IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: "A'' NEW DELHI
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
&
SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER
ITA No. 6843/Del/2015
Assessment Year: 2012-13
PrecomecAutocompPvt. Ltd., Vs DCIT, Circle-1,
Plot No.9-D, Sector-6, Faridabad
Faridabad.
AABCP 7551K
Appellant Respondent
Assessee by Sh. Rajneesh Behari Mathur, CA
Revenue by Sh. Sanjog Kapoor, Sr. DR
Date of Hearing 12.12.2019
Date of Pronouncement 18.12.2019
ORDER
PER K. NARASIMHA CHARY, JM
Aggrieved by the order dated 3/11/2015 in appeal No. 16/2014-15
passed by the learned Commissioner of Income Tax (Appeals), Faridabad
("Ld. CIT(A)"), for assessment year 2012-13, PrecomecAutocompPvt. Ltd
filed this appeal.
2. Brief facts of the case are that the assessee is engaged in the
business of manufacturing of sheet metal components. For the assessment
year 2012-13 it has filed its return of income on 25/9/2012 declaring an
income of Rs.5,31,44,102/-. During the course of assessment, learned
Assessing Officer noticed that the assessee had made interest-free advance
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of Rs. 1,71,22,185/- to HUDA in respect of plot No. 308, sector-59,
Faridabad. He therefore called for justification of such advance towards
business purpose of investment. Assessee submitted that they have their
own adequate funds in the form of Capital & Reserve, unsecured loan from
directors, secularist hypothecation of stocks and bookplates and charge on
immovable assets of the company and personal guarantee of directors, out
of which, it advanced to HUDA. Assessee, therefore, claimed that no loan
was taken for payment of HUDA plot No. 308.
3. Learned Assessing Officer, however, did not agree with the assessee
and observed that perusal of the Balance Sheet shows that the assessee had
own funds to the tune of Rs.15,40,26,226/- on account of Reserves
andsurplus which has to be considered as interest-free fund. According to
the Assessing Officer out of this interest-free fund, assessee had shown
tangible assets of Rs. 6,37,20,541/-, inventories of Rs.2,81,65,746/-, long-
term loans and advances of Rs. 1,58,39,329/- and a trade receivable which
exceeds from trade payables to the tune of Rs. 8,07,53,325/-. He, therefore,
concluded that since the amount of applied capital of Rs.18, 84,79,941/-
exceeds the interest free funds of Rs. 15,40,26,226/-, the assessee had
diverted the interest-bearing funds of Rs. 1,71,22,185/- for HUDA plot.
Learned Assessing Officer, therefore, brought the interest at 12% per
annum on the amount invested by the assessee in such plot to tax and
made an addition of Rs. 12,29,228/- on that account.
4. Aggrieved by such an addition assessee preferred an appeal before
the Ld. CIT(A). By way of impugned order Ld. CIT(A) observed that the
assessee has not established that the borrowed funds were utilised for the
purchase of the plot, the assessee in fact had to furnish a copy of his bank
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account to establish that the payment made for the purchase of the plot
was from its own funds and not from any borrowed funds/overdraft
account, and therefore, the contention of the assessee does not merit
consideration. Ld.CIT(A), however, granted relief to the assessee in respect
of the interest relatable to the amount of Rs. 67,33,750/- tofinancial year
2010-11 i.e. assessment year 2011-12 and directed deletion of Rs. 8, 14,
050/-.
5. Aggrieved by the order of the Ld. CIT(A) sustaining the addition to the
tune of Rs. 4,15,178/- under section 36 (1)(iii) of the Act out of the interest
expense claimed by the assessee on the ground that it pertained to the
notional interest for the period prior to the purchase of asset of HUDA plot
No. 308, assessee preferred this appeal and contended that the authorities
below failed to appreciate the financials of the assessee in concluding that
the assessee had utilised the borrowed funds for purchase of the plot.
According to the assessee the Balance Sheet clearly speaks the availability of
funds to the tune of Rs. 1,03,35,229/- with the assessee as on 31/3/2012
and the authorities below failed to appreciate the entries of the Balance
Sheet in their proper perspective.
6. Per contra, it is the submission on behalf of the Revenue that since
the assessee maintained only overdraft account and all the transactions are
done through it, it was not clear from the Bank statement of the overdraft
account as to whether the assessee utilised its own funds are the funds
borrowed, and therefore, the authorities are justified in adding the notional
interest on the value of the plot purchased.
7. We have gone through the record in the light of the submissions
made on either side. From the beginning, the contention of the assessee has
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been that it had adequate own funds in the form of Capital & Reserve,
unsecured loan from the Directors, secured loan against hypothecation of
stocks and book debts and charge on immovable assets of the company and
personal guarantee of directors, out of which, it advanced to HUDA.
According to the learned Assessing Officer the applied capital of Rs.
18,84,78,941/- exceeds the interest free funds of the assessee at Rs.
15,40,26,226/-. This is the reason why the learned Assessing Officer held
that the assessee had borrowed the interest-bearing funds of Rs.
1,71,22,185/- with HUDA from which it had not received any income.
8. We have gone through the Balance Sheet of the assessee as on
31/3/2012. It is clear that there is an increase in the Reserves & Surplus by
Rs. 3,53,70,562/- inasmuch as by the end of the year 2011 the figure was
Rs.11,61,53,664/- and by the end of the year 2012 it was at Rs.15,
15,26,226/-. So also, there is an increase in the current liabilities by Rs.
2,61,33,825/- from the year 2011 being the cumulative figure of the change
in trade payables, certain provisions and other current liabilities which were
at Rs. 4,69,14,938/- at the end of the year 2011 whereas it was
Rs.7,30,48,763/- by the end of 2012. It is therefore clear that the increase in
reserves and also the increase in current liabilities comes to Rs. 6
15,04,387/-.
9. So also, there is a decrease in the borrowings by Rs. 65,42,217/-,
increase in long-term advance by Rs.39,98,026/- and increase in current
assets by Rs. 4,06,28,915/-, the cumulative figure of which comes to Rs.
5,11,69,158/-. According to the Ld. AR, the difference between the available
funds to the tune of Rs. 6,15,04,387/- and utilised funds to the tune of Rs.
5,11,69,158/- leaving the availability of net funds to the tune of Rs.
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1,03,35,229/- in the hands of the assessee to invest in the plot. In addition
to this the current year earnings of the assessee were declared at Rs.
5,31,44,102/-.
10. Insofar as these figures as to the funds available and funds utilised
and the earnings of the assessee during the year are concerned, these are
all borne by record and do not admitof any dispute or doubt. Ld. DR does
not contradict these figures available from the Balance Sheet and the return
of income. In this factual scenario, we find strength in the argument of the
Ld. AR that the assessee is possessing sufficient financial capacity to meet
the burden of purchase of plot from out of their own funds and such
purchases does not require any borrowings. In fact, it was so pleaded by the
assessee before the learned Assessing Officer and also before the Ld. CIT(A)
that no loan was taken for payment of HUDA plot No. 308.
11. In the circumstances, basing on the record, we are convinced that the
assessee had the capacity to advance the funds for plot No. 308 to HUDA
out of their own funds available in the hands and there does not appear to
be any necessity for them to take loan for such payment. We therefore,
accept the contentions of the assessee and find that the impugned addition
is not sustainable. We accordingly allow the grounds of appeal, and direct
the Assessing Officer to delete the addition.
12. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 18th December, 2019.
Sd/- Sd/-
(R.K. PANDA) (K. NARASIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 18th December, 2019
`aks'
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