2011 (9) TMI 1095 - AT - Income Tax

Addition of interest - interest free advances to sister concern - Held that - we see no reasons to disturb well reasoned conclusions arrived at by the CIT(A) particularly as learned Departmental Representative did not really dispute factual elements embedded in the conclusions arrived at by the CIT (A) with regard to the business expediency of the assessee. We have also taken note of learned Counsel s argument that assessee s stand to the effect that advances were made for the purpose of import of rough diamonds, and simply because imports could not be effected, the nature of advances would not change, has remained uncontroverted by the revenue. In any case, as held by Hon ble Supreme Court in the case of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT) the expression commercial expediency is of wide import and even advances for the purpose of business of the sister concern are required to be treated as for business purposes. The Assessing officer was thus clearly in error in resorting to the disallowance on the short ground that while the assessee has borrowed the money on interest, it has given an interest free advance to the sister concern. That approach certainly constitute a very superficial view of the matter, and the CIT(A) was justified in reversing the disallowance so made by the Assessing Officer. We approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. Profit on sale of shares and assets added by the AO to the book profit u/s.115JB - Held that - The issue is now covered against the assessee by Hon ble Kerala High Court judgment in the case of N. J. Jose and Co. (P.) Ltd. v. Assistant Commissioner of Income-tax (2008 (2) TMI 557 - KERALA HIGH COURT ). Learned