Case Law Details
ITO Vs Neminath Homes Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that addition u/s 68 for investment in joint venture unsustainable as assessee has duly discharged the onus and given all the necessary documents for the identity, genuineness and creditworthiness of the parties.
Facts- On this issue, while completing the assessment, the AO perused the audited P & L account and observed that the appellant had paid the interest on loans of Rs.l,03,78,696/- and had disclosed the interest income of Rs.46,70,002/-. The AO also observed that the appellant had given the interest free loans to its 2 group concerns of Rs.74,00,000/-. The AO held that the appellant is incurring the interest on loans taken and is not recovering the interest on loans given to its associate concerns. Accordingly, AO directed the appellant to justify as, to why interest should not be disallowed in proportionate manner. In response, the appellant furnished its’ reply and submitted that the loans and advances had been given to its associate concerns to undertake the project activities and such is in normal course of its business. However, AO rejected the appellant’s contention and held that the burden is on to prove that the interest bearing funds had been utilized for and appellant had not justified the commercial expediency for which the interest free loans were given to its associate concerns. Thus, AO held that there is diversion of interest bearing funds for non-business purpose and accordingly, made the disallowance of interest on prorate basis of Rs. 8,88,000/- @ 12% of interest free loans given of Rs. 74,00,000/- u/s. 3(1)(iii) of I.T.Act, 1961.
Further, AO has confirmed addition u/s 68 for investment in joint venture.
Conclusion- Held that assessee has actually not debited the amount in profit and loss account. Rather the entire interest has been debited to work in progress. Hence, ld.CIT(A) has agreed with the AO that there is diversion of interest, but he has directed that since the interest has been debited to work in progress, the said amount be reduced from work in progress. Hence, ld.CIT(A) has correctly appreciated the issue. We do not find any infirmity in the same. Thus, the revenue’s appeal being misplaced is dismissed on this account.
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