TMI Blog2019 (6) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : Shri O.P. Pathak, Sr.DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) Gandhinagar, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)/GNR/82/2016-17 dated 17/04/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 28/12/2016 relevant to Assessment Year (AY) 2013-14. 2. The assessee has raised the following grounds of appeal:- 1. That the learned CIT(A), Gandhinagar has erred in law and on the facts in passing appellate order dt.17/04/2017 and in partly allowing the appeal of appellant. 2. That the learned CIT(A) has erred and made observations (Para 4.3, pg.5) that the appellant has utilized higher interest bearing loan for earning lower interest, the learned CIT(A) has also state that the appellant should not have got disbursed loan from Bank of Baroda when it was not in need of any fund. It is pertinent to mention here that the terms of sanction letter of Bank are not gone th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee is a partnership firm and engaged in the business of construction of residential and commercial units and sales thereof. The assessee advanced the loan to the sons and close relatives of the partner on interest at the rate of 12%. The assessee in support of its claim submits the ledger accounts of the borrower before the AO. The assessee also claimed that it had received the loan from Bank of Baroda on interest at the rate of 15.10%. As such, the assessee to reduce the cost of interest on the bank borrowing provided advances which were idle with it to its relatives at the rate of interest of 12%. However, the AO on perusal of the audit report observed that the assessee had shown interest income of ₹ 4,96,177/- while on the other hand, it claimed interest expenses of ₹ 2,59,88,220/-. The AO further observed that the assessee was not showing the interest income received on such advances in its books of account. The AO also observed that the assessee received loan amounting to ₹ 33,00,00,000/- from Bank of Baroda at a rate of interest of 15.10%. Therefore the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee paid interest at the rate of 15.10% on the said loan while on the other hand, it charged 12% on the said advances. As such the assessee already declared interest income of ₹ 41,40,817/- in its P L account, so the addition amount reduces amounting to ₹ 11,34,689/- under section 154 of the Act vide order dated 24/01/2017. The Ld. CIT (A) also observed that the assessee did not require the loan as it had sufficient balance in the form of capital which was introduced by its partner. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 6. The ld. AR before us filed a paper book running from pages 1 to 111 and submitted that the Ld.AO at the time of framing assessment order was in illusionary mindset that assessee firm has given interest free advances to the family member of the partners out of borrowed term loan from banks. In this regard, it is duly submitted that assessee in its submission never said that it has given advances out of borrowed funds (Term Loan) from banks. Assessee has claimed since beginning that firm has given advances out of its own funds (ie. Idea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where it was held that there was no material on record indicating that there was diversion of interest bearing funds as interest free advances, assessee s claim for deduction under section 36(1)(iii) was to be allowed, full citation of the aforesaid decision is given below for your Honours ready reference. In support of above contention, the assessee, further relies on the ruling of the G.R. Agencies v. ITO (2003) 79 TTJ (Luck) 416, where it was held that most of the advances are prior to the borrowings and, therefore, it cannot be said that borrowed funds have been diverted to interest-free advances, full citation of the aforesaid decision is given below for your Honours ready reference. Relating to the above citation of the courts with our case, appellant has made most of advances before disbursement of Term loan ie, before 19th August-2013. Hence there is no nexus between the advances given with borrowed funds (Term Loans). 7. On the other hand the ld. DR before us vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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