IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “SMC”, NEW DELHI

BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER

ITA No.1207/Del/2018
Assessment Year : 2014-15
Brahmaputra Finlease Pvt. Ltd., DCIT, Central Circle- 15,
Brahmaputra House, A-7, NH-8, New Delhi.
Mahipalpur Crossing, Vs.
New Delhi.

PAN : AAACK3691G
(Appellant) (Respondent)

Assessee by : Shri Gautam Jain, Adv.

Department by : Shri Atiq Ahmed, Sr. DR
Date of hearing : 02-08-2018
Date of pronouncement : 29-08-2018

ORDER

PER R. K. PANDA, AM :

This appeal filed by the assessee is directed against the order dated

22.11.2017 of CIT(A)- XXVI, New Delhi relating to assessment year 2014-15.

2. Although a number of grounds have been raised by the assessee, these all

relate to the order of the ld. CIT(A) in sustaining the addition of Rs.5,39,940/-

on account of non-charging of interest on loans from the related parties.

3. Facts of the case, in brief, are that the assessee is a company and filed its

return of income on 29.09.2014 declaring Nil income. During the course of

assessment proceedings, the Assessing Officer observed from the audited

accounts for the year under consideration that the assessee company has debited
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interest on unsecured loan of Rs.7,69,096/- on the loans and advances received

of Rs.7,00,68,520/-. He further observed that the assessee has received interest

of Rs.2,30,068/- on loans & advances but not charged interest from others and

related parties. He observed from the Balance Sheet that the assessee has

shown interest free loans and advances given at Rs.9,03,07,449/-. He, therefore,

asked the assessee to justify the huge interest expenses and also explain as to

why the interest was not charged on the loans and advances given by the

assessee. It was explained by the assessee that the advances given by the

assessee are in the course of business and the assessee also furnished a breakup

of loans and advances taken and given. However, according to the Assessing

Officer, the assessee failed to furnish any confirmation and reason for not

charging interest on loans and advances. He referred to various decisions where

it has been held that the assessee, which advances its funds as interest free

loans, has no justification to claim interest on borrowings. Since the assessee in

the instant case has advanced money for purposes unrelated to business

activities of the assessee and the assessee was paying interest on loan and on the

other hand has diverted its money to others free of interest, therefore, the

Assessing Officer made addition of Rs.5,39,028/- by reducing the interest

received of Rs.2,30,068/- from the interest paid at Rs.7,69,096/-.

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4. In appeal, the ld. CIT(A) sustained the addition made by the Assessing

Officer by observing as under :-

“5. I have considered the facts of the case, the basis of addition made by the A.O.
and the arguments of the AR during assessment as well as appellate proceedings.
The assessee has raised funds/loans from market to the tune of Rs.7,00,68,520/- for
the purpose of business and the assessee is a registered NBFC paying interest of
Rs.7,69,096/-. The assessee has given loans and advances of Rs.9,03,07,449/-,
receiving interest of Rs.2,30,068/- on such advances. Ld. AR has sought to justify the
same on account of commercial expediency. But Revenue cannot be oblivious to the
fact of wholly exclusively laying out of the capital for business. The assessee has to
furnish relevant detains which has not been done. In absence of assessee not
discharging onus before the A.O. as also this office, the action of the A.O. appears to
be correct and in tune with section 37 of the I.T. Act, 1961.”

5. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal

before the Tribunal.

6. The ld. counsel for the assessee, at the outset, drew the attention of the

Bench to page 6 of the order of the ld. CIT(A) and submitted that the ld. CIT(A)

has given a finding that the net own funds of the company as on 31.03.2014 is

Rs.12,78,64,988/- and the loans and advances as on 31.03.2014 is

Rs.8,83,76,861/-. Thus, the loans and advances are from their owned funds and,

therefore, the disallowance is not justified. The ld. counsel, for the assessee

referring to various decisions submitted that when the assessees owned funds

are more than the interest free advances then no disallowance is called for. For

the above proposition, he relied on the following decisions :-

(i) CIT vs. Bharti Televenture Ltd., 331 ITR 502 (Del).
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(ii) Virender Kumar Gupta vs. ITO, ITA No.6293/D/2016 for A.Y. 2013-14.
(iii) Vijay Pal Garg vs. DCIT, ITA No.1774/D/2014 for A.Y. 2011-12.
(iv) DCIT vs. Navbharat Press, ITA No.160/RPR/2014 for A.Y. 2010-11.
(v) Venus Auto vs. CIT, 396 ITR 477 (All).

He accordingly submitted that the order of the ld. CIT(A) be set-aside and the

disallowance be deleted.

7. The ld. DR on the other hand heavily relied on the order of the ld.

CIT(A).

8. After hearing both the sides and on perusal of the relevant material on

record, I find the Assessing Officer disallowed an amount of Rs.5,39,940/- u/s

36(1)(iii) on the ground that the assessee has diverted its interest bearing funds

as loans and advances to sister concerns and others without charging of any

interest. I find the ld. CIT(A) sustained the addition made by the Assessing

Officer, the reason of which has already been reproduced in the preceding

paragraph. It is the submission of the ld. counsel for the assessee that since the

net owned funds of the assessee company is much more than the interest free

funds advanced to sister concerns and others, therefore, no disallowance is

called for u/s 36(1)(iii). I find some force in the above argument of the ld.

counsel for the assessee. It is an admitted fact that nothing has been brought on

record that any specific interest bearing borrowed funds has been diverted by
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the assessee to the related parties from whom no interest has been charged.

Since the net owned funds of the assessee company in the instant case is much

more than the interest free advances given to related parties and since the

Revenue has not brought on record any specific instance of interest bearing

borrowed funds being diverted to the related parties free of interest, therefore, I

am of the considered opinion that no disallowance u/s 36(1)(iii) is called for.

The Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and

Power Ltd. reported in 313 ITR 340 has held that if there are funds available

both interest free and overdraft and/or loans taken, then a presumption would

arise that investments would be out of the interest free funds generated or

available with the assessee company, if the interest free funds were sufficient to

meet the investment. Various other decisions relied on by the ld. counsel for the

assessee in the synopsis and Paper Book also support its case that where the

assessee is having sufficient owned funds which is more than the interest free

funds given or advanced to related parties and the assessee is maintaining a

common bank account and the Revenue has not proved with any evidence that

any interest bearing fund has been diverted to sister concerns or related parties

without charging any interest then provisions of section 36(1)(iii) is not

applicable. I, therefore, hold that the ld. CIT(A) in the instant case was not
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justified in sustaining the addition. I, therefore, set-aside the order of the ld.

CIT(A) and direct the Assessing Officer to delete the addition.

9. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on this 29th August, 2018.

Sd/-
(R. K. PANDA)
ACCOUNTANT MEMBER
Dated: 29-08-2018.
Sujeet
Copy of order to: -
1) The Appellant
2) The Respondent
3) The CIT
4) The CIT(A)
5) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi