ITA No. 163 of 2017 (O&M) 1 IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 163 of 2017 (O&M) Date of decision: 17.4.2017 Pr. Commissioner of Income Tax (Central), Ludhiana Appellant Vs. Shri Satish Bala Malhotra, Legal heir of Shri Ashok Kumar Malhotra, Prop. M /s Modern Publishers, MBD House Railway Road, Jalandhar. ..Respondent CORAM: HON BLE MR. JUSTICE AJAY KUMAR MITTAL HON BLE MR. JUSTICE RAMENDRA JAIN Present: Mr Rajesh Katoch,Senior Standing Counsel for appellant- revenue. Ajay Kumar Mittal,J. 1. revenue has preferred this appeal under Section 260A of Income Tax Act, 1961 (in short, Act ) against order dated 12.8.2016, Annexure A.III, passed by Income Tax Appellate Tribunal, Amritsar Bench. Amritsar (in short, Tribunal ) in ITA No. 194(Asr)/2015, for assessment year 2010-11, claiming following substantial questions of law:- (i) Whether on facts and in circumstances of case, Hon ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has erred in deleting addition of ` 2,39,01,531/- on account of disallowance of interest 1 of 5 ::: Downloaded on - 02-06-2017 10:19:32 ::: ITA No. 163 of 2017 (O&M) 2 expenditure, ignoring specific finding of CIT(A) that assessee had not even attempted to show that investments in sister concerns served any business purpose? (ii) Whether on facts and in circumstances of case, Hon ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has erred in deleting addition of ` 2,39,01,531/- on account of disallowance of interest expenditure without appreciating finding of CIT(A) that basic contradiction has not been addressed by appellant in its argument. It has not been pointed out that interest bearing funds have been exclusively used for purpose of business. advancing of interest free amounts to sister concern has to be justified to be business necessity which has not been done by appellant? iii) Whether Hon ble ITAT has erred in not appreciating fact that assessee has not maintained any separate account for interest bearing/interest free funds. Therefore, advance made to sister concerns cannot be said to be made out of interest free funds? 2. few facts relevant for decision of controversy involved as narrated in appeal may be noticed. During course of assessment proceedings, it was noticed by Assessing Officer that assessee had amount of ` 72,28,15,197/- standing as investments in various related concerns but had not received any interest or return on account of such investments. assessee submitted that interest free advances to related parties were made in view of larger interest of group. Assessing Officer observed that after making advances, assessee had himself applied for interest linked loans and was bearing interest burden. assessee failed to provide specific information as to how advances of interest free loans served business of any of his 2 of 5 ::: Downloaded on - 02-06-2017 10:19:33 ::: ITA No. 163 of 2017 (O&M) 3 proprietorship business concerns. Assessing Officer observed that if assessee had excess surplus funds, what was need to take interest bearing loans. Therefore, interest paid to Bank was not for any funds required for assessee s own business but for making interest free advances to related parties. With these observations, interest expenditure of ` 2,39,01,531/- claimed by assessee was disallowed by Assessing Officer in view of Section 40A(2)(a) and Section 36(1)(iii) of Act. Aggrieved by order, assessee filed appeal before Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 27.02.2015, Annexure A.II, CIT(A) confirmed disallowance of interest expenditure made by Assessing Officer. CIT(A) observed that assessee had not even attempted to show that investments in sister concerns served any business purpose. CIT(A) further observed that funds of assessee company comprised of self generated funds as well as interest bearing loans. It had not been pointed out by assessee that interest bearing funds had been exclusively used for purpose of business. Thus, disallowance of interest expenditure made by Assessing Officer was confirmed by CIT(A). Not satisfied with order, assessee filed appeal before Tribunal. Vide order dated 12.8.2016, Annexure A.III, Tribunal allowed appeal filed by assessee, deleting addition on account of disallowance of interest expenditure. Hence, instant appeal by appellant-revenue. 3. We have heard learned counsel for appellant-revenue. 4. After examining matter, it has been categorically recorded by Tribunal that in case of assessee, non-interest bearing funds are more than non interest bearing investments. Further, assessee had declared more interest income on fixed deposits than 3 of 5 ::: Downloaded on - 02-06-2017 10:19:33 ::: ITA No. 163 of 2017 (O&M) 4 interest paid by him on interest bearing funds. total non interest bearing funds were to tune of ` 84,82,25,180/- against which assessee had invested as non interest bearing investments to tune of ` 72,28,15,197/-. It was concluded that assessee had not deployed interest bearing funds into non interest bearing investments. relevant findings recorded by Tribunal read thus:- 12. In present case, we find that no interest bearing funds in form of Proprietor s Capital Account and sundry creditor as apparent from (PB page 2) and (PB page 6) are much more than amount invested in group companies without charging of interest. proprietor s capital as appearing in PB page 2 is ` 1,54,45,382/- whereas sundries which are also non interest bearing funds appearing as in PB page 6 are to tune of ` 83,27,79,7908/-. Therefore, total of non interest bearing funds as available with assessee are to tune of ` 84,82,25,180/- against which assessee had invested as non interest bearing investments to tune of ` 72,28,15,197/-. Therefore, non interest bearing funds are more than non interest bearing investments. Further we find that assessee has declared more interest income on fixed deposits than interest paid by him on interest bearing funds. In view of facts and circumstances, it cannot be said that assessee had deployed interest bearing funds into non interest bearing investments. 13. We further find that assessee is sole proprietor of M/s Modern Publishers and is also majority shareholders in companies in which interest free investments have been made. Paper Book page 12 is list of companies in which assessee is holding major chunk of shares. rest of shares are also held by other family members of assessee. For sake of convenience chart showing shareholding of assessee in companies has been made part of this order. xxxxxxxxxxxxxxxxxxxxx 4 of 5 ::: Downloaded on - 02-06-2017 10:19:33 ::: ITA No. 163 of 2017 (O&M) 5 Therefore, from above chart, it can be safely concluded that assessee is major share holder and therefore advance/investments made by assessee in these companies cannot be said to be without commercial expediency. There would be direct benefit to assessee if interest free investments made in these companies results into more profits to these companies and indirectly to assessee. 5. Learned counsel for appellant has not been able to show that findings recorded by Tribunal are illegal or perverse warranting interference by this Court. Further, it was not disputed by learned counsel for revenue that similar issue has already been adjudicated by this Court against revenue in ITA No.31 of 2017 (The Pr. Commissioner of Income Tax (Central) Ludhiana vs. M/s Malhotra Book Depot, MBD House, Railway Road, Jalandhar), decided on 23.2.2017. Thus no substantial question of law arises. Consequently, appeal stands dismissed. (Ajay Kumar Mittal) Judge April 17, 2017 (Ramendra Jain) gs Judge Whether speaking/reasoned Yes Whether reportable Yes 5 of 5 ::: Downloaded on - 02-06-2017 10:19:33 ::: Pr. Commissioner of Income-tax (Central), Ludhiana v. Satish Bala Malhotra, Legal heir of Shri Ashok Kumar Malhotra