Case Law Details
Shri Narendra Kumar Khandelwal Prop. M/s Ranjana Textiles Vs ITO (ITAT Jaipur)
Interest free funds available: The law is well settled that where assessee is having mixed i.e. interest free/interest bearing funds both, but where the interest free funds are larger than the interest free advances/utilization than there will a presumption that the interest free utilization was made out of the interest free funds (but not out of interest bearing fund) and hence, no interest can be disallowed
The only dispute is for disallowance of Rs. 9,24,820/- sustained by the CIT(A) out of the total disallowance of Rs. 14,81,068/- made by the AO. The sum and substance of the detailed arguments of the ld. AR of the assessee is that total interest free funds stood and available with the assessee is at Rs.71.23 lakhs as against interest free utilization at 59.01 lakhs only (From Rs.124.71 lakh excluded bajaj nagar land-Rs. 41.09 for which no claim of interest made and CIT(A) already deleted, old investments-8.4 lakhs, old advances-16.21 lakh), still leaving Rs.2.17 lakh excess interest free funds (71 lakh-59.01-10.05). The ld. AO was not able to pin pointedly come a definite finding that the interest bearing fund has been directly utilized for non interest bearing purpose and in fact based on the analysis placed before us the revenue did not convtrovert the arguments of the ld. AR of the assessee that the assessee is sufficiently having interest free funds on hand. The ld. AR of the assessee has relied upon the various judgement for his contention and has heavily relied upon the jurisdictional High Court judgment in the case of CIT Vs. Ram Kishan Verma 132 DTR 107 (Raj)(HC). The relied upon finding of the Honourable High Court on the issue is as under ;
13. Taking into consideration the fact as noticed hereinabove, in our view as well, when there was no agreement to charge interest from the persons, to whom the assessee advanced short term loan/advance, the AO could not disallow part of the interest. It is also an admitted fact, as observed by the Tribunal, that the AO .vas not able to pin pointedly come to a definite conclusion that how interest bearing loans had been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-a-vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on appreciation of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partners/proprietor being more than the interest free short term advances, has in the case of CIT v. Vijay Solvex Ltd. [2015] 59 taxmann.com 294 (Raj.) while relying on the judgment rendered in (a) S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 (SC); (b), Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 (SC); (c), CIT v. Radico Khaitan Ltd. [2005] 274 ITR 354/142 Taxman 681 (All.); (d), CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377/121 Taxman 706 (Delhi); (e), CIT v. Britannia Industries Ltd. [2006] 280 ITR 525/[2005] 148 Taxman 654 (Cal.) and (f) CIT v. Motor Sales Ltd. [2008] 304 ITR 123 (All.), held as under:—
“16. In view of the authoritative pronouncement of the Apex Court and other judgments referred supra, in our view, the assessee admittedly had its own funds, as referred to earlier, and admittedly such funds/reserves being substantially higher than, even otherwise, the advances to the debtors, no notional interest or hypothetical interest could have been disallowed on such facts. The revenue has failed to prove nexus. In our view, the ITAT has correctly appreciated the facts and law.”
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