2016 (1) TMI 896 - AT - Income Tax

Disallowance of interest payment - CIT(A) deleted the addition - whether the assessee failed to discharge the onus cast on him to prove the genuineness that the interest payment was not diversion of interest bearing funds to non interest bearing loans and advances - Held that - The only question raised by A.O. in his assessment order is reasons for not charging interest under loans and advances shown in the balance sheet at ₹ 2,02,81,372/- and the same has been properly replied by the assessee along with supporting evidences which amicably justify that assessee was having sufficient source of interest free funds. Further, most of the interest free loans /advances, were for the business purposes. Out of total loans and advances as on 31.03.2009 shown at ₹ 2,06,81,372/- only a sum of ₹ 1,18,70,000/- was fresh loan given during the year and further out of ₹ 1,18,70,000/-, a sum of ₹ 91,50,000/- was given for real estate business and only a sum of ₹ 27,20,000/- was given as interest free loans and advances. The assessee has agreed for addition on interest of ₹ 1,30,254/- on the fresh loans of ₹ 27lacs given to M/s. Akshar Info Service (P) Ltd. calculated on the basis of days for which loans were given. Further, after reducing ₹ 1,18,70,000/- on the total loan advance of ₹ 2,06,81,372/-, the remaining amount comes to ₹ 88,11,372/- and out of this remaining amount of ₹ 88,11,372/-, assessee has already shown interest income of ₹ 10,40,040/- from old loan of ₹ 81,55,873/-. Thus we are of the view that assessee has proved the genuineness of interest payment and also proved that there was no diversion of interest bearing fund to non interest bearing loans and advances. - Decided in favour of assessee.

Summary

Issues Involved:
- Disallowance of interest payment
- Assessment for the year 2009-10

Analysis:

Issue 1: Disallowance of interest payment
- The Revenue appealed against the deletion of an addition of Rs. 18,51,175 made by the Assessing Officer on account of disallowances of interest payment. The CIT(A) deleted the addition based on the appellant's explanation and documentary evidence provided during the assessment proceedings.
- The CIT(A) found that the appellant had established a nexus between interest-free loans given and the availability of interest-free funds. The appellant presented bank statements and other evidence to support the claim that interest-free loans were given out of interest-free funds.
- The CIT(A) concluded that the disallowance made by the Assessing Officer was without merit and lacked a basis. The appellant had successfully demonstrated that interest-free loans and advances were provided from available interest-free funds, thus rejecting the disallowance of interest.
- The Tribunal upheld the CIT(A)'s decision, noting that the appellant had proven the genuineness of interest payments and showed no diversion of interest-bearing funds to non-interest-bearing loans and advances.

Issue 2: Assessment for the year 2009-10
- The Assessing Officer had raised concerns about the loans and advances given by the appellant, questioning the reason for not charging interest on them. The appellant provided detailed explanations and evidence during the assessment proceedings.
- The Tribunal noted that the appellant had agreed to a deemed interest income of Rs. 3,58,473, which the Assessing Officer failed to consider in the final computation of income assessed. This oversight led to an incorrect addition of Rs. 18,51,175, which should have been corrected to Rs. 14,92,702.
- The Tribunal analyzed the appellant's financial statements and the nature of loans and advances provided, concluding that the appellant had sufficient interest-free funds to support the loans given. The Tribunal found that most interest-free loans were for business purposes and that the appellant had adequately justified the utilization of available funds for interest-free loans and advances.
- Ultimately, the Tribunal dismissed the Revenue's appeal, affirming that the appellant had demonstrated the genuineness of interest payments and the appropriate utilization of funds for interest-free loans and advances.

This detailed analysis highlights the key arguments, findings, and conclusions related to the disallowance of interest payment and the assessment for the year 2009-10 as addressed in the legal judgment by the Appellate Tribunal ITAT Ahmedabad.