TMI Blog2022 (7) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... owed funds - HELD THAT:- It is settled principle of law that when the assessee has adequate interest free funds to make interest free advances to sister concerns, then no disallowance of interest expenses can be made. For this, reliance can be placed on the judgment of Hon`ble Gujarat High Court in the case of Commissioner of Income-tax, Gandhinagar vs. Rajendra Brother [ 2014 (9) TMI 885 - GUJARAT HIGH COURT] . We note that where the assessee was having sufficient interest free funds available with him to lend interest free advances, the ld CIT(A) was justified in deleting disallowance of interest in relation to such interest free advances. - ITA Nos.113 And 114/SRT/2020 - - - Dated:- 25-7-2022 - Shri Pawan Singh, JM And Dr. A.L. Saini, AM For the Assessee : Shri Samir Shar, CA. For the Respondent : Shri Vinod Kumar Sr.DR ORDER PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned two appeals filed by the Revenue pertaining to assessment year(s) (AY) 2012-13 and 2013-14, are directed against the separate orders passed by the Learned Commissioner of Income Tax(Appeals)-1, Surat [for short CIT(A) ], which in turn arise out of separate assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows. Please furnish details and supporting material to establish the genuineness of source and creditworthiness in respect of addition to share capital during the year. Please furnish details and supporting material to establish the genuineness of source and creditworthiness in respect of receipt and refund of Share Application Money during the year. Please furnish details and supporting material to establish the genuineness of source and creditworthiness in respect of share premium receipt during the year. Please justify the receipt of share premium and please explain the reasons duly supported by adequate evidence on account of which the assesses company commanded the huge share premium on its shares. 4. However, there was no specific compliance in this regard. Therefore, assessing officer issued another specific notice under section 142(1) devoted entirely to the issue of share capital and share premium. Vide this notice the assessee was required to submit various precise information in respect of the receipt of share application money, share capital and share premium. The contents of the relevant portion of the said notice are reproduced as under for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oof of dispatch etc. Please State as to how the money raised has been utilized . 5. The assessing officer also issued notice u/s 133(6) of the Act dated 30.01.2015 to the investors. In the said notices u/s 133(6) the investors were required to furnish the following details / documents / explanations / clarifications, etc. The relevant portion of the notice u/s 133(6) is as under: During the course of scrutiny proceedings in the case of above named assessee company for A. Y. 2012-13, it is observed that you have invested a sum of Rs. (Amount invested) towards share capital and premium of the above company. You are, therefore, requested to furnish the following:- (i) Copy of return of income along with enclosures, audit report and balance sheet for A.Y. 2011-12 2012-13. (ii) Copy of Bank statement for F.Y. 2011-12. (iii) Please submit a copy of your Bank book for the period one week before and one week after the transaction relating to investment in the above mentioned company with details of sources of funds, (iv) Copy of share certificate received by you. Notices u/s 133(6) of the IT Act was issued to all the above stated investors . 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count details of the investors, marking out the money received by you, Please furnish - (a) Proof of Board meeting in which receipt/allotment of share application money finalized. (b) The valuation report, if any, on the basis of which premium was decided. (c) Copies of all share application received, along with details. (d) copies of all communications entered with all prospective investors including calling for investment, applications, installment of money called, received, decision of premium, round of negotiation, dispatch of share certificate, correspondence about dividend or any other matter etc., along with mode of communication and proof of dispatch etc. The ld DR pointed out that none of the details and documents were filed by the assessee before the AO. During the appellate proceedings, ld CIT(A) also did not ask the assessee to furnish these documents. Therefore, assessee failed to satisfy three ingredients of section 68, namely identity, creditworthiness and genuineness. Further, ld DR stated that decision of Ld. CIT(A) is not acceptable on merit on account of the following reasons: (i) The Ld CIT(A) failed to appreciate that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company. In addition to this, the assessee should explain, with help of these evidences, before the assessing officer, about the genuineness, identity and creditworthiness, of the share applicant- company, which the assessee has failed to do so. 12. During the appellate proceedings, the ld CIT(A) accepted Valuation report of Chartered Accountant and the said valuation report has not been sent by ld CIT(A) to the assessing officer for his examination. The relevant findings of ld CIT(A) is reproduced below: .With regard to the adequacy of share premium attached to the share capital at which the subscription amount was paid by the share applicant company, the appellant company submitted valuation report, of the Chartered Accountant justifying the net asset value basis of the share of the appellant company. Even otherwise, provisions of section 56(2)(viib), introduced by Finance Act, 2012 was made applicable with effect from 1-4-2013 i.e. A.Y. 2013- 14, and hence, statutorily there was no restriction on acceptance of share capital and premium beyond the market value of shares of the company. The appellant's case is found covered by the, following binding judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) (5) (6) Total share capital Total share premium Date in which received in Bank account of the assessee Relation with the investing party, if any. AO of the investor (7) (8) (9) Please provide copy of your Bank A/c. from 01.04.201.1 to 31.03.2012. You are further requested to give the copy of bank book for 10 days before and after receipt of money (towards share capital and share premium) You are further requested to attach the folio-wing documents in respect of investors who have introduced their capital (Please refer to Sr. No.(i) above): (i) Copy of return of income, (ii) Copy of Audit Report, (iii) Copy of balance sheet, (iv) Copy of Bank account details of the investors, marking out the money received by you, Please furnish - (a) Proof of Board mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove the nexus between the own surplus funds and interest free funds which were claimed to have been advanced to its sister concern? 3. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. 4. It is therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of assessing officer may be restored to the above extent. 20. In this Revenue`s appeal only addition in question is disallowance of proportionate interest on account of interest free advances made to a sister concern. Succinct facts are that assessee -company has made short term interest free advances during the year to its sister concern, namely, M/s Jay Bharat Finstock Ltd. The assessee - company in turn has long term Borrowing of Rs.8,58,27,000/- and short term borrowing (working capital credit) of Rs.12,72,1700/-. The assessee- company is paying interest at Rs.2,37,08,000/-. The advances made to sister concern are short term and during year, the amount outstanding varies from time to time over the year. The maximum outstanding during year is at Rs.6,66,85,856/-. The Ld. AO calculated interest @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small business was bogus or to establish diversion of interest bearing funds as low/interest free advances. The revenue is not in a position to point out any material to the contrary so as to dislodge the concurrent findings of fact recorder by the Commissioner (Appeals) and the Appellate Tribunal. From the facts noted hereinabove, it is apparent that the Tribunal has based its conclusion on the concurrent findings of facts recorded by it upon appreciation of the evidence on record. It is not the case of the revenue that the Tribunal, while appreciating the evidence on record has taken into consideration any irrelevant material, or that any relevant material has been ignored. 24. Therefore, we note that where the assessee was having sufficient interest free funds available with him to lend interest free advances, the ld CIT(A) was justified in deleting disallowance of interest in relation to such interest free advances. 25. In the combine result, Appeal of Revenue in ITA No. 113/SRT/2020 for AY 2012-13 is allowed for statistical purposes, whereas Revenue`s appeal in ITA No.114/SRT/2020 for AY 2013-14 is dismissed. A copy of the instant common order be placed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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