Kamlesh Bhargava Hospital & Research Centre (P) Ltd. v. The DCIT, Circle- 1(1), Chandigarh
[Citation -2019-LL-0822-2]

Citation 2019-LL-0822-2
Appellant Name Kamlesh Bhargava Hospital & Research Centre (P) Ltd.
Respondent Name The DCIT, Circle- 1(1), Chandigarh
Court ITAT-Chandigarh
Relevant Act Income-tax
Date of Order 22/08/2019
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags proportionate disallowance • profit and loss account • proportionate interest • reserves and surplus • disallowance of interest • unsecured loan
Bot Summary: PAN TAN No: AAACK7161P Appellant Respondent Assessee by : Shri Jaspal Sharma, Advocate Revenue by : Smt. Chanderkanta, Sr.DR Date of Hearing : 07.08.2019 Date of Pronouncement : 22.08.2019 ORDER PER DIVA SINGH Th e present appeal has been filed by the assessee wherein the corre ctness of the order dated 23.12.2015 of CIT( A)-1 Chand igarh pe rtaining to 2012-13 assessment year is assailed on the following grounds : 1. The Ld.Counsel for the assessee contended that his argument against the said disallowance upheld by the CIT(A) was the same as in A.Y 2008-09, that the advances were the same as in preceding year except additional advance given to PSIDC of 3.50 lacs, that the assessee had sufficient own interest free funds ,in the form of Reserves for the year amounting to Rs.7.72 crores and the presumption therefore is that the advances have been made out of own interest free funds. The solitary ground raised by the assessee in its Cross Objection relates to the issue of disallowance of interest expenses u/s 36(1)(iii) of the Act and reads as under: The order passed u/s 250(6) of the Income Tax Act,1961 by the ld. Brief facts relating to the issue are that the Assessing Officer noticed that the assessee had debited a large amount to the profit and loss account on account of interest paid on borrowed funds. At the same time, the assessee had made interest free advances as under: a) M/s Silver Oak Foundation Rs. 21,42,000/- b) Advance for land Rs. 21.50.000/- Total Rs. 42,92,000/- 35. The Assessing Officer questioned the assessee regarding business expediency for making these advances and also about proportionate disallowance of interest u/s 36(l)(iii) of the Act. In view of the above settled law and considering the uncontroverted fact that the assessee had own interest free funds in the form of profits of the year alone amounting to Rs.2.12 crores which were more than sufficient for making the impugned investments of Rs.42.92 lakhs, we hold that no disallowance of interest u/s 36(1)(iii) of the Act was warranted in the present case, since the investments are presumed to have been made out of own interest free funds of the assessee.


IN INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH CHANDIGARH , " (BEFORE: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM ITA No. 28/CHD/2016 Assessment Year : 2012-13 M/s Kamlesh Bhargava Hospital DCIT, & Research Centre (P) Ltd., Circle- 1(1), VS H.No. 761, Sector 8-B, Chandigarh. Chandigarh. PAN TAN No: AAACK7161P Appellant Respondent Assessee by : Shri Jaspal Sharma, Advocate Revenue by : Smt. Chanderkanta, Sr.DR Date of Hearing : 07.08.2019 % Date of Pronouncement : 22.08.2019 ORDER PER DIVA SINGH Th e present appeal has been filed by assessee wherein corre ctness of order dated 23.12.2015 of CIT( A)-1 Chand igarh pe rtaining to 2012-13 assessment year is assailed on following grounds : 1. That order passed u/s 250(6) of Income Tax Act, 1961 by Ld. Commissioner of Income Tax (Appeals), Chandigarh is against law and facts on file in as much as he was not justified to arbitrarily uphold disallowance of Rs. 1476000/- out of interest account by resort to provisions of section 36(1)(iii) ignoring fact that advance was made for purpose of business. 2. That he was further not justified to arbitrarily uphold disallowance amounting to Rs. 1000000/- paid by Appellant to Mr.Rajnish Rametra as consultation fees. ITA 28 /CHD/2016 A.Y. 2012-13 Page 2 of 8 2. At time of hearing, ld. AR submitted that assessee does not wish to press ground No. 2. Accordingly, appropriate noting to said effect was given. 