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TMI Blog2016 (5) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... our years from the relevant assessment year. - Decided against assessee Disallowance of interest - diversion of interest bearing funds to non-interest bearing loans and advances - Held that:- On perusal of list of loans and advances as given as on the close of the financial year 2007-08 we observe that most of the loans and advances are in the nature of trade and commerce which the assessee might have given during the course of normal business. However, one cannot ignore the possibility that list of loans and advances may also include sister concern of the assessee from whom interest might not have been charged. However, in the given circumstances wherein we have examined that assessee was having sufficient interest free funds in the form of partners’ capital at the year end of ₹ 36,65,742/- as well as interest free secured loans of ₹ 36,85,604/-, disallowance of interest at ₹ 5,56,268/- on the loans and advances given of ₹ 41,02,373/- is uncalled for as the assessee had sufficient interest free funds available to apply to the loans and advances given. We are of the view that no addition for disallowance of interest expenses is to be sustained. We delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out from the assessment records are that assessee is a partnership firm, it filed its return of income on 30.09.3008 showing total income at Rs.NIL. Thereafter assessment was completed u/s 143(3) of the Act on 10.12.2010 determining total income at Rs.NIL. Notice u/s 148 of the Act was issued on 28.03.2013 for the reason that assessee has diverted interest bearing funds towards giving loans and advances without charging any interest thereon. In reply to notice u/s 148 assessee submitted that original return of income filed may be treated as return furnished in response to notice u/s 148. The reasons for issuance of notice u/s 148 of the Act and initiation of action u/s 147 of the Act given by Assessing Officer read as below :- On verification of the balance Sheet annexed with the return of Income, it is seen that the assessee has taken secured loan of ₹ 85,62^788/- from various banks and also obtained unsecured loan of ₹ 9,84,303/- from various persons. In the profit and loss account assessee has claimed interest expenses of ₹ 7,27,496/- towards secured loan and ₹ 37,333/-towards unsecured loans. However, assessee has not charged interest on loans and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision:- 6.1 The submission made by the appellant is duly considered inter a[ia the facts of the case. Case laws cited by the appellant have been gone through. As a matter of factly observed by the Ld. AO (Para- 6 of assessment order) that capital of ₹ 35,65,742/- vis-a-vis outstanding debtors of ₹ 30,39,692/- does not leave any more interest free funds available for granting advance to sister/associated concerns. Sundry Creditors were outstanding to the tune of ₹ 5,64,3977- only does not support the theory of 'own funds' (capital and creditors) available for grant of advance to sister/associate concerns. On being asked to submit, the documentary evidence in support of claim that impugned loans/advances given for business purpose. Clearly, the onus is on the assessee to be discharged by leading the evidences. Even with regard to Term Loans, the assessee failed to furnish evidences to justify the purpose utilization of loans in spite of being asked to do so by the AO. The AO has raised a genuine quarry as to why the assessee would need Term Loan at first place considering the nature of business i.e. sale of diesel petrol on cash basis. It is seen f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and the same records have been taken as basis by the Revenue for initiation of proceedings u/s 147 of the Act and the same should be quashed because reasons are based on change of opinion and are well based on suspicion. 7. On the other land, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. To examine this aspect let us go through the provisions of section 147 of the Act:- Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment91 for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] [(d) where a person is found to have any asset (including financial interest in any entity) located outside India.] [Explanation 3.-For the purpose of assessment or reassessment1 under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] [Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] 9. From going through the above provisions of section 147 of the Act, we find that provisions of section 147 specifically mentioned that where an assessment u/s 143(3) of the Act has been made for the relevant Assessment Year no acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed interest income at ₹ 5,56,268/- as escaped income from assessment and accordingly disallowed the interest claimed as an expenditure in the profit and loss account to the extent of ₹ 5,56,268/-. 12. Ld. AR submitted that out of the total oans and advances of ₹ 41,02,373/- , major amount is pertaining to five parties namely i) Desai Automobiles 1421873.00 ii) Desai Automobiles P. Ltd. 1600000.00 iii) Riddhi Siddhi Auto 825000.00 iv) Sagas Autotech P. Ltd. 100000.00 v) Shraddha Motors P. Ltd. 50000.00 Total - 39,96,873/- Ld. AR submitted that assessee is a dealer in petrol, diesel and lubricant oils and above referred advances are for business purpose as the assessee has regular business transactions with these parties. Ld. AR further submitted that out of the total secured loans of ₹ 85,62,788/- Kotak Bank term loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) ICICI Bank Ltd. Rs.7,54,078.13 ii) Barklays Bank Rs.12,81,652.00 iii) HDFC Bank Rs.3,96,108.59 iv) Indiable Credit Service Bank Rs.12,53,766.00 v) Kotak Bank term loan Rs.21,97,486.00 vi) Kotak Bank term loan Rs.26,79,698.00 Total Rs.85,62,788/- Out of the above six secured loans interest debited to profit and loss account on loans is only in relation to term loans taken from Kotak Bank, which is shown at ₹ 7,27,496/- in the profit and loss account whereas interest payable on the remaining four secured loans of ₹ 36,85,604/- has not been claimed as an expenditure in the profit and loss account, but has been debited to the partners capital account, which are placed on record at pages 43 to 45 of the paper book. This fact of not charging interest on ₹ 36,85,604/- on secured loan b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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