Bajaj Foods Ltd Vs The ITO (ITAT Ahmedabad)
Undeniably the interest paid to Barclays Bank by the assessee has been added to the income of the assessee for non deduction of tax at source thereon as per section 195 of the Act treating the said Bank to be a non redident. The order of the Ld.CIT(A) in the case of the assessee however for another A.Y ,i.e A.Y 12-13 reveals that Barclays Bank was found to be a resident and no tax deductible on the interest payment made to it as per section 194A of the Act. The fact of the status of the Bank therefore appears contradictory and in the absence of the same having been examined as per law at any stage in the impugned year, this issue is also restored back to the AO for adjudication afresh . The AO is directed to determine the residential status of the Bank to which the impugned payment of interest is made and consider the findings of the Ld.CIT(A) in A.Y 2012-13 for the same. He may thereafter adjudicate the issue of disallowance of the expense for non deduction of tax at source in accordance with law.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (in short referred to as CIT(A)), dated 26-06-2012, u/s. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2009-10.
2. Ground no. 1 raised by the assessee, it was stated, was general in nature and is therefore not being dealt with by us.
3. Ground no. 2 to 2.1, it was common ground, related to the same issue of disallowance of interest u/s. 36(1)(iii) of the Act amounting to Rs.14,54,731/-. The said grounds read as under:
2.0 The Commissioner of Income tax (Appeals) erred in not deleting the disallowance of Rs. 14,54,731/- in respect of interest payment u/s. 36(1)(iii) The appellant submits that interest expenses were incurred wholly and exclusively for the purpose of business and no disallowance is justified. The disallowance being contrary to the facts and contrary to the provisions of law be deleted.
2.1 The appellant without prejudice to above further submits that disallowance in any event is excessively high and it be directed to be substantially reduced. It is submitted that it be so held now.
4. The contention of the Ld. counsel for the assessee before us was that identical issue stood adjudicated by the ITAT in the case of the assessee itself in assessment year 2010-11 in ITA No. 2276/Ahd/2015 vide order dated 21.02.2019 wherein the issue was restored back to the A.O. for deciding afresh. Copy of the order was placed before us.
5. D.R. fairly agreed with the above contention of the ld. Counsel for the assessee.
6. In the light of the above submissions made before us, we shall now proceed to adjudicate the issue.
7. The facts relating to the issue are that the disallowance of interest u/s. 36(1) (iii) of the Act was made by the A.O. on interest free loans and advances given by the assessee amounting in all to Rs. 1,98,55,747/- pertaining to the following : Shraddha Intl. 29,92,179/- Specific foods Inc. Rs. 1,68,63,587/-
8. The disallowance was made by the A.O. noting that the assessee had borrowed interest bearing funds by way of secured loans to the extent of Rs. 217.23 lacs and paid interest thereon amounting to Rs. 25,97,905/-. The A.O. also noted that the assessee had not established any business purpose for making the advance and the interest free funds he held were invested in assets of the assessee company. He therefore held that it was borrowed funds which were used for making the interest free advances and accordingly disallowed interest thereon @ 12% which worked out to Rs. 23,82,690/- but was restricted to the extent of interest payment made by the assesse of Rs. 14,54,731/-.
9. The ld. CIT(A) upheld the disallowance.
10. We have gone through the order of the ITAT in the case of assessee in assessment year 2010-11 and we have noted therefrom that the ITAT on finding that the assessee’s pleadings, that it had sufficient own funds to cover the advances for business purposes, was not adjudicated despite specific submissions made before the lower authorities, restored the issue back for adjudication afresh. The relevant findings of the ITAT at para 5 of the order is as under:
5. We have heard both the sides and perused the maternal on record carefully. In respect of outstanding advance of Rs.3. 63 crores to M/s. Bajaj Herbal Pvt. Ltd the sister concern of the assessee, the ld. CIT(A) stated that the assessee had mentioned that advance was given for the property named Sarthik (405) but no details were submitted to substantiate the fact. Therefore the ld. CIT(A) held that claim of interest u/s. 36(i) (iii) of the act was not for the purpose of the business of the assessee. In respect of advance of Rs. 22 lacs to M/s Sarnath Enterprise the ld. CIT (A) stated that it was claimed that advance was for purpose of property but no confirmation from the said party was furnished therefore the claim of interest u/s. 36(i) (iii) of the act was disallowed. It is also noticed that as per page no. 8 of the assessment order, the assessing officer stated that assessee was having interest free funds in the form of share capital and reserves and surplus to the extent of Rs. 2,61,14,663/- only. However as mentioned above in this order, the ld. counsel has submitted that the assesse was having total interest free funds aggregating to Rs. 4,41,33,783/- and pleaded that no disallowance u/s.36(i) (iii) is called for. In the light of aforesaid facts and circumstances, we observe that the Assessing officer and the ld. CIT (A) has not given categorical finding on the following issues. (i) Whether assessee had sufficient interest free funds to cover advances given to its associate concerns and no interest bearing fund was advanced to its associate concerns. (ii) Whether the money advanced to the sister concerns and others was for the purpose of business need of the assessee. The ld. counsel has submitted that such fact was categorically pointed out before the assessing officer and the same has not been denied by either of the lower authorities. During the course of appellate proceedings before us these contentions of the ld. counsel was not controverted by the Revenue Therefore, we are of the view that it would be appropriate to restore this issue to the file of the assessing officer to decide denovo on the points (i) and (ii) as above after affording adequate opportunity to the assessee. Accordingly this ground of the appeal is restored to the file of the assessing officer for deciding afresh as directed above. Therefore this ground of appeal of the assessee is allowed for statistical purpose.
11. In the impugned case before us, we have noted from the order of the Ld. CIT(A) that he has restored the issue to the A.O. for determining whether the advances were for the purpose of business of the assessee, while the rest of the arguments of the assessee were rejected. Ld. Counsel for the assessee has pointed out from his submissions before the A.O. reproduced at para 5.3 of the order as under that the contention of availability of sufficient own interest free funds for making the impugned advances was made :
5.3 Assessee’s submission.
The assessee filed a written submission dated 14/11/2011 stating that the said interest is paid for the purpose of business. Relevant portion of said business is reproduced as under:
“Our company has made payment of interest of Rs. 13,30,6947- to the banks and interest of Rs. 1,24,0377- to other aggregation to Rs. 14,54,7317- as against “‘ payment of interest of Rs. 12,86,824 7- to the banks and payments of interest of Rs. 2227- to others aggregation to Rs. 12,87,0467- in respect of previous year ended 31st March, 2008. It is submitted that our company has made borrowing from banks for various facilities and interest has been paid to the banks for utilizing the credit facilities. It is further submitted that our company has accepted deposits from the directors of the company and the family members of the directors of the company aggregation to Rs. 67.53 lacs on which no interest has been paid by our company. It is submitted that under the circumstances it be appreciated that on the unsecured loans from the directors and others there is no payment of interest. Payment of interest has been substantially effected on secured loans to Rs. 217.23A lacs accepted by our company from the banks. We trust this will explain the query raised by your good self as to why interest of Rs. 14.55 lacs has been paid as against loans aggregating to Rs. 598.42 lacs by our company.”
12. He also pointed out that the AO had noted the quantum of interest free funds available with the assessee at page 5 para B of his order as under:
B) On further verification of balance sheet, it is found that the assessee company is having interest free funds in the form of share capital and reserves and surplus to the extent of Rs.84,11,519 only. The break up of which is given here under:
