A2Z Online Services P.Ltd, Pune vs Department Of Income Tax

the CIT(A) in deleting the addition of Rs.27,90,697/- made by the

Assessing Officer on account of interest attributable to interest

free loans given.

3. Facts of the case, in brief, are that the assessee is a

company engaged in the business of services relating to

accounting, project management, legal, finance procurement and

compliances. It filed its return of income on 31-10-2007

declaring total income of Rs.15,57,70,005/-. During the course of

assessment proceedings the Assessing Officer noted that assessee 2

has taken several loans during the year and has repaid some of

them. The loans taken are both interest bearing and interest free.

The assessee has also advanced loans to several persons. The

loans advanced are also interest bearing as well as interest free.

He further noted that the rate of interest varies from 6.5% to 30%.

He, therefore, asked the assessee to explain as to why interest

attributable to interest free loans should not be disallowed. It was

argued by the assessee that no interest can be disallowed as the

interest is paid for business purpose. Further, there is no nexus

between the interest bearing funds and interest free advances

given and hence no interest can be disallowed. It was argued that

the assessee also has own funds as well as interest free loans

taken which are utilised for giving interest free advances.

4. However, the Assessing Officer was not satisfied with the

explanation given by the assessee on the ground that the funds

flow statement of each loan could not be furnished by the

assessee. Therefore, the submission of the assessee as to the

nexus between the interest free funds and interest free advances

is not substantiated. On being asked by the Assessing Officer to

give a detailed working of interest attributable to interest free

advances, the assessee filed without prejudice a detailed workings

based on products method as per the working for the immediately

preceding assessment year. As per such working filed by the

assessee the interest attributable to interest free loans and

advances out of interest bearing loans amounted to

Rs.27,90,697/-. The Assessing Officer accordingly made addition

of Rs.27,90,697/- being interest attributable to interest free loans

given.

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5. Before CIT(A) the assessee submitted that as against the

aggregate funds of Rs.138,91,44,536/- the interest free funds

advanced by the assessee were only Rs.12,35,36,632/- as at the

end of the year. As such the assessee had substantial own funds

for the purpose of giving loans and therefore no disallowance

could have been made. Various decisions were also brought to

the notice of the CIT(A). It was further argued that identical issue

has been decided by the CIT(A) in the preceding assessment year.

6. Based on the arguments advanced by the assessee and

following the decision of the CIT(A) in assessee's own case in the

immediately preceding assessment year the CIT(A) deleted the

disallowance made by the Assessing Officer.

7. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us.

8. The Ld.counsel for the assessee at the outset filed a copy of

the order of the Tribunal in assessee's own case for A.Y. 2006-07

vide ITA No.4955/Mum/2009 order dated 30-04-2014 and

submitted that under identical facts and circumstances the

appeal filed by the Revenue was dismissed by the Tribunal.

Therefore, this being a covered matter in favour of the assessee

the ground raised by the Revenue should be dismissed.

9. The Ld. Departmental Representative fairly agreed that the

issue has been decided in favour of the assessee by the order of

the Tribunal.

10. After hearing both the sides, we find the Mumbai Bench of

the Tribunal in assessee's own case vide ITA No.4955/Mum/2009

order dated 30-04-2014 for A.Y. 2006-07 has decided the issue in 4

favour of the assessee and the appeal filed by the Revenue has

been dismissed by observing as under :

"8. We have carefully considered the rival contentions and perused the material available on record. The main dispute is disallowance of interest on the ground that the assessee has given interest free loans out of interest bearing funds. From the material placed on records, it is seen that the assessee has given interest free loan to various persons as on 31st March 2006 at Rs.9,39,79,832. The availability of various interest free loans and funds have also been provided which goes to show that at the year end such interest free loans were at Rs.29,76,48,648. Besides this, the assessee had current year's profit of more than Rs.5.81 crores. The availability of interest free funds have also been noted by the learned Commissioner (Appeals) which has been incorporated above in the forgoing paragraph. Based on these availability of funds, the learned Commissioner (Appeals) has held that interest free loan is out of these funds only. Such a finding of the learned Commissioner (Appeals) appears to be prima-facie correct. From the details, which has been submitted, it is seen that during the month of April 2005 itself, the assessee has received huge interest free loans which aggregated to more than Rs.50 crores.

Out of these funds, the assessee has also given interest free loans in the month of April. Besides this, if the availability of over all interest free loans has to be seen, then the assessee has received more than Rs. 71.95 crores out of which interest free loan during the year given was at Rs.19,60,10,696. From these facts, a presumption can be drawn that the interest free loan has been given out of these interest free unsecured loans received by the assessee. Thus, we do not find any reason to deviate from the conclusion drawn by the learned Commissioner (Appeals). Besides this, it is also noted that the assessee has also given huge loans which are interest bearing and on which the assessee had shown interest income of Rs. 1.96 crores. The interest which has been incurred for the purpose of the business, has been shown at Rs.1.83 crores, which has been claimed as deduction under section 36(1)(iii). Such a claim of deduction cannot be disallowed, unless it has been shown that the assessee has actually diverted its interest bearing loan either for some non-business purpose of for personal use.

There is no diversion of interest bearing loan for any other purpose except for the purpose of the business. Hence, the claim of the assessee under section 36(1)(iii) cannot be disallowed. Thus, the finding and the conclusion drawn by the learned Commissioner (Appeals) appears to be factually and legally correct and we decline to interfere in the matter as such. Thus, the ground raised by the Revenue is dismissed."

10.1 Facts being similar, therefore, respectfully following the

decision of the Tribunal in assessee's own case in the immediately

preceding assessment year, we find no infirmity in the order of the

CIT(A) deleting the disallowance made by the Assessing Officer.

Accordingly, the ground raised by the Revenue is dismissed. 5

11. In the result, the appeal filed by the Revenue is dismissed.

Pronounced in the open court on 22-05-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 22nd May, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A) Central, Pune 4. CIT Central, Pune 5. The D.R, "B" Pune Bench 6. Guard File

By order

// True Copy // Assistant Registrar ITAT, Pune Benches, Pune