TMI Blog2019 (9) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of the Ld. CIT(A)-12, Ahmedabad dated 22.2.2018 for the A.Y. 2014-15. The assessee has raised following grounds of appeal: 1. Ld. CIT(A) erred in law and on facts confirming disallowance of interest expense of ₹ 9,67,285/- paid to India Infoline Financial Services by A.O. 2. Ld. CIT(A) erred in law and on facts upholding action of A.O. disallowing interest paid to IIFSL based on observations for A.Y. 2012-13 2013-14 not appreciating the fact that funds available on return on loan is used for the purpose of business by the appellant 3. Ld. CIT(A) ought to have deleted disallowance of interest paid on funds borrowed utilized during the course of business by the appellant. 4. Ld. CIT(A) erred in law and on facts not adjudicating ground challenging action of A.O. taxing interest income as Income from other sources against income from business or profession as offered by the appellant. 5. Ld. CIT(A) erred in law and on facts not adjudicating ground cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and carefully examined the appellant's submission. 12.1 From the submission of the appellant it is clear that the disallowances by the AO of interest paid by the Appellant various parties is not based on proper appreciation of the facts of the case. The appellant has clearly established that the nexus of various funds (i.e. interest free fund available for interest free advance) is not practically possible as it has mixed portfolio of interest free fund and interest bearing fund but has brought out that it has secured loan of ₹ 22,98,030/- and unsecured loan of ₹ 38,82,69,260/- and has given further loan of ₹ 7,00,00,000/- to M/s Neptune Infra Space Pvt. Ltd. taking the closing balance of loan to this company to ₹ 34,62,51,922/- and has earned interest of ₹ 54,75,822/-. Under the circumstances interest paid of ₹ 9,18,078/- being aggregate of ₹ 1,39,740/-, ₹ 3,47,986/-, ₹ 56,096/- and ₹ 3,74,256/-(amount in grounds No. 2 to 5) do not appear to be a case to warrant disallowance of any interest. From the statements in the PNB A/c furnished during the appeal proceeding, it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing funds were not utilized for earning interest income. AO also noted that as this fact came to the notice during the course of assessment proceedings of A Y 2014/15 - year under consideration, separate proceedings to be initiated for the previous 2 years ie A Y 2012/'13 AY 2013/14 [Para 5.8 on page 12 of assessment order] Ld. CIT (A) vide Para 12.2 (page 12/13) of order confirmed disallowance made by AO. Thereafter assessments of A Y 2012/13 201.1/14 were reopened interest paid to India infoline Financial Services Pvt. Ltd. of ₹ 23, 08. 120/- ₹ 43, 92, 977/- respectively was disallowed by AO. The disallowance of interest for A Y 2012/13 2013/14 to India Infoline was challenged by the appellant before Id. CIT (A) who vide order dated 25.03.2019 deleted disallowance. Ld. CIT (A) in Para 7.3 on page 11 of the order dated 25.03.2019 held that - 7.3 I must also note that while deciding the appeal for the A. Y. 2014-15 in case of the appellant vide order dated 22.02.2018 it was held by the undersigned in relation to the disallowance of interest expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed disallowance of interest payment to IIFSL for AY 2014/15 (impugned order) has deleted disallowance while adjudicating appeals of reopened assessments for A Y 2012/13 2013/14 on appreciation of detailed documentary evidence paid on the same amount of loan taken by the appellant. It is respectfully submitted that disallowance of ₹ 9. 67, 28S/- interest paid to IIFSI. be deleted Grounds 1 to 3 of the appeal be allowed. 6. Ld. Counsel further submitted that in the year under appeal, the same Ld. CIT (A) has confirmed the addition on the identical set of facts for the assessment year 2012-13 2013-14. The expenditure was allowed on the ground that same is for the business purposes. She has drawn our attention to the order dated 25.3.2019 pertaining to the assessment years 2012-13 2013-14, wherein the Ld. CIT(A) recorded the factum of the order related to the assessment year under consideration. 7. Ld. D.R. opposed these submissions and vehemently argued that the assessing officer has given a finding on fact. The assessee could not prove that the expenditure was incurred for business purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. It was contended by the appellant that he had received back the entire money by 31.03.2012 i.e. within a period of 5 months during the F.Y. 2011-12. But the AO observed that the appellant had made payment of interest to IIFSL amounting to ₹ 23,08,120/ - for the period of 5 months for the loans utilized by MIPL for the F.Y. 2011-12 and thereafter, the entire interest bearing fund received back from MIPL had been diverted to give the funds to the Partnership Firm from where no taxable income was generated. Thus, the end use of the interest bearing funds from IIFSL was to give interest free advance through a circular route to the Partnership firms in which the appellant was a majority stake holder to earn exempt income. The appellant had shown the entire interest bearing funds given to MIPL as received back in the same Financial Year and on the other hand, the appellant had kept claiming interest expenses on such interest bearing funds in subsequent years though the interest bearing funds had never been utilized to earn interest income. The appellant had earned majority part of interest income from NISPL only for the period F.Y. 2011-12 and for the subsequent years. Thus, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin a period of 5 months and another amount taken on loan by MIPL from IIFSL in May 2011 was repaid in November 2011 but the AO observed that the appellant had made payment of interest to IIFSL amounting to ₹ 23,08,120/-in A.Y. 2012-13, ₹ 43,92,977/- in A.Y. 2013-14 and ₹ 9,67,285/- in A.Y. 2014-15 and that if the amount was squared up, where was the necessity to pay the interest to IIFSL in the year other than A.Y. 2012-13. From the submission of the appellant I find that the appellant is not correct in asserting that the AO had made the disallowance based on the observation for A.Y. 2012-13 and 2013- 14. It has been leamt that the A.Yrs. 2012-13 and 2013-14 have been reopened u/s 148 by the AO. The appellant has not brought out as to on what account interest of ₹ 9,67,285/- was paid to IIFSL for A.Y. 2014-15. Even if it is conceded that the transaction of funds between IIFSL and MIPL were for the purpose of business of the appellant, the appellant has failed to make out the nature of the impugned payment of ₹ 9,67,285/- and its allowability during the A.Y. 2014-15. I do not find any reason to interfere with the finding and conclusion of the AO. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infra, the appellant received back the entire money by 31.03.2012 i.e. within a period of 5 months during the F.Y. 2011-12 but the appellant made payment of interest to IIFSL amounting to ₹ 23,08,120/- for the period of 5 months for the loans utilized by MIPL for the F.Y. 2011-12, 7.5 It is case of the appellant that the verification of the Fund Flow Statements for the three years would reveal that that the Appellant had mixed bag of funds i.e. own capital + interest free fund + interest bearing funds, that loan taken from M/s. IIFSL is used for repayment of interest-bearing loans taken earlier and thus, it is a case of loan takeover where one interestbearing loan is replaced by another interest-bearing loan. It is submitted by the appellant that the fund transferred to M/s. Tulip Realty was for repayment of fund received by the Appellant first. Thus, it is not the case that the Appellant had diverted the interest-bearing fund of M/s. IIFSL to M/s. Tulip Realty as held by the Assessing officer. As per the Fund Flow Statement for A.Y. 2012-13, the Appellant had net capital of Rs,3.86 crores and net reduction in borrowing of ₹ 27.80 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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