Ahuja Platinum Properties Pvt Ltd Vs JCIT (ITAT Mumbai)
When the assessee has sufficient own funds, no disallowance can be made for the interest paid on borrowed funds, for the amount given on loan as interest free even though the assessee cannot show the nexus of interest free loans with the owned funds.
The availability of interest free funds as given in the earlier part of this order is not in dispute. The Assessing Officer has proceeded on the assumption that the assessee did not establish the nexus between the interest free funds available with the assessee and interest free loans given to the sister concern. In this regard we find that the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom) had an occasion to examine the question with regard to disallowance of interest, where the assessee is in possession of both interest free funds as well as borrowed funds on which interest was paid by the assessee.
The Hon’ble Bombay High Court held that if there are interest free funds available to an assessee sufficient to meet its investment (in the present case investment have to be read as interest free loans to sister concern) and at the same time assessee had raised loans it can be presumed that the investments were from the interest free funds available. In the present case we have already seen that the total interest free funds available with the assessee was about 12.88 crores, the total interest free funds advanced to the sister concern and others were only Rs. 4.16 crores. Thus prima facie interest free funds available were much more than the interest free advances given by the assessee. In such circumstances there is no basis for the Assessing Officer to presume that interest bearing funds were advanced to the sister concern as interest free loans. As laid down by Hon’ble Bombay High Court the presumption should be that the interest free funds were used to give the interest free loans to the sister concern. On this ground, we are of the view that the disallowance sustained by the CIT(A) should also be deleted. The decision relied upon by the CIT(A) to sustain disallowance are no longer applicable.
1. CIT vs. Abhishek Ind. Ltd. 286 ITR 1 (P&H) relied by CIT(A) has now been by the Hon’ble Supreme Court decision in Munjal Sales Corp. 298 ITR 298(SC)
2. The decision of the Hon’ble Bombay High Court in the case of Reliance Power Utilities & Power Ltd. (supra) has been consistently followed by the various Benches of the ITAT in the following orders DCIT vs. UK Paints (India) Ltd. 4 ITR (Trib) 455(Del) – Madhu Industries Ltd. ITO 132 TTJ 233 (Ahd) – Manohar Dattatraya Sirsavkar vs. ITO, ITA No.6154/M/09, A.Y. 2006-07, Bench ‘G” order dated 17/9/10. Accelerated Freeze Drying Co. Ltd. Vs. DCIT (2009) 180 Taxman 68 (Coch)(mag)
As far as the grievance projected by the revenue in its appeal is concerned the sum of Rs. 25,70,473/- which was excess withdrawal by the partners of the firm Ahuja Platinum, which later on was converted into a Private Limited Company, which is the assessee in this appeal. The CIT(A) has held that this withdrawal will only go to deplete the business funds and cannot be treated as loans or advances. Without going into this aspect, we are of the view that in the light of the availability of sufficient interest free
funds this disallowance was also not proper and was rightly deleted by the CIT(A).