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TMI Blog2017 (10) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... st free funds was available to advance interest free loan, no disallowance under section 36(1)(iii) of the Act can be made. In view of the aforesaid, we restore the issue to the file of the Assessing Officer for fresh adjudication in terms with our direction herein above Addition made under section 68 - Held that:- the assessee deserves an opportunity to prove the loan transactions through all the legal means available to it. If the assessee can prove the genuineness of the loan transactions by producing any witness, the assessee must be allowed to do so. As far as the contention of the learned Departmental Representative that learned Commissioner (Appeals) should not have deleted the loan standing in the name of Avtar Singh Sethi, as his creditworthiness was not proved, we must observe, in the remand report the Assessing Officer while examining this particular loan transaction has verified the bank account of the said loan creditor and found that the amount of ₹ 2 crore was advanced to the assessee a deposit of ₹ 1.99 crore was made in the account of the creditor. He has also stated that the assessee filed copy of account of the creditor to indicate that the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed. In reply, it was submitted by the assessee that interest free loans were advanced out of interest free funds available with the assessee. Further, it was submitted, interest free loans includes an amount of ₹ 94,77,382, advanced to Isha Infotech Pvt. Ltd., a company jointly promoted by the assessee to implement specific project. Thus, it was submitted, such advances being for business purpose no interest disallowance in respect of such advance can be made. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, assessee s claim that interest free advance to the parties were out of interest free loans taken by the assessee is not acceptable. He observed, at best, assessee s claim can be accepted in respect of interest free loan of ₹ 74,03,683, advanced during the year as the assessee has received interest free loan of ₹ 78,60,000 during the year. He, therefore, charged interest @ 12% per annum for the balance amount of ₹ 1,21,11,858, which worked out to ₹ 14,53,423. The said amount was treated as interest cost and borrowed funds utilised for non business purposes and added to the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act can be made in view of the ratio laid down by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd., [2009] 313 ITR 340 (Bom.). It is further evident, from the assessment stage itself the assessee has submitted that out of the total interest free loans advanced an amount of ₹ 94,77,382, was given to Isha Infotech Pvt. Ltd., an SPV created for implementing a particular project. This contention of the assessee has been totally ignored by the Departmental Authorities. In our view, the nature of advance to Isha Infotech Pvt. Ltd. requires examination to find out whether it was for business purpose or not. In case, the assessee is able to establish its claim no disallowance of interest expenditure can be made in view of the ratio laid down by the Hon'ble Supreme Court in case of S.A. Builders Ltd. v/s CIT, [2007] 288 ITR 001 (SC). In view of the aforesaid, we restore the issue to the file of the Assessing Officer for fresh adjudication in terms with our direction herein above. The Assessing Officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. 8. In the result, assessee s appeal is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and materials placed before him, directed the Assessing Officer to examine them and submit his report. After going through the remand report submitted by the Assessing Officer, the learned Commissioner (Appeals) found that loan aggregating to ₹ 2,17,26,615, from eight persons, the Assessing Officer has not made any adverse comment. Therefore, out of the total addition made by the Assessing Officer, the learned Commissioner (Appeals) deleted the amount of ₹ 2,17,26,615, while sustaining the balance addition. 11. Learned Authorised Representative submitted, the assessee is a developer and derives income from sale of TDR. He submitted, during the year, assessee had availed unsecured loan of ₹ 20 crore from about 400 parties. He submitted, out of such creditors, the Assessing Officer has raised dispute on obtained from 37 parties. He submitted, the assessee has obtained these loans through brokers, hence, does not know the creditors individually. He submitted, it is the broker who arranges the loan from the concerned parties. He submitted, for this purpose, the assessee has also paid brokerage to the brokers which have been allowed as a deduction by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 parties. During the assessment proceedings, the Assessing Officer after making enquiry has added back loan availed from these 37 parties on the ground that in some cases, the parties were not available and the assessee has also failed to submit the loan confirmations and in some cases, though, creditors appeared, however, there creditworthiness could not be proved. Before the learned Commissioner (Appeals), the assessee produced further evidence which was examined on remand by the Assessing Officer. On the basis of remand report of the Assessing Officer, the learned Commissioner (Appeals) accepted loan transactions amounting to ₹ 2,17,26,615, while upholding the addition to the extent of ₹ 1,53,68,871. 14. In the course of hearing, the learned Authorised Representative has submitted before us that the loans were arranged through brokers and the assessee has no one to one relationship with the creditors. He has further submitted, some of the brokers are now willing to appear before the Assessing Officer and confirmed that they had arranged the loans for the assessee. Further, the learned Authorised Representative has submitted that in subsequent years, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1.99 crore was made in the account of the creditor. He has also stated that the assessee filed copy of account of the creditor to indicate that the said amount of ₹ 1.99 crore came from the over draft account. In our view, this fact also requires further verification by the Assessing Officer. In case, it is proved that the loan of ₹ 2 crore originated from ₹ 1.99 crore in the over draft account of the creditors, then, there will be no case for addition of the said amount. However, in our view, further enquiry has to be conducted by the Assessing Officer to establish availability of nexus or otherwise between the two amounts. With the aforesaid observations, we restore the matter back to the file of the Assessing Officer for considering afresh. While doing so, the Assessing Officer must afford reasonable opportunity of being heard to the assessee and must consider all the evidences produced, or to be produced, by the assessee in connection with the loan transaction. Further, the Assessing Officer must permit the assessee to produce any witness if he wants to do so to prove the loan transactions. 15. Further, we must clarify, the Assessing Officer has to restr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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