TaxTMI 
TaxTMI 
2022 (12) TMI 158
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....isted as appeal no. 568/JP/14 and the cross objection of the assessee was listed as co no. 27/JP/14. Vide order dated 18.12.2015 the appeal of the revenue as well as co of the assessee was disposed by a common order on account of revision in the monetary limit of appeal to be filed before ITAT as part of litigation policy of the Government. Thereafter, the assessee moved a Miscellaneous Application which was registered as MA No.155/JP/2018. In this MA the assessee contended that the issue had already been decided by the Honourable Orissa High Court in the case of Tata Sponge Iron Limited Vs. CIT 191 Taxman 407 in the event of dismissal of Revenue`s appeal the cross objection would not be dismissed. Based on these set of fact vide order dated 31.03.2021 the MA of the assessee was allowed and thus this CO is heard as it is a separate appeal of the assessee on its merits. 3. In this cross objection the assessee has marched only one issue as reproduced here in below; "Under the facts & circumstances of the case the ld. Commissioner of Income Tax (Appeals), Jaipur-1 has erred in facts and in law sustaining the disallowance of Rs. 9,24,820/- out of the interest claimed by the....
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....81,068/- to Rs. 9,24,820/- by holding as under : "12.2 It is, however, also noted from the detailed break-up of the loans, as mentioned in para 11 above, that interest of Rs. 3.50 lacs in respect of loan for Bajaj Nagar land amounting to Rs. 41.09 lacs has already been capitalized. It is further noted that interest has been charged on the amount of Rs. 3.77 lacs paid to Shri Mahesh Khandelwal and Rajkumar Laddar. Rs. 2 lacs have been withdrawn from share business. Hence, interest in respect of these amounts cannot be disallowed. The interest in respect of the remaining amount which has been utilized from non-business purposes has to be disallowed. This amount comes to Rs. 77.91 (124.77 - 46.86) lacs. Since the appellant has failed to give the bifurcation of the amounts advanced for business purposes and for non-business purpose, the methodology adopted by the AO is upheld. The AO is, however, directed to disallow the interest in the same proportion i.e., in the formula adopted by him, Rs. 124.77 shall be substituted with Rs. 77.91 lacs. This will result in the disallowance of Rs. 9,24,820/-. The rest of the disallowance is deleted." 7. Before us on merits, it was submit....
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....e Enterprises 4.00 15/07/2006 Advance against Property PB/64 3. Grass Wood Resorts Pvt. Ltd. 4.71 30/09/2006 & 03/05/2007 Advance against Property PB/65 4. Jyoti Agarwal 23.81 29/08/2007 Advance against Property PB/66 5. Renu Agarwal 7.50 F.Y.2004-05 Advance against Property PB/67 Total 58.02 1.2.1 With regard to amount of Rs 18,00,000/- advanced to Shri Ashok Singhi it was submitted that it was an advance to purchase the property however later on a dispute occurred between the parties and the sale deed could not have finalized. Consequently, the entire amount of advance was returned back by the said party to the assessee on dated 24.03.2009 AY 10-11. Kindly refer ledger account (PB/63). 1.2.2 Similar is the position of Fortune Enterprises when advance of Rs 4,00,000/- given was return back in A.Y. 2010-11. Similar is the position with Jyoti Agarwal. Kindly refer ledger their account (PB/64 & PB/66). 1.2.3 In case of Grass Wood Resorts Pvt. Ltd. Rs. 4.71 Lakh were advanced in AY 07-08 & AY 08-09. Finally, the deal matured and the registered sale....
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....nterest bearing funds both, but where the interest free funds are larger than the interest free advances/utilization than there will a presumption that the interest free utilization was made out of the interest free funds (but not out of interest bearing fund) and hence, no interest can be disallowed (as was not claimed). The assessee was also having huge interest free funds, as submitted hereunder: 2.1 It is not denied that the assessee this year sold a building at Ajmer Road on 25.08.2007 for Rs 60,00,000/-. Needless to say that entire Rs. 60,00,000/- was an interest free funds available in the hands of the assessee. In the impugned orders of the authorities below, there is no whisper of the utilization of this fund of Rs 60,00,000/- for any purpose/elsewhere, meaning thereby the investment in the land at Bajaj Nagar or advances given, were sourced from this interest free funds. 2.2 There apart, the assessee's interest free capital was at Rs. 11,23,057 (PB-57) which, even though relates to share business with a separate Balance Sheet but the assessee owner being common the entire availability of funds viz. a viz. utilization merely seen at consolidatedly. ....
