2009 (10) TMI 929 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 18.45 crores made by the Assessing Officer on the ground that the assessee advanced interest-bearing funds to sister concerns.
2. Maintainability of the appeal due to nil revenue effect.

Summary:

Issue 1: Deletion of Addition of Rs. 18.45 Crores

The common issue in these appeals is that the Ld. Commissioner of Income Tax(Appeals) deleted the addition of Rs. 18.45 crores made by the Assessing Officer for the A.Y. 1996-97, on the ground that the assessee advanced interest-bearing funds to sister concerns. The Assessing Officer found that the assessee had advanced Rs. 102.5 crores to sister concerns free of interest, despite having taken loans from financial institutions. The assessee explained that these advances were for business purposes, including acquisition of international business, development of an all-India distribution system, and other business-related activities. The Ld. Commissioner of Income Tax(Appeals) allowed the claim, following the decision in Torrent Financers V/s. CIT (2001) 73 TTJ, 624, and held that the Assessing Officer had not established a nexus between the interest-free advances and interest-bearing funds.

Issue 2: Maintainability of the Appeal

The learned AR for the assessee raised a preliminary issue that the revenue effect in this case is nil as both the assessed income and returned income are losses. Following the decision of Hon'ble Delhi High Court in CIT Vs. Manglam Ricinus Limited (2008) 174 Taxman 186 Delhi, the appeal is not maintainable. The Tribunal agreed, noting that the total income declared and assessed for the assessee for the assessment years 1996-97 and 1997-98 were negative, making the appeal not maintainable. The Tribunal cited the decision of Hon'ble Delhi High Court in Manglam Ricinus Limited's case, which held that if the tax recovery for the revenue is nil, the appeal is not maintainable.

Merit Consideration:

Notwithstanding the maintainability issue, the Tribunal also considered the merits. It found that the facts of the case were similar to those in Yashvant S. Tejani, where it was concluded that if the assessee shows sufficient interest-free capital, the burden shifts to the revenue to prove that interest-free advances were made from interest-bearing funds. The Tribunal noted that the revenue failed to disprove the assessee's claim that the advances were for business purposes, following the decision of Hon'ble Supreme Court in SA Builders V/s CIT(A) (2007) 288 ITR 01. The Tribunal also noted that the decision of Hon'ble Punjab and Haryana High Court in Abhishek Industries (2006) 286 ITR 001, relied upon by the revenue, was no longer good law following the reversal by Hon'ble Supreme Court in Munjal Sales Corporation V/s. CIT (2008) 298 ITR 298 (SC).

Conclusion:

Respectfully following the above decisions, the Tribunal held that even on merit, the revenue has no case. As a result, both appeals filed by the revenue were dismissed.