3. Addressing sole issue surviving in present appeal, ld. AR submitted that no independent finding has been given b y CI T( A) e xcep t for relyin g on v iew taken in 2011-12 assessment year. Th e said issue, it was submitted, came up for consideration in consolidated order dated 31.07.2019 in batch of appeals/Cross Appeals and Cross Objections by Revenue and assessee respectively pertaining to 2005-06 to 2011-12 assessment year. Inviting attention to record, it was submitted that Assessing Officer had made addition of Rs. 1 4,76,00 0/- u /s 36 (1)(iii) of In come Tax Act,1 961 by way of disallowance. It has been sustained in appeal by CI T( A) for reasons set out in para 5 to 5 .4 of his order . Inviting attention to page 79 of aforesaid consolidated order it was his submission that issue has been c o n s i d e r e d i n s s e s s e e ' s C O N o . 1 2 / C H D / 2 0 1 4 f i l e d i n I TA 3 6/CHD/2 01 4 by I TA T i n p aras 130 to 133 . Relying upon similar position on facts and law as considered in earlier years which have been addressed in para 41 at page 38 of order (CO No. 9/CHD/2014 in I TA 33/CHD/2014) pertains to 2008-09 assess me nt year, ITA 28 /CHD/2016 A.Y. 2012-13 Page 3 of 8 ad di tion made, it was sub mitted, was deleted by I TA T in all years. Accordingly, it was his prayer that in facts of present case also, additions sustained relying u p o n t h e o r d e r o f t h e I TA T i n t h e e r l i e r y e r s m y b e deleted. 3.1 Th e ld. AR was re quired to ad dre ss posi tion on facts i n year un der con sider ation as I TA T has cons idered factual position of available funds in respective y e r s . Th e l d . R d d r e s s i n g t h e v i l b i l i t y o f f u n d s i n v i t e d attention to Paper Book page 1 so as to submit that when compared with position as on 31.3.2011 in year under consideration there was increase in share capital and reserves and surplus of assessee. Referring to said page, it was submitted that in year under consideration, it held in its books Share Capital and Reserves and Surplus to tune of Rs. 23.81 Cr. odd and when compared to position in immediately preceding period, it may be noticed that assessee's share capital and reserves and surplus was on ly Rs. 18 .5 7 Cr od d. Th us, admittedly there is substantive increase. When compared with loans and advances which were made in specific period, these were about Rs. 1.13 Crore odd. Accordingly, relying upon position of law as considered by Co- ordinate Bench in consolidated order wherein ITA 28 /CHD/2016 A.Y. 2012-13 Page 4 of 8 considering identical factual position right from 2008-09 asse ssme nt year identical add ition sustained by CI T( A) has been deleted , praye r was made for identi cal relie f in present proceedings. 4. Th e ld. Sr. DR on per usal of consol id ated or der in facts of assessee's case submitted that point at issue is fully covered. No distinguishing facts or circumstances were brought to our notice in order to canvass contrary view. 5. We have heard rival submissions and perused material available on record. It is seen that said issue was considered by CI T( A) in impugned order as under: 5 Ground of appeal No. 1 is against the, disallowance of Rs. 14,76,000/- u/s 36(l)(iii) of Income Tax Act, 1961 (hereinafter referred to as 'Act). 5.1 Brief facts of issue are that Assessing Officer noticed that appellant had given loans and advances amounting to Rs. 1,39,00,000/- to related parties. Out of this, appellant had made interest free advances of Rs. 1.23 crores to M/s Silver Oak Foundation. It was also noticed that appellant has paid interest amounting to Rs. 151.61 lacs on secured and unsecured loans raised during year. 5.2 Assessing Officer questioned appellant regarding business expediency for making these advances and also about proportionate disallowance of interest u/s 36(l)(iii) of Act. 5.3 submission was filed during course of present proceedings. During hearing, it was informed by Counsel of appellant that addition on same ground was made by Assessing Officer in A.Y. 2011-12 and was later confirmed by CIT(A), Chandigarh. 