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TMI Blog2023 (6) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee. We hold that assessee was duly justified in not charging interest in respect of these four parties during the year under consideration. Hence, AO is hereby directed to delete the disallowance of interest on proportionate basis in respect of loans given to these four parties. Remaining loans outstanding from parties we find that the total loan outstanding of these parties worked out to Rs.10.75 Crores. In this regard on perusal of the balance sheet of the assessee company, we find that assessee has got own funds Rs.58.02 Crores (Rs.61.60 Rs.8.58 Crores), which would cover the interest free advances given to the aforesaid parties. Hence, by placing reliance on the decision of Reliance Utilities and Power Ltd . [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC Bank Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] we direct the ld. AO to delete the interest disallowance made in respect of advances given to parties listed in Sr.No.7,8,11,12,13,16, 17 18 of the table above. - ITA No.1489/Mum/2018, ITA No.1462/Mum/2018 - - - Dated:- 20-10-2022 - SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER For the Assessee : Shri M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Everest Construction 36,35,574 10 PYX Laboratories Limited 25,25,000 11 Filigree Estate Development Private Limited 30,12,721 12 Ernie Estate Development Private Limited 18,84,567 13 Yurt Estate Development Private Limited 4,16,039 14 Shravan Construction 1,19,083 15 Akbarallys Ebrahimji 20,00,000 16 Balata Estate Development Private Limited 3,050 17 Gabbro Estate Development Private Limited 93,195 18 Exurbia Estate Development. Pvt. Ltd 3,050 Total 1,58,82,29,226 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very and hence, the assessee was forced to decide not to charge any interest on the said loans during the year under consideration. Accordingly, the assessee defended that the observation of the ld. AO that borrowed funds were diverted for giving interest free advances is incorrect. The assessee also pleaded that there were fresh loans granted during the year to some of the parties to whom loans were given in earlier years, there were also substantial repayments made by those parties during the year. The assessee submitted the movement of loans given and repayment made during the year as under:- No. Party name Op. Bal Loan Given Repayment Cl. Bal 1 Juzar Khorakiwala / Nishreen Khorakiwala 6,21,80,033 NA NA 6,21,80,033 2 Akbarallys Furniture Centre 11,50,000 NA NA 11,50,000 Total of loan given where interest was charged (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balata Estate Development Private Limited 3,050 - - 3,050 17 Gabro Estate Development Private Limited 96,695 - 3,500 93,195 18 Exurbia Construction 36,35,575 - 36,32,525 3,050 Total of loan given where interest was waived (B) 1,29,47,41,337 87,57,20,792 64,55,62,937 1,52,48,99,192 Total (A) + (B) 1,58,82,29,225 Note Interest disallowance made in AY 2001-02 3.4. The aforesaid movement goes to prove that only in respect of certain parties as mentioned in the note, no interest was received by the assessee and hence, disallowance of interest was indeed made in A.Y.2001-02. As stated earlier this goes to prove that the other advances made by the assessee were fetching interest income to the assessee in A.Y. 2001-02 and hence that was accepted to be for business purposes by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed funds - Rs.6.52 Crores Less Less Interest paid on term loan Rs.1.93 Crores Less interest income earned on loans Granted - Rs.1.38 Crores Total Rs.3.21 Crores 3.6. The assessee also submitted that the financial position of the borrowers had also been mentioned in the notes to balance sheet of the assessee company. The assessee even filed additional evidences before the ld. CIT(A) stating the crucial fact that in respect of parties listed in Sr. Nos. 3-6 which totals to 140.89 Crores of advances had been subsequently merged with M/s. Dartmour Holdings Pvt. Ltd., vide order of the Hon ble Bombay High Court dated 24/06/2005 and that post-merger, the loans had been taken over by M/s. Dartmour Holdings Pvt. Ltd from the four parties listed in Sr. No.3-6 in the aforesaid table, and that those loans had started fetching interest income to the assessee from A.Y.2005-06 / 2006-07 onwards, as the case may be. The assessee pleaded for admission of these additional evidences before the ld. CIT(A) as it turned out to be a subsequent developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. The details