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2016 (7) TMI 313 - ITAT COCHIN

2016 (7) TMI 313 - ITAT COCHIN - TMI - Revision u/s 263 - Interest free loans and advances have been given to one of the Directors and to the related companies in which the Directors are interested - interest dis allowance - Held that:- The loans availed are basically for specific purposes like purchase of assets, i.e., cars and it was explained that HDFC Inventory Floor Funding amounting to ₹ 382.33 lakhs was sanctioned during the year for the purpose of purchase of goods and the correspo .....

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ee is pay in grent of ₹ 60 lakhs for that building. The building is used as show room and service centre. - As regards advance in the name of the Director, it was in connection with business requirements of the Company and the loan advances were not paid out of borrowed funds. The Assessing Officer was satisfied that there was no diversion of funds during the assessment proceedings. Since the loans/advances have been given for the specific purpose, therefore, the view taken by the Ld. .....

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erroneous in so far as it is prejudicial to the interests of the Revenue - Decided in favour of assessee - ITA No.315/Coch/2015 - Dated:- 19-5-2016 - Shri B. P. Jain, AM And George George. K, JM For the Assessee : Shri R. Krishnan, CA For the Revenue : Shri K P Gopakumar, Sr DR ORDER Per B. P. Jain, AM This appeal of the assessee arises from the order of the Ld. CIT(A)-II, Kochi dated 20.03.2015 passed u/s. 263 of the I.T. Act for the assessment year 2010-11. 2. The assessee has raised the foll .....

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ncluded that, there was error in the order passed by Assessing Officer, causing prejudice to the department. Having not done so, order u/s. 263 is bad in law. 4. The learned Commissioner of Income Tax erred in not entering into a finding as to how interest bearing funds were diverted to sister concerns. Mere mention that there is diversion is bad in law. 5. The learned Commissioner of Income Tax ought to have appreciated that the advance to the sister concern was in the nature of rent advance, a .....

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aid interest on secured and unsecured loans amounting to ₹ 1,21,11,857/-. The average of the opening balance and closing balance of the loans as on 01.04.2009 and 31.03.2010 was ₹ 4,40,45,423/-. The assessee had given interest free loans and advances to one of its directors and to its related companies in which the directors are interested, for ₹ 264.94 lakhs. Asno interest was levied, proportionate interest paid on secured and un secured loans amounting to ₹ 72,82,333/- .....

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below: 5. I have carefully considered the submission of the Learned AR. The assessee is paying heavy interest to financial institutions for acquiring capital assets and for working capital requirement and at the same time lending to related parties interest-free. As such, proportionate interest is leviable and the same has not been looked into by the Assessing Officer while making assessment inadvertently. 6. In the light of the above, by invoking the provisions of section 263 of the Income Tax .....

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and relied upon the order of the Ld. CIT(A). 6. We have heard the rival contentions and perused the facts of the case. The error pointed out by the Ld. CIT(A) in the show cause notice was that interest free loans and advances have been given to one of the Directors and to the related companies in which the Directors are interested amounting to ₹ 264.94lakhs and accordingly, proportionate interest paid on secured and un secured loans amounting to ₹ 72,82,333/- was to be disallowed. It .....

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nce - Car Loan (5000333104-India DI 2,00,112.27 3,00,600.00 HDFC-Inventory Floor Funding 3,82,53.329.23 - Total 4,98,78,531.20 74,87,709.00 Schedule-4 Unsecured Loan: F.Y. 2009-10 Rs. Ps F.Y. 2008-09 Rs. Ps. Tata Capital Car Loan (7000058961-X6) 53,63,211.60 - Gokulam Chits - 3,44,167.00 ICICI Car Loan - X5 - 60,28,000.00 Platino Cars India Pvt. Ltd., Kochi - 79,89,608.00 Shamina Ashique 19,88,169.40 24,76,912.00 Reliance Capital - Car Loan - 65,34,538.00 Total 73,51,381.00 2,33,73,225.00 Corres .....

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.00 On perusal of the above Schedule, it is evident that the loans availed are basically for specific purposes like purchase of assets, i.e., cars and it was explained that HDFC Inventory Floor Funding amounting to ₹ 382.33 lakhs was sanctioned during the year for the purpose of purchase of goods and the corresponding interest for the loan availed is only ₹ 10,81,911/- which is marked in Schedule-15. Whereas, the proportionate interest disallowance has been worked out by the Ld. CIT( .....

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ion withbusiness requirements of the Company and the loan advances were not paid out of borrowed funds. The Assessing Officer was satisfied that there was no diversion of funds during the assessment proceedings. Since theloans/advances have been given for the specific purpose, therefore, the view taken by the Ld. CIT(A) is not a correct view and there cannot be any occasion to come to the conclusion that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the intere .....

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enue but, he has not mentioned that the order is erroneous as well. Therefore, the matter cannot be remitted to the Assessing Officer for fresh decision to conduct further enquiries without a finding that the order is erroneous in so far as it is prejudicial to the interests of the Revenue and the twin conditions have to be satisfied. The Hon ble Supreme Court in the case of CIT vs. G.M. Mittal Stainless Steel (P) Ltd.(2003) 263 ITR 255 has observed that the satisfaction by the Commissioner must .....

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