5.4 I have considered submission of appellant and facts on record. It is found that similar addition made in A.Y. 2011-12 was confirmed by.my predecessor vide order dated 31.10.2013 in appeal No. 274/13-14. I am in agreement with view taken by my predecessor on issue and so addition made for Rs. 14,76,000/- is confirmed in this year also. Ground of appeal No. 1 is dismissed. ITA 28 /CHD/2016 A.Y. 2012-13 Page 5 of 8 5.1. On perusal of aforesaid order passed by Co- ordinate Bench, it is seen that identical addition has been deleted in 2011-12 assessment year in paras 132-133 at p ages 7 9 and 8 0. relevant e xtract of findin g is extracted hereunder for sake of completeness : 132. Ld.Counsel for assessee contended that his argument against said disallowance upheld by CIT(A) was same as in A.Y 2008-09, that advances were same as in preceding year except additional advance given to PSIDC of 3.50 lacs, that assessee had sufficient own interest free funds ,in form of Reserves for year amounting to Rs.7.72 crores and presumption therefore is that advances have been made out of own interest free funds. 133. Since admittedly issue is identical to that in Ground No.1 of assesses Cross Objection for A.Y 2008-09 in CO No.9/2014 dealt with us above, our decision rendered therein at para 41 of our order will apply to present ground, following which we delete disallowance of interest of Rs.11,00,376/-. Ground of appeal No.1 raised by assessee is allowed. 5.2 On reading of above, it is seen that in fact view take n i n 200 8 -09 asse ssmen t year was relied u pon. relevant discussion in aforesaid consolidated order in C.O. 9/CHD/2014 is available in paras 33 to 41. Th e said extract is reproduced hereunder also for sake of completeness: 33. solitary ground raised by assessee in its Cross Objection relates to issue of disallowance of interest expenses u/s 36(1)(iii) of Act and reads as under: order passed u/s 250(6) of Income Tax Act,1961 by ld. Commissioner of Income Tax (Appeals),Chandigarh is against law and facts on file in as much ashe was not justified to arbitrarily uphold disallowance of Rs.5,15,119/-out of interest account by resort to provisions of section 36(1)(iii) ignoring fact that advance was made for business purpose. ITA 28 /CHD/2016 A.Y. 2012-13 Page 6 of 8 34. Brief facts relating to issue are that Assessing Officer noticed that assessee had debited large amount to profit and loss account on account of interest paid on borrowed funds. At same time, assessee had made interest free advances as under: a) M/s Silver Oak Foundation Rs. 21,42,000/- b) Advance for land Rs. 21.50.000/- Total Rs. 42,92,000/- 35. Assessing Officer questioned assessee regarding business expediency for making these advances and also about proportionate disallowance of interest u/s 36(l)(iii) of Act. assessee filed reply, contents of which were summarized by Ld.CIT(A) at para 3.1.1 of his order as under: (i) M/s Silver Oak Foundation is running college under name and style of 'Silver Oak College of Nursing', imparting medical/ nursing education to students. nurses trained in college are provided to hospital and so commercial expediency stands explained. (ii) Regarding advance for purchase of land at Abhipur, same was shown as advance, since transaction was not complete. Later, when registry was done, asset was transferred to fixed asset schedule. land was purchased with intention to expand hospital facility and to attract rural clientele, but later on it was observed that scope was not very high in that area and so land was sold. (iii) interest debited to profit and loss account pertains to loans raised for specific purposes and no part of these loans were used for making these advances and so it cannot be said that interest bearing funds were used for making these interest free advances. (iv) ratio of judgement of Hon'ble Punjab and Haryana High Court in case of Abhishek Industries Ltd. (286 ITR 1) has been amplified, discussed