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DCIT, Circle 6 (1) , New Delhi Versus Majestic Hotels Ltd. and Vica-Versa

2016 (1) TMI 854 - ITAT DELHI

Disallowance of interest expenses - CIT(A) deleted the addition - whether the assessee was having adequate interest free funds at its disposal without considering the fact that had interest free funds would been available with the assessee then the assessee would not applied for debt restricting with the financial institutions - Held that:- Assessee has huge interest free fund available with it and therefore the disallowance u/s 36(1) (iii) on account of advances given to other parties from of i .....

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ce of club membership is deleted. Ground of the appeal is allowed.- Decided in favour of assessee. - ITA No. 1689/Del/2013, ITA No. 6260/Del/2013 - Dated:- 6-11-2015 - SH. C.M.GARG, JM AND SH. PRASHANT MAHARISHI, AM For The Assessee : Rajeev Mango, C.A. For The Revenue : Sh. P. Dam Kanunjna, Sr. DR ORDER Per Prashant Maharishi, AM: 01. These are the two appeals relating to the assessee for assessment year 2008-09 where revenue is in appeal before us and in AY 2010-11 where the asessee is in ap .....

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e with the assessee then the assessee would not applied for debt restricting with the financial institutions ? 2. Whether the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the disallowance of interest expenses amounting to ₹ 24,05,333/- by relying upon the judgment of Hon ble Delhi High Court in Bharti Televentures 331 ITR 502 even the assessee failed to prove its commercial expendiency and CIT (A) also held that there was no commercial expediency ? .....

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24,05,333/- by CIT (A) holding that assessee was having adequate interest free funds at its disposal without considering the fact that the interest free funds would be available with the assessee then assessee would not have applied for debt restructuring with the financial institutions and assessee has failed to prove commercial expediency. Further CIT (A) did not consider the decision of Hon ble Punjab and Haryana High Court in the CIT vs. Abhishek Industries Ltd. where the onus of establishi .....

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377; 5,20,783/- only and deleting the disallowance of ₹ 24,05,333/-. He further submitted that the amount of advances given to Netcradel India Pvt. Ltd. and Saffron Range IT Solution Pvt. Ltd. were for non-business purposes and therefore interest @ 12.5% computed on this advances should be disallowance. 05. Ld. AR before us submitted that CIT(A) has rightly deleted in the interest disallowances for the following reasons : a) The advances the amount outstanding with respect to Netcradel Ind .....

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ons, the facts emerging are that the assessee company is running start category hotel since January, 2000. During assessment, AO noticed that assessee has outstanding loans and advances to two parties Netcradel India Pvt. Ltd. of ₹ 1,33,11,564/- and Saffron Range IT Solution Pvt. Ltd. ₹ 75,17,061/- as at 31.03.2008. As no interest has been charged on these two advances where assessee is paying interest of ₹ 3,03,56,328/-, Ao was of the view that interest bearing funds have been .....

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/-. Therefore it s apparent that assessee has more interest free funds available with it then amount given to these parties free of interest. On reading of the assessment order it is established that AO has not found any nexus of the interest bearing funds diverted to non-interest bearing advances. When the matter was before CIT(A), CIT(A) has examined the issue on each transaction wise and found that amount of interest of ₹ 5,20,783/- out of total interest expenditure of ₹ 2,92,611 .....

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ing that amount of advances given to NIPL was giving online support to the assessee company and to keep that company in comfortable fund flow assessee has given the advances since long to ensure continuous supply of services. Therefore the advances made by the assessee are for the purposes of the business and there exist business exigency in providing loan to this party. Revenue s reliance on the decision of Honourable Punjab and Haryana high court in case of CIT V Abhishek Industries Limited 28 .....

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only in the preceding years but also in the years under consideration, which far exceeded the interest-free advances to the sister concern, the Tribunal finally concluded as under : "We are in agreement with the submissions made by learned counsel for the appellant because the factual position as submitted before us by learned counsel for the appellant has not been controverted by the learned Departmental Representative. The admitted facts are that the appellant-firm has been enjoying over .....

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ither in the past or during the year under appeal. Further in the years under appeal, either the fresh advances to PNSMPL have been quite insignificant or there have been absolutely no fresh advances made by the appellant, rather during the assessment years 1990-91 to 1992-93 the appellant had received back from the sister concern more than ₹ 10 lakhs. The capital of the firm and interest-free unsecured loans with the appellant for exceed the amounts advanced to the sister concern in all t .....

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aw, arises from the orders of the Tribunal. It is not shown to us as to which findings of the Tribunal is either without any evidence or material or it is contrary to the evidence, to term it as perverse. Thus, there is no scope for interference by this Court on the aforenoted findings of fact recorded by the Tribunal. Further Honourable Mumbai high court in CIT V Reliance Utilities limited 313 ITR 340 has held that 10. If there be interest-free funds available to an assessee sufficient to meet .....

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taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd. s case (supra) the Calcutta High Court had come to the conclusion that t .....

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e both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT. From above judicial precedents it is apparent that if the assessee has interest free funds more than amount of investment made in non-in .....

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parent that assessee has huge interest free fund available with it and therefore the disallowance u/s 36(1) (iii) on account of advances given to other parties from of interest cannot be disallowed. Therefore we confirm the order of CIT (A) in deleting the disallowance of ₹ 24, 05,333/- on account of amounts advanced to sister concerns without charging interest. Hence appeal of the revenue is dismissed. 07. In the result appeal of the revenue is dismissed. ITA NO 6260/Del/2013 A Y 2010-11 .....

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