of the same are under:- Sr. Name of the Party Net Profit / (loss) 1. Zaahid Holdings Investments Pvt. Ltd., Rs.7,65,327/- 2. Tahseel Hire Purchase Co. Pvt. Ltd., (Rs.89,48,623/-) 3. Zeigler Investments Pvt. Ltd., (Rs.24,09,183/-) 4. Fabilau Estate Development Pvt. Ltd., (Rs.22,84,32,983/-) 3.10. The ld. CIT(A) observed that all these four members are group companies of the assessee company. The ld. CIT(A) also observed that despite knowing the fact that the financial health of these four companies are not sound, the assessee company had proceeded to advance further loan of Rs.2327.86 lakhs during the year under consideration. Accordingly, he concluded that unilateral action of the assessee of not charging interest on loans given to these four parties cannot be accepted and hence, it has to be construed as advance given for non-business purposes of the assessee warranting proportionate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were accepted by the Revenue as meant for business purposes of the assessee. Merely because no interest is charged during the year under consideration, it cannot be said that advances made to these four parties had lost its character of having construed as meant for business purposes. In any case, we find that the ld. AR had rightly placed reliance on the decision of the Hon ble Karnataka High Court in the case of CIT vs. Sridev Enterprises reported in 192 ITR 165 where it has been held that once the loans or advances has been accepted to be made for business purposes in earlier year, no disallowance of interest u/s.36(1)(iii) of the Act could be made in respect of opening balance of same loans on proportionate basis. Hence, we direct the ld. AO to completely delete the disallowance of interest made on the opening balance account of such loans (i.e. loans given to parties listed in sl.no. 3 to 6 of the table) in view of the decision of the Hon ble Karnataka High Court referred to supra. However, it is a fact that assessee had made further advance to very same four parties during the year. It is also a fact that assessee had recovered substantial sums from the said four parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of CIT vs Sarabhai Holdings (P) Ltd reported in 307 ITR 89 (SC) squarely supports the case of the assessee. The Head Notes and observations of the Hon ble Supreme Court in the said case is reproduced hereunder for the sake of convenience:- Section 5 of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1980-81 - Assessee-company had transferred its industrial unit to its subsidiary company, 'E Ltd.' for certain consideration with effect from 1-3-1977 - In terms of sale agreement, part of sale consideration was to be paid in eight equal instalments starting from 1-10-1979 and interest was payable at rate of 11 per cent per annum on balance sale consideration which would remain unpaid from time-to-time - Subsequently, E Ltd. proposed for modification in terms of payment and requested that part of sale consideration would be payable as and when demanded by assessee without interest and balance of sum would be payable in five annual instalments and interest would be charged on deferred sale consideration from 1-7-1979 instead of 1-3-1977 - Assessee, by a resolution dated 30-6-1978, accepted proposal of 'E Ltd.' - For relevant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest had not accrued and before it had accrued, the assessee had deferred the same by passing a resolution dated 30-6-1978. Thus, there was a full scope for the assessee to adjust the interest or as the case may be, to defer the same which it did. Therefore, there was no ill-intention on the part of the assessee to evade the tax. [Para 24] The assessment for the assessment year 1980-81 was finalized by the Tribunal by holding that the interest could not be included. Therefore, the said interest could not be treated as an income, so as to compel the assessee to pay advance tax on the same. Therefore, there was no justification for a show-cause notice under section 274, read with section 273(2)(a ), on the ground that the assessee had deliberately filed an untrue estimate of the advance tax which he had known or reason to believe to be untrue. The Tribunal as well as the High Court were right in holding the transaction to be genuine. [Para 25] The High Court's finding, that the law permits the contracting parties to lawfully change their stipulations by mutual agreement and, therefore, the assessee and the vendee had no legal impediment in modifying the terms of their co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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