Even otherwise the interest free funds available with the assessee are Rs.44.28 crores. The assessee has earned profit of Rs.5.93 crores during the Assessment Year 2007-08. If depreciation of Rs.2.88 crores is added, the cash accruals during the year would be Rs.8.81 crores. The interest free advances are to the tune of Rs.14.89 crores. The Hon’ble Bombay High Court in the case of CIT vs. Reliance Utility and Power Ltd. 178 Taxman 135 Bombay held that in such situations the presumption would be that interest free funds were used for the purpose of giving interest free advances. The A.O. has not dislodged this presumption. Hence on this ground also, the issue is to be decided in favour of the assessee.Metro Institute of Medical Sciences P.Ltd. Vs ACIT (ITAT Delhi)
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No: 3938/Del/2011
Assessment Year: – 2007-08
Metro Institute of Medical Sciences P.Ltd.
vs.
ACIT
O R D E R
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
These are Cross Appeals and are directed against the order of the Ld.CIT(A)-IX, New Delhi dt. 25.5.2011 for the Assessment Year 2007-08.
2. The facts in brief. The assessee is a company engaged in the business of running of hospitals under the brand name “Metro” in various parts of the country. The company has high expertise in operating and managing Nursing Homes/Hospitals specially with respect to Cardio Vascular Care. It filed its return of income for the Assessment Year 2007-08 on 31.10.2007 declaring an income of Rs.7,13,10,790/-.The A.O. completed the assessment u/s 143(3) on 29.12.2009, assessing income at Rs.7,60,620/-, where interalia he has disallowed interest on borrowed capital as well as u/s 14A of the Income Tax Act, 1961. Aggrieved the assessee carried the matter in appeal before the CIT. The First Appellate Authority deleted the disallowance on proportionate interest made by the A.O. He also restricted the disallowance made u/s 14A. Aggrieved both the assessee and the Revenue are in appeal before us.
3. We have heard Mr. R.S.Negi, Sr.D.R. and Mr.Hiren Mehta, C.A. Ld.Counsel for the assessee. We first take up Revenue’s appeal. The grounds raised by the Revenue are as follows.
“1. The order of Ld. CIT(A) is erroneous and contrary to facts and law.
2. On the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition of Rs.26,30,636/- made by the Assessing Officer by disallowing the proportionate interest in respect of interest free advances given by the assessee ignoring that:
2.1 The assessee had borrowed huge funds on which it was paying interest and claiming same as expenditure in its P&L a/.c;
2.2. The assessee itself submitted that 35.71% of the total funds used for the purpose of making interest free advances were borrowed funds and remaining funds were assessee’s own funds.
2.3. Similar disallowances made in the case of assessee itself for Assessment Year 2006-07 were upheld by the Hon’ble ITAT B bench of Chandigarh in ITA no.1432/Chandi/2010 vide order dt. 28.2.2011.
3. The appellant craves leave to add, alter, amend any grounds of appeal raised above at the time of hearing.”
4. The main contention of the Ld.D.R. is that the facts and circumstances under which the Chandigarh Bench of the Tribunal in its order in ITA 1057/Ch./2008 dt. 24th September,2009, wherein it followed the judgement of the Jurisdictional High Court in the case of CIT vs. Abhishek Industries, (2006) 286 ITR p.1 and confirmed the disallowance remain the same. He further submitted that another the Chandigarh Bench of the Tribunal in ITA 1432/Ch./2010 order dt. 28th Feb.,2011 had followed its earlier order and confirmed the same disallowance. He argued that the precedence set by the Co-Ordinate Bench of the Tribunal in the assessee’s own case has to be followed. He pointed out that the assessee in his explanation has also submitted that disallowance can be made on proportionate basis and had given reasons for the same. Thus he submits that it cannot argue otherwise. He further submitted that the Commissioner of Income Tax (Appeals) has accepted additional evidence from the assessee and without confronting the A.O. with this additional evidence, had adjudicated the matter. Hence he submitted that the order of the Ld.CIT(A) has to be reversed.
5. The Ld.Counsel for the assessee on the other hand submitted that the facts are different in this year and that case law relied upon by the Tribunal for the earlier A.Ys is no more good law in view of the subsequent judgement of the Hon’ble Supreme Court in the case of S.A.Builders, 288 ITR p.1. Thus he submitted that the judgement of the Hon’ble P&H High Court in the case of Abhishek Industries cannot be followed. He further submitted that the case now falls under the jurisdiction of the Delhi High Court and that the assessee satisfies the proposition laid down by the Jurisdictional High Court in the case of CIT vs. H.B.Stock Holding Ltd. 325 ITR 316 and submitted that the issue is covered in its favour. The Ld.Counsel’s submissions are summarized as under.
(a) the borrowings were for the purpose of business from PNB Centurian Bank and others and for specified business purpose and hence the interest paid on the loans cannot be disallowed;
(b) that the assessee has sufficient interest free funds, which have to be presumed to have been advanced as interest free advances. Reliance is placed on the decision of the Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. ITR 340 @ page 344. He further relied on the following decision:-
i. CIT vs. DCM Ltd.325 ITR 310 Delhi;
(c) that secured loans given by banks for specific purposes are not allowed to be diverted;
(d) the advances were given keeping in view commercial expediency;
(e) that the CIT called for the remand report from the Assessing Officer on the evidences admitted by him, and hence there can be no grievance of not having an opportunity.
6. In reply the Ld.D.R. tried to distinguish the decision of the Delhi High Court by submitting that it was a case where interest free advance was given prior to taking a loan.
7. On the assessee’s appeal, the ld.counsel for the assessee thoughnot leaving this ground ultimately submitted that he is not pressing the same in view of the smallness of the amount.
8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and the orders of the authorities below we hold as follows:-
9. The loans in question, on which interest has been paid by the assessee and part of which is sought to be disallowed by the Assessing Officer is given below:-