and clarified by Hon'ble Supreme Court in cases of M/s Core Health Care Ltd. (298 ITR 194) and M/s S.A. Builders Ltd. (288 ITR 1) and as advances were given on ground of commercial expediency, no disallowance is required to be made. 36. Assessing Officer did not agree with explanation of assessee and disallowed proportionate interest of Rs. 5,15,119/-, computed @ 12% per annum on aforesaid interest free advances with following observations: (i) There is no evidence that impugned land for which advance is given, was to be purchased for hospital. (ii) There is no evidence that amount paid as advance for land was not out of borrowed funds. (iii) funds diverted by appellant are not out of own funds. ITA 28 /CHD/2016 A.Y. 2012-13 Page 7 of 8 (iv) judgement of Hon'ble Punjab and Haryana High Court in case of M/s Abhishek Industries Ltd. is applicable on facts of case. 37. During course of appellate proceedings, Ld. Counsel for assessee filed written submission, mainly reiterating submissions made before Assessing Officer. 38. Ld.CIT(A) rejected all contentions made by assessee and upheld disallowance made. 39. Before us sole issue raised by Ld.Counsel for assessee was that it had sufficient own interest free funds for purpose of making investment. Our attention was drawn to profits earned by assessee during year itself as reflected in audited financial statements, copy of which was filed before us, amounting to Rs.2.12 crores and it was pointed out that investment in relation to which disallowance was made amounted to Rs.42.92 lacs. It was, therefore, contended that in view of various decisions of various judicial authorities, presumption was that investment has been made out of own interest free funds of assessee calling for no disallowance of interest u/s 36(1)(iii) of Act. 40. Ld. DR, on other hand, relied upon order of authorities below. 41. We have heard rival submissions, perused orders of authorities below. It is settled law that where sufficient own interest free funds are available, presumption is that non business advances/investments have been made out of said interest free funds. Hon'ble Supreme Court has held so in case of CIT (LTU) vs Reliance Industries Ltd. in Civil Appeal no.37 of 2019 dated 02- 01-19. In view of above settled law and considering uncontroverted fact that assessee had own interest free funds in form of profits of year alone amounting to Rs.2.12 crores which were more than sufficient for making impugned investments of Rs.42.92 lakhs, we hold that no disallowance of interest u/s 36(1)(iii) of Act was warranted in present case, since investments are presumed to have been made out of own interest free funds of assessee. disallowance so made of Rs.5,15,190/- u/s 36(1)(iii) of Act is, therefore, directed to be deleted. ground raised by assessee is therefore allowed. Cross Objection filed by assessee stands allowed. 5.3 On consideration of facts, circumstances and position of law as discussed in detail in earlier part of this order, we are of view that ground raised deserves to be allowed. facts as canv assed and n ote d in earlier part of this order in absence of any rebuttal ITA 28 /CHD/2016 A.Y. 2012-13 Page 8 of 8 by Revenue adequately demonstrates sufficiency of available funds with assessee at relevant point of ti me . Th ese submi ssi ons re main un-assai led. ccordingly, allowing ground, addition is directed to be deleted. Said order was pronounced in Open Court at time of he aring itself. 6. Ground No. 2 as noticed earlier has not been pressed by assessee. As such, it is dismissed accordingly. 7. In result, appeal of assessee is allowed. Or d e r pr on ou nced i n th e O pe n C ou rt on 22nd August ,2019. Sd/- Sd/- (ANNAPURNA GUPTA) (DIVA SINGH) Accountant Member Judicial Member , Copy of order forwarded to : 1. Appellant 2. Respondent 3. // CIT 4. CIT(A) 5. - 2 , 2 , 4 DR, ITAT, CHANDIGARH 6. Guard File By order, Assistant Registrar Kamlesh Bhargava Hospital & Research Centre (P) Ltd. v. DCIT, Circle- 1(1), Chandigarh
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