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TMI Blog2019 (11) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding paragraphs, was discussed during hearing, and the assessee, also represented by Sh. Anil Vasudeva, CA (i.e., along with Sh. Arora) on 07/3/2019, required to work out the adequacy or otherwise of the interest-free capital during the year, substantiating, thus, his case with facts and figures - no such exercise was done. Sh. Vasudeva, who presented the assessee s case on 07/3/2019, and was explained to state his case with reference to the contractual obligations attending the different interest-bearing or, as the case may be, interest free, liabilities, did not appear on the next date, with no explanation for the same. And neither was any adjournment sought. Rather, Sh. Arora, the assessee counsel, proceeded de hors what had transpired during the previous hearing, reiterating, without reference to any factual basis, that the assessee had sufficient interest-free capital to preclude the disallowance of interest on borrowed capital. The assessee s case, thus, continues to be no more than a bald statement, i.e., as it was before the Revenue authorities. No reason to interfere, except to direct relief to the extent of 5% (five per cent.), by further relaxing the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,72,216/-. The same stood confirmed in first appeal, with the ld. CIT(A) holding as under: Decision- The assessment order and the written submissions of the appellant are considered. It is observed that the total loan and advances made by the appellant to various parties was to the tune of ₹ 122,76,505/- whereas the consolidated balance sheet of the assessee as on 31.3.2013 shows capital of ₹ 480,489/-, unsecured loans amounting to ₹ 55,61,456/- and sundry creditors of ₹ 9,53,173/- and others payable amounting to ₹ 3,00,493/- aggregating to ₹ 72,95,612/-, which was free of cost. Therefore total loan and advances made by the appellant were much more than the total interest-free funds available with the appellant, and accordingly the decisions of hon ble Punjab Haryana high Court in the case of Bright Enterprises P Ltd, and Sh. Gurdas Garg and the decision of hon ble Apex Court in the case of S A builders P Ltd are not of any help to the appellant. The AO has analyzed each and every advance made by the appellant and the assessment order and rightly concluded that the total advances of ₹ 99,13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent at different times of the year and, accordingly, it is not the figures available at the year-end but during the year, on an average, that are relevant. Further, the significance of a credit in the balancesheet, particularly from the standpoint of its application, as that of interest-free capital, could only be ascertained in relation to other sums, positive or negative, i.e., representing the source/s of or application/s of funds, including the purpose for which the same have been raised or, as the case may be, stand applied. Sure, where the funds are not dedicated, i.e., contracted for a specific purpose, it is open for the assessee to appropriate the same against a particular application, i.e., as may suit his interest or operate to minimize his tax liability. For example, it is perfectly justified for the assessee to contend that the interest-free loans had been applied for the non-business purposes, so that, by implication, the interest-bearing capital is applied for business purposes. The only caveat is that the interest-free capital ought to be available for being so applied. Further, it is to be appreciated that trade credit arises on the purchase on goods and servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earend) with the assessee is, thus not, as contended, ₹ 72.96 lacs, but ₹ 60.42 lacs (₹ 72.96 lacs ₹ 12.54 lacs). Further, the secured loans (₹ 166.36 lacs) assumed by the assessee, as apparent from their profile at Schedule VII to the balance-sheet as on 31.3.2013 (PB pages 1-28), is toward financing the working capital, which is thus over-financed by ₹ 96.80 lacs (₹ 166.36 lacs ₹ 69.56 lacs). The interest-free capital with the assessee (₹ 60.42 lacs) is to be, without doubt, firstly appropriated against fixed assets (and other assets) of the business, owned by the assessee, as it is only against their collateral security, i.e., other than the primary security in the form of working capital assets, that the said loans are secured against. The fixed assets and the non-current assets block at the year-end is at ₹ 58.09 lacs, resulting thus in a surplus interest-free capital (as at the year-end) at ₹ 2.33 lacs (₹ 60.42 lacs ₹ 58.09 lacs). The non-business advances (₹ 99. 13 lacs) are, thus, financed as under: (Amount in Rs. lacs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same. And neither was any adjournment sought. Rather, Sh. Arora, the assessee counsel, proceeded de hors what had transpired during the previous hearing, reiterating, without reference to any factual basis, that the assessee had sufficient interest-free capital to preclude the disallowance of interest on borrowed capital. The assessee s case, thus, continues to be no more than a bald statement, i.e., as it was before the Revenue authorities. In view of the foregoing, I find no reason to interfere, except to direct relief to the extent of 5% (five per cent.), by further relaxing the interest-free financing component of the impugned advances by the assessee, obtaining for the year. No mistake in the working of the interest by the AO having been pointed out, the same works to ₹ 63,611/-. Reference, once again, is drawn to the elaborate decision in Sunil Grover (supra), also considering the decisions by the higher courts of law, explaining further the matter to be principally factual. I decide accordingly, and the assessee gets part relief. 6. In the result, the assessee s appeal is partly allowed. Order pronounced in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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