Mecords India Limited Vs ITO (ITAT Mumbai)
ITAT states that, it was not disputed that the borrowings were made in earlier years and no disallowance of interest was made in earlier years with regard to the said borrowings and utilization thereon. Further, it was found that the amounts advanced by assessee to a party named ‘Neeta Mehta’ alone increased during the relevant year and in case of amounts advanced to all other parties except ‘Neeta Mehta’, the closing balance only reduced when compared to the opening balance, thus there could not be any disallowance of interest on the opening balance of loans advanced to the said parties as the borrowings and utilization thereon were accepted as meant for business purposes in earlier years. Further, with regard to loan given to ‘Neeta Mehta’, it was found that the assessee was having sufficient own funds in the form of current year profits before depreciation, therefore, it could be reasonably presumed that the amounts to Neeta Mehta were advanced interest free out of own funds available with the assessee and hence, there could not be any disallowance of interest under section 36(1)(iii) on a proportionate basis even for the same.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal in ITA No.1013/Mum/2016 for A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-22, Mumbai in appeal No.CIT(A)22/IT/345/2014-15 dated 11/01/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 07/03/2014 by the ld. Income Tax Officer-10(2)4, Mumbai (hereinafter referred to as ld. AO).
2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the disallowance of interest u/s 36(1)(iii) of the Act on a proportionate basis in the facts and circumstances of the case.
3. The brief facts of this issue are that the assessee company is engaged in the business of manufacturing and trading of industrial fabrics, dipped nylons chafer fabrics and other fabrics. The ld AO observed that assessee had shown secured loan of Rs 13,43,00,000/- , working capital loan from banks at Rs 16,82,59,808/- and unsecured loans at Rs 5,28,28,541/- as on 31.3.2010 as against the opening balances of Rs 13,38,70,416/- , Rs 15,84,22,076/- and Rs 5,20,46,296/- as on 1.4.2009 respectively. The assessee had debited total finance cost in its profit and loss account amounting to Rs 4,91,91,557/- which includes interest paid to banks at Rs 3,66,24,468/- and interest paid to others at Rs 1,25,67,089/-. The ld AO on verification of schedule of loans and advances given by the assessee , observed that the assessee had shown other advances at Rs 5,79,37,770/- as on 31.3.2010 as against Rs 8,19,38,063/- as on 1.4.2009. Accordingly, he came to the prima facie conclusion that the interest bearing funds were diverted by the assessee for non business purposes by giving interest free loans / advances to the following parties and resorted to make proportionate disallowance of interest :-