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.... the advances made or investment in the LIC premium etc., the A.O. has whispered, even remotely, the nexus between the interest bearing funds and the interest fee utilization of funds. It is not disputed that various advances were made long back by the assessee out of his own capital. Unless this is done no charging of notional income is permissible nor any disallowance could have at all been made. Kindly refer CIT v/s Hotel Savera (1999) 239 ITR 795 (Mad.), Shree Digvijay Cement Co. Ltd. v/s CIT (1982) 138 ITR 45 (Guj), Ganesh Chawala v/s ITO (2008) 9 DTR 162 (JP), Gujarat Narmada Valley Fertilizers Co. Ltd. v/s DCIT (2001) 73 TTJ 787 (Ahd) and CIT v/s Tin Box Co. (2003) 260 ITR 637 (Del). 4.2 Supporting Case Laws: 4.2.1 In the case of ACIT v/s Ram Kishan Verma (2012) 147 TTJ_UO (Jp)(UO) 1 (DPB 7-26), the disallowance made by the AO u/s 36(i)(iii) was fully deleted by holding that "10.4 We have heard both the parties. The assessee is having sufficient capital. If there are mixed funds, then non-interest-bearing funds are to be considered as utilized for non-interest-bearing advances. It is the assessee who has to take a business decision. Fees i....
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...., the AO could not disallow part of interest. It is also an admitted fact, as observed by the tribunal, that the AO was not able to pin pointedly come to a definite conclusion that how interest bearing loans has been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-à-vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on application of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partner/proprietor being more than the interest free short term advances, has in the case of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CRT (Raj.) 384 while relying on the judgments rendered in (a) S.A. Builders Ltd. V/s CIT (2007) 288 ITR 0001 (SC); (b) Munjal Sales Corporation v/s CIT (2008) 298 ITR 298 (SC) ; (c) CIT V/s Radico Khaitan Ltd. (2005) 274 ....
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....titled to deduction under s. 36(1)(iii), the assessee (firm) will not be entitled to claim deduction for interest payment exceeding the rate prescribed in s. 40(b)(iv)-Sec. 36(1)(iii) and s. 40(b)(iv) both deal with payment of interest by the firm for which deduction could be claimed, therefore, keeping in mind the scheme of Chapter IV-D, every assessee who claims deduction under ss. 30 to 38 is also required to establish that it is not disentitled under s. 40(b)(iv)-Assessee firm granted interest free advances to sister concerns in August/September, 1991, which got wiped out in asst. yr. 1997-98-For asst. yrs. 1992-93 and 1993-94, disallowance of interest paid by assessee to third parties on amounts borrowed made by AO deleted by the Tribunal on the ground that interest free advances were made by assessee out of its own funds and for business purposes but disallowance was upheld for asst. yrs. 1994-95 to 1997-98 on the ground of change of law brought about by the Finance Act, 1992, w.e.f. 1st April, 1993-Not justified-Once it is found that interest free loans granted by assessee to its sister concerns in August/September, 1991, continued upto asst. yr. 1997-98 and that the said lo....
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....ar alone but has also been a point in controversy in various Later years. However, in all those years, the disallowances were made on similar facts and circumstances in a similar manner raising more or less similar allegations, were deleted by the CIT(A), as per the following table: A.Y. Disallowance of Interest made (Rs.) CIT(A) Order Date PB 2010-11 Rs. 8,79,893/- Pg. 14-18 Pr. 3.6.2 11.05.2015 PB/77-82 2011-12 Rs. 10,54,286/- Pg. 14-19 Pr. 3.6.2 03.03.2016 PB/83-89 2012-13 Rs. 9,87,385/- Pg. 14-19 Pr. 3.4.2 04.01.2017 PB/90-101 2013-14 No disallowance made by the A.O. himself 01.12.2015 PB/102-105 2014-15 -do- 22.11.2016 PB/106-108 2015-16 -do- 23.12.2017 PB/109-110 Copies of all the related CIT(A) order or assessment order (PB/77-110), are enclosed in the paper book as indicated above. Undisputedly, in some of the cases, the interest free utilization was made long back yet no disallowance was made. 5.2 Notably, the department has not gone in further appeal in any of these years. Therefore, the issue involved has attained finality. The r....
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....ings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 6. The lower authorities however did not appreciate the above legal and factual submission in a right perspective. In view of these undisputed facts, and settled legal position, the impugned disallowances be deleted in full. Accordingly, total interest free funds stood at Rs.71.23 lakhs as against interest free utilization at 59.01 lakhs only (From Rs.124.71 lakh excluded bajaj nagar land-Rs. 41.09 for which no claim of interest made and CIT(A) already deleted, old investments-8.4 lakhs, old advances-16.21 lakh), still leaving Rs.2.17 lakh excess interest free funds (71 lakh-59.01-10.05). 8. Per contra, the ld. DR appearing on behalf of the revenue submitted that the CO of the assessee is not maintainable as the main appeal of the revenue is ....
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....ove nexus between interest bearing loans vis-a-vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on appreciation of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partners/proprietor being more than the interest free short term advances, has in the case of CIT v. Vijay Solvex Ltd. [2015] 59 taxmann.com 294 (Raj.) while relying on the judgment rendered in (a) S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 (SC); (b), Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 (SC); (c), CIT v. Radico Khaitan Ltd. [2005] 274 ITR 354/142 Taxman 681 (All.); (d), CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377/121 Taxman 706 (Delhi); (e), CIT v. Britannia Industries Ltd. [2006] 280 ITR 525/[2005] 148 Taxman 654 (Cal.) and (f) CIT v. Motor Sales Ltd. [2008] 304 ITR 123 (All.), held as under:....