vs. CIT however the finding is not applicable in the case of the appellant as the appellant failed to prove that the fund was utilized for the business purpose. The appellant further relied on the decision of S.A. Builders where it was held that the holding company has a deep interest in subsidiary and hence if the holding company advanced borrowed money to a subsidiary and the same is used by the subsidiary for some business purpose the assessee is entitled for deduction of interest on its borrowed loan. 6.14 However the facts are different and distinguishable in the case of the appellant as the appellant could not prove and justify that the interest free advances given to the sister concern was used for the business purpose of the company by the sister concern. 6.15 The appellant relied on the decision in the case of Hero Cycle, However as discussed above the appellant could not establish that the fund was utilized by the sister concern for the business purpose therefore the finding are not applicable here. 6.16 All the case laws relied upon by the appellant are having the basic finding clearly that the fund should be utilized for the business purpose however the appellant could not prove the same and could not file the justification and fund flow statement for utilization of the fund for the business purpose therefore all the cases relied upon by the appellant are actually in favour of the department. The appellant could not file any justification and nexus of the fund utilized by the sister concern in its normal course of business. The appellant also could not file any detail and evidence that above loan was given out of interest free fund or own capital available with it. i 6.17 Considering the facts and legal discussed above, finding of the AO that interest bearing fund was utilized for non business purpose for extending the interest free advances to the sister concern is upheld accordingly disallowance of interest payment of Rs. Rs. 1, 02,93, 861/- is confirmed. The ground is dismissed. 7. Since the facts and circumstances are identical in the case of the appellant for A.Y. 2012-13, based on the above findings in para no.6, the disallowance made by the AO of Rs.1,03,57,221/- is confirmed in A.Y. 2012-13 also. The ground is dismissed. 10. Being aggrieved by the order of learned CIT(A) the assessee is in appeal before us. 11. The learned AR before us filed a paper book running from pages 1 to 238 and a compilation of notes and decision relied upon. It was the contention of the learned AR that the assessee has own sufficient fund exceeding the amount of loan and advances provided without charging any interest. As per the learned AR, a presumption can be drawn that loans and advances have been granted out of the interest-free funds available with the assessee. Accordingly, there is no reason for disallowing the interest expenses claimed by the assessee. IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 5 12. On the other hand, the learned DR vehemently supported the order of the authorities below. 13. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the issue on hand relates to the disallowance of interest on account of interest-free loans and advances granted by the assessee to the group company. At the outset we note that the term loans on which the assessee is paying interest to bank was availed in the A.Y. 2010-11 whereas interest free loan & advance was granted to Group Company in the A.Y. 2011-12 and the year under consideration is corresponding to A.Y. 2012-13. The assesse claimed that the term loan was availed in A.Y. 2010-11 for acquisition of assets which is supported by the fact that in the A.Y. 2010-11, there was the addition to fixed assets for Rs. 12.8 crores. These facts have nowhere been controverted by the authorities below. The assessee further claimed that interest free loan to the impugned Group Company was extended in A.Y. 2011-12 out of interest free funds available with it. The assessee also furnished year wise interest free fund available with it which is extracted as under: Details of Interest Free funds AY 2011-12 AY 2012-13 AY 2013-14 Particulars Amount PB Ref Amount PB Ref Amount PB ref Interest Free funds Available 1)Share Capital 45,000,000 Pg 58 45,000,000 Pg 76 45,000,000 Pg 76 2)Interest Free Funds 71,987,665 Pg 145 107,557,120 Pg 168 14A7,171,865 Pg 84 Total(A) 116,987,665 152,557,120 192,171,865 Trade payable (B) 3,589,043 Pg 60 3,518,626 Pg 60 2,708,638 Pg 82 & 83 Total (A) + (B) 120,576,708 155,975,746 194,880,503 Int. Free loan to Dev Procon 87,066,951 43 85,782,182 80 85,782,182 80 IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 6 13.1 On perusal of the above table, we find that in the year i.e. A.Y. 2011-12 in which interest free advance/ loan extended to the partly namely M/s Dev Procon Pvt Ltd and in the subsequent year also, the assessee was having sufficient interest free fund. Thus it can safely be concluded that the assessee was having sufficient own fund to extend interest free advance. It is settled position of law by several competent courts that if there are mixed funds, than there would be presumption that the interest free advance/loan has been extended out of interest free funds. In holding so we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 13.2 Thus, in view of the above and considering the fact that the term loan of Rs. 12,37,57,388/- was availed for the purpose of acquisition of fixed assets which is evident from the financial statements that the assessee has acquired fixed assets amounting to Rs. 12.8 crore, we hereby set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed. 13.3 As regards the issue raised by the assessee challenging the validity of the assessment under consideration, we note that the learned AR has not advanced any argument on this issue. Accordingly, we dismiss the technical ground raised by the assessee as infructuous. 13.4 In the result, appeal of the assessee is hereby partly allowed. IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 7 Coming to IT(SS)A No. 208/Ahd./2017 an appeal by the assessee corresponding to A.Y. 2013-14 14. The assessee has raised the following grounds of appeal: 1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in rejecting Ground No. 1 of the appellant's appeal before him challenging the validity of the assessment order passed u/s. 143(3) of the Act, passed by Ld. Assessing Officer. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT (A) has grossly erred in upholding disallowance made by the Ld. Assessing Officer u/s 3G(1)(iii) of the Act for Rs. 1,2,93,861/-without appreciating the fact VnaA own capital and reserves of the appellant company are sufficient enough to give interest free fund to Dev Procom Pvt Ltd and even such loan was out of commercial expediency. Therefore, the same deserves to be deleted. 3. In law and in facts and circumstances of the appellant’s case the Ld.CIT(A) has erred in upholding the disallowance made by the Ld. Assessing Officer for the LCD projector expenses amounting to Rs.8,075/- incurred by the appellant company treating it as capital expenditure. The Ld.CIT(A) ought to have appreciate that expenses incurred by appellant is allowable business expenditure u/s.37(1) of the Act and disallowance made by AO deserves to be deleted. 16. At the outset, we note that the issues raised by the assessee in ground Nos. 1 and 2 of its grounds of appeal for the AY 2013-14 are identical to the issues raised by the assessee in IT(SS)A No. 207/AHD/2017 for the assessment year 2012-13. Therefore, the findings given in IT(SS)A No. 207/AHD/2017 shall also be applicable for the year under consideration i.e. AY 2013-14. The appeal of the assessee for the assessment 2012-13 has been decided by us vide paragraph No. 13 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2012-13 shall also be applied for the year under consideration i.e. AY 2013-14. Hence, the grounds of appeal filed by the assessee are hereby partly allowed. 17. The next issue raised by the assessee in ground no. 3 is that the learned CIT(A) erred in conforming the disallowance of Rs. 8,075/- by treating the LCD projector expenses as capital expenditure. IT(SS)A nos.207-208/AHD/2017 A.Ys. 2012-13 & 2013-14 8 18. At the outset, the learned AR submitted before us that he has been instructed by the assessee not to press the impugned ground of appeal on the reasoning that the miniscule amount is involved in the appeal. Accordingly we dismiss the same as not pressed. 18.1 In the result, appeal of the assessee is hereby partly allowed. 19. In the combined result, both the appeals of the assessee are partly allowed. Order pronounced in the Court on 31/10/2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 31/10/2022 Manish