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ACIT, 3 (1) , Indore Versus M/s. Kehems Engineering Private Ltd.

2016 (1) TMI 1125 - ITAT INDORE

Disallowance of ‘Finance & Interest Charges’ - disallowance u/s 36(1)(iii) - Held that:- AO has failed to follow the direct decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Limited, (2009 (1) TMI 4 - BOMBAY HIGH COURT) wherein it is held that where the assessee possessed sufficient interest free funds of its own which were generated in the course of the relevant financial year, part from substantial shareholders funds, presumption sands established that t .....

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DR Respondent by : Shri Manoj Phadnis, CA ORDER: PER D. T. GARASIA, J.M. This appeal by the Revenue is directed against the order of CIT(A)-I, Indore, for the assessment year 2010-11. 2. The grounds raised by the Revenue in this appeal are as under :- On the facts and in the circumstances of the case the ld. CIT(A) - (i) erred in deleting the addition of ₹ 39,91,541/- on account of disallowance of Finance & Interest Charges without considering that if the assessee had interest-free fu .....

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5, itself. No prudent business entity would strip itself off the entire fund it has. Clearly, the advancing of deposit to the sister-concern had no business exigency; and on this ground along, the addition was required to be upheld. (iii) erred in deleting the aforesaid addition without appreciating that no break-up of interest fee funds and interest-bearing funds was provided by the assessee; hence, it is incorrect to say on the part of the ld. CIT(A) that the said advance to the sisterconcern .....

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s, without appreciating that the assessee was duly bound to produce/establish the same, which it has failed despite consuming adequate opportunities. 3. Ground no. 1 relates to the addition of ₹ 39,91,541/- on account of disallowance u/s 36(1)(iii) of the Income-tax Act, 1961. 4. The brief facts of the case are that the assessee filed the return of income for the assessment year 2010-11 through Efiling vide acknowledgement number 157622771220910 declaring total income of ₹ 28,31,680/ .....

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d 28th March that the assessee company had given a deposit of ₹ 610 lacs in 1995 to M/s Kehems Consultants Private Limited in pursuance of License Agreement to acquire technology and the relevant technical know-how. The copy of the agreement and the related details were also filed with the reply dated 25th March 2013. The deposit was given in the year 1995 out of share capital and other interest free funds available with the company in 1995. The said deposit has now reduced to ₹ 485 .....

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sits. Thus the interest paid is towards the loans borrowed for the purpose of the business of the company. The deposit of ₹ 485 lacs outstanding as at 31st March 2010 is not financed from the borrowed money but is from the share capital raised by the company in the year 1995. On the basis of the clear facts as mentioned above, the interest paid by the company cannot be considered as being in any way attributable towards the interest free deposit given by the company. The aggregate of the s .....

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deposit is given in the year 1995, this comparison itself is not warranted. 5. During the course of assessment proceedings, the AO observed from the Schedule-8 of the Balance Sheet relating to Loans, Advances and Deposits, the assessee company has shown advances at ₹ 5,09,61,406.31 narrating as deposit with Government Department and Others . The assessee was asked to submit the details of these advances and amount of interest recovered. In response the assessee submitted the list of advanc .....

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t have sufficient interest free fund for making the advances to its sister concern and the advances made in the year 1995. The submission of the assessee was considered but the same was not acceptable as the company have both types of fund i.e. interest free as well interest bearing during the year under consideration. He further mentioned that the assessee company was incorporated in October,1994 and the assessee company had given advances in March,1995, as such at that time the company could h .....

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the date of making advance to its sister concern is totally wrong. The AO further relied on the Hon ble ITAT, Delhi, in case of ACIT vs. Punjab Stainless Steel Industries reported in 128 ITR 12. In this case, the assessee claimed that it gave interest -free advances from it s own funds and then borrowed funds from banks can be treated as for supplementing cash diverted by assessee without any benefit to it-claim for deduction of interest on borrowing disallowed by AO and confirmed by the ITAT. .....

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of the company, which very clearly shows the following position:- Particulars 31.03.1996 Share Capital 4,50,03,000 Reserve and Surplus 35,36,189 Unsecured Loans from Promoters 1,34,36,221 Total 6,19,75,410 Interest free Deposits 6,10,00,000 The ld. AO has failed to follow the direct decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Limited, (2009) 313 ITR 340, wherein it is held that where the assessee possessed sufficient interest free funds of its ow .....

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terest-free advances from its own funds and then borrowed funds from banks can be treated as for supplementing cash diverted by assessee without any benefit to it - claim for deduction of interest an borrowing disallowed by AO and confirmed by the ITAT. It is well settle principle that in the event of two conflicting decision of High Court, the decision which is in favor of the assessee should be followed - CIT Vs. Vegetable ACIT,3(1), Indore. vs. M/s. Kehems Engineering Private Limited, Indore. .....

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rd the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the assessee was having sufficient interest free funds to extend an advance of ₹ 6.10 crores to its sister concern in the assessment year 1996-97. The Ld. DR could not point out anything contrary to the finding of the ld. CIT(A). We uphold the action of the ld. CIT(A). Ground no. 1 of the Revenue is dismissed. Ground no. 2 : 10. Ground no. 2 relates to the addition of ₹ 2,00 .....

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