Tile Italia Mosaics Pvt. Ltd. v. DCIT, Circle-7(1)(1), Bangalore
[Citation -2019-LL-0828-112]

Citation 2019-LL-0828-112
Appellant Name Tile Italia Mosaics Pvt. Ltd.
Respondent Name DCIT, Circle-7(1)(1), Bangalore
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 28/08/2019
Assessment Year 2014-15
Judgment View Judgment
Keyword Tags sister concern • diversion of fund • interest free fund • disallowance of interest expenditure
Bot Summary: Although several grounds are raised in each of these appeals but the effective grievance is about disallowance of interest on the basis of this common allegation that the assessee has diverted the funds to sister concern without charging interest. In A. Y. 2015 16, this is the allegation of the AO on page 3 of the assessment order that the assessee diverted the funds to the tune of Rs. 76,59,422/- and in this year, the AO disallowed an amount of Rs. 919,130/- out of interest. He submitted that as per various judgments of various High Courts including that of Hon ble Karnataka High Court, if the interest free funds available with the assessee is more than such interest free advances or investments than it should be presumed that such interest free advances are out of interest free funds available with the assessee and hence, no disallowance is called for out of interest expenditure. 11 to 13 of 2019 dated 02.01.2019, it is held by Hon ble Apex Court also that it could be presumed that the investment were made from the interest free funds. He pointed out that this was the question raised before Hon ble apex court that whether interest referable to funds given to subsidiaries is allowable as deduction u/s 36 when interest would not have been payable to banks if funds were not provided to subsidiaries and this question was decided in favour of the assessee. She also submitted that interest free advances were given in earlier years and the assessee has to establish that interest free funds were available with the assessee when interest free advances were given. Respectfully following this judgment of Hon ble Apex Court, we hold that in the facts of present case, the disallowance of interest is not justified and we delete the same in both years.


IN INCOME TAX APPELLATE TRIBUNAL BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA Nos. 1125 & 2427/Bang/2018 Assessment Years : 2014 15 & 2015 16 M/s Tile Italia Mosaics Pvt. Ltd., 508, 15th Main, Koramangala, DCIT, Circle 7 (1 (1), 3rd Block, vs. Bangalore. Bengaluru 560075. PAN: AABCA6924B APPELLANT RESPONDENT Assessee by : Shri B. S. Balachandran, Advocate Revenue by : Smt. Padma Meenakshi , JCIT (DR) Date of hearing : 26.08.2019 Date of Pronouncement : 28.08.2019 ORDER Per Shri A. K. Garodia, Accountant Member Both these appeals are filed by assessee and these are directed against order of CIT (A) 7, Bangalore dated 01.02.2018 for A. Y. 2014 15 and dated 20.06.2018 for A. Y. 2015 16. Both these appeals were heard together and are being disposed of by way of this common order for sake of convenience. 2. Although several grounds are raised in each of these appeals but effective grievance is about disallowance of interest on basis of this common allegation that assessee has diverted funds to sister concern without charging interest. In A. Y. 2014 15, this is allegation of AO on page 3 of assessment order that assessee diverted funds to tune of Rs. 117.96 lacs and in this year, AO disallowed amount of Rs. 14.15 Lacs out ITA Nos. 1125 & 2427/Bang/2018 Page 2 of 3 of interest. Similarly, in A. Y. 2015 16, this is allegation of AO on page 3 of assessment order that assessee diverted funds to tune of Rs. 76,59,422/- and in this year, AO disallowed amount of Rs. 919,130/- out of interest. In both years, assessee carried matter in appeal before CIT (A) but without success and now, assessee is in further appeal before tribunal. 3. Both sides were heard. This was main submission of learned AR of assessee that Balance Sheet of assessee company as on 31.03.2014 is available on page 24 of paper book and as per same, own funds is of Rs. 427.96 lacs as against alleged diversion of funds of Rs. 117.96 Lacs. He submitted that as per various judgments of various High Courts including that of Hon ble Karnataka High Court, if interest free funds available with assessee is more than such interest free advances or investments than it should be presumed that such interest free advances are out of interest free funds available with assessee and hence, no disallowance is called for out of interest expenditure. He submitted that recently in case of CIT vs. Reliance Industries Ltd. In Civil appeals Nos. 11 to 13 of 2019 dated 02.01.2019, it is held by Hon ble Apex Court also that it could be presumed that investment were made from interest free funds. He submitted copy of this judgment of Hon ble Apex court and drawn our attention to page 2 & 3 of this judgment. He pointed out that this was question raised before Hon ble apex court that whether interest referable to funds given to subsidiaries is allowable as deduction u/s 36 (1) (iii) when interest would not have been payable to banks if funds were not provided to subsidiaries and this question was decided in favour of assessee. He submitted that in present case also, interest free funds available with assessee is much more than alleged interest free advances and therefore, no disallowance is justified out of interest. Learned DR of revenue supported orders of lower authorities. She also submitted that interest free advances were given in earlier years and assessee has to establish that interest free funds were available with assessee when interest free advances were given. 4. We have considered rival submissions. We find that as per Balance Sheet of assessee company as on 31.03.2014 available on page 24 of ITA Nos. 1125 & 2427/Bang/2018 Page 3 of 3 paper book, own funds is of Rs. 427.96 lacs as against alleged diversion of funds of Rs. 117.96 Lacs. Hence, respectfully following this judgment of Hon ble Apex Court, we hold that in facts of present case, disallowance of interest is not justified and we delete same in both years. 5. In result, both appeal of assessee are allowed. Order pronounced in open court on date mentioned on caption page. Sd/- Sd/- (N. V. VASUDEVAN) (ARUN KUMAR GARODIA) VICE PRESIDENT Accountant Member Bangalore, Dated, 28th August, 2019. /MS/ Copy to: 1. Appellant 4. CIT (A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, Income Tax Appellate Tribunal, Bangalore. Tile Italia Mosaics Pvt. Ltd. v. DCIT, Circle-7(1)(1), Bangalore
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