Case Law Details
ACIT Vs Sh. Parminder Singh Kalra (ITAT Delhi)
Conclusion: All the interest bearing funds had been utilized towards interest bearing advances and this was evident from the balance sheet whereby interest bearing loan was Rs. 3,03,50,275 against which, interest bearing advances were Rs. 3,41,00,000 i.e. more than the amount borrowed. No disallowance could be made under section 36(1)(iii) as the amount borrowed on interest had been used specifically and exclusively for advancing amounts of interest for the purposes of earning income.
Held: During the year, assessee had borrowed interest bearing funds to the tune of Rs. 3,03,50,275. He had utilized such funds towards advancing interest bearing loan to the tune of Rs. 3,41,00,000/-. Additionally, there were certain interest free advances made to three parties during earlier years by assessee from his own capital and to another party Omega Finhold Private Limited during the year from owned funds. AO required assessee to show cause as to why disallowance of interest @ 13.5% on interest free loan to the aforesaid three parties should not be made. Assessee explained that all the interest bearing funds were utilized for making interest bearing advances. AO without considering the reply of assessee from proper perspective made an addition of Rs. 11,77,070 under section 36(1)(iii) being proportionate disallowance of interest paid on borrowing vide the assessment order alleging that assessee had not been able to establish the nexus between the borrowed and interest earning advances. CIT(A) had rightly deleted the addition by giving a categorical funding that all interest bearing loans to the tune of Rs. 3,03,50,275 had been advanced on interest. It was held that all the interest bearing funds had been utilized towards interest bearing advances. This was evident from the balance sheet whereby interest bearing loan was Rs. 3,03,50,275 against which, interest bearing advances were Rs. 3,41,00,000 i.e. more than the amount borrowed. This fact clearly showed that the amount borrowed on interest had been used specifically and exclusively for advancing amounts of interest for the purposes of earning income. Further, from the bank statement, it was apparent that there was a direct nexus between the amount borrowed and the amount advanced. Assessee had sufficient capital of loan owned as evident from the capital account and any amounts out of the same advanced in the earlier years for whatever personal circumstances, could not be the basis to disallow the interest on amounts borrowed as the said amount has been duly used for the interest earning income. Assessee had submitted before the AO that interest free loan given to Shgurdeepsingh at rs 15 lacs had been advanced in FY 2006-07 out of which Rs 3.20 lacshad been received in Fy 2007-08 and balance was outstanding at the end of this financial year. Similarly the amount advanced to rar R.K. gupta was in FY 2005-06 out of which an amount of Rs 2 lacs had been received back in Fy 2006-07 and 35 lacs in FY 2008-09 and nothing was outstanding. Further the amounts advanced to Omega Finhold pvt. Ltd. had been from personal funds as evident from perusal of bank statement of SBOP account wherein the interest bearing loans are credited. In view of the detailed analysis of the facts of the case there was no logical basis in the AOs action making the disallowance of Rs.11,77,770 /- and the same was directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeals have been filed by the Revenue against the orders of ld. CIT (A)-XXVI, New Delhi for the A.Ys. 2007-08, 2009-10, 2010-11, 2011-12 & 2012-13 dated 18.07.2016 and by the assessed against the orders of ld. CIT (A)-XXVI, New Delhi for the A.Ys. 2006-07 & 200708 dated 18.07.2016 &22.09.2017 confirming the penalty. The assessee has also filed Cross Objections for AY 200910 to AY 2012-13.
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