TMI Blog2015 (4) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... come and the interest will be allowable as deduction not only under section 36 but also under section 37 of the Act. We find that the assessee had sufficient amount of money towards Share Capital, Reserve & Surplus and the Interest Free Advances given were fully covered by amount of Share Capital, Reserve & Surplus, disallowance of Interest need to be deleted and taking into consideration of the Coordinate Bench of the ITAT ’C’ Bench, New Delhi in assessee’s own case for the assessment year 2003-04 [2012 (10) TMI 317 - ITAT, DELHI] in Revenue’s appeal, we decide the issue against the Revenue by deleting the addition of 1,75,51,634/- on account of interest. - Decided in favour of assessee. - ITA No. 4617/Del/2011 - - - Dated:- 26-3-2015 - INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI Shri J.S.Reddy And Shri A. T. Varkey JJ. 26-03-2015 ITA No. 4617/Del/2011 HB Estate Developers ltd Versus DCIT For the Appellant : Sh.Amit Goel, Adv For the Respondent : Sh. Satpal Singh, Sr. DR ORDER Per A. T. Varkey, JUDICIAL MEMBER This is an appeal filed by the Assessee is directed against the Order of the Ld. CIT(A)-VIII, New Delhi dated 04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans of ₹ 518123177/- These loans have been given to the sister concerns of the assessee.So the AO was of the opinion that It is clear from the above that the assessee on one hand has raised interest bearing funds and bearing interest cost on it and on the other hand it is advancing funds to its sister concerns on which no interest is being charged by it. Thus he observed that the interest bearing loans taken have been diverted as interest free loans and held that the interest cost pertaining to these loans / advances, which are not for the business purpose of the assessee is not allowable to it. And since the assessee is not maintaining segregate accounts of its funds invested in the business and those given for the non business purpose therefore, the interest expenses pertaining to loan and advances given by the assessee for non business purpose are to be disallowed. The interest expenses pertaining to interest bearing loans diverted as non interest bearing loans and advances comes to ₹ 17551634/-. Therefore, the AO concluded that these expenses claimed by the assessee were disallowed and added to its income. 4. Against the aforesaid order of the Ld. CIT(A), assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet of company, the financial position is as follows:- Non-interest bearing funds available with the company i.e. owned funds :- Particulars As on 31.03.2002 Share Capital 123083123 Reserve Surplus 59042225 Total inter fee fund 713505648 Interest bearing loan taken (Loan taken was business loan against Mortgage of Real Estate Properties held as Stock-in-Trade) 180089042 Loan Advances given 518123177 7. From the above, according to the ld AR it is apparent that the networth / non-interest bearing funds available with the company were much more than the Loan Advances given. In the last year no such disallowance of interest was made and we find that the Inventories held by the assessee company has reduced from ₹ 47.79 cores to ₹ 36.79 cores i.e. by ₹ 11 cores. The cash and bank balances have reduced from ₹ 1.29 cores to ₹ 0.40 cores i.e. by ₹ 0.89 cores. And that the funds of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and deleted the disallowance made by A.O. The Hon'ble Bombay High Court upheld the order of tribunal by holding that the principle therefore would be that if there are funds available both interest free and overdraft and / or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. 10. The counsel stated that in the case of Commissioner of Income Tax vs Tin Box Co (2004) 135 Taxman 145 (Del) disallowance of interest was made on the ground that the assessee has diverted the interest bearing funds for giving interest free advances to sister concerns. The disallowance made was confirmed by CIT(A). The matter went to tribunal which allowed the claim of the assessee. The department went into appeal before High Court. The Hon'ble High Court dismissed the appeal of revenue and upheld the order of tribunal on the ground that the interest free funds available with the assessee much more than the interest free advances given by it. The Hon'ble Court supplied specific emphasis on the following :- The capital of the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus between the advances made by the assessee to a party without charging any interest and the borrowed funds of the assessee on which interest was payable no disallowance could be made on that account. 15. In view of the above, Ld. Counsel of the assessee submitted that the appeal in dispute filed by the assessee may be allowed by following the order of the ITAT passed in assessee s own case in the assessment year 2003-04 on the identical and similar issue. 16. On the other hand, Ld. DR relied upon the order of the Revenue authorities and requested that the same may be upheld. 17. We have heard both the parties and perused the records. In the background of the aforesaid discussions and precedents relied upon the by the assessee, we find considerable cogency in the submission of the assessee that the ITAT C Bench, New Delhi in assessee s own case for the assessment year 2003-04 vide ITA No. 4211/Del/2010 vide order dated 13.7.2012 in Revenue s appeal, has decided the issue of disallowance of ₹ 81,65,658/- on account of interest payee in favor of the assessee and against the Revenue. 18. A perusal of the balance sheet of company, reveals the financial position ..... X X X X Extracts X X X X X X X X Extracts X X X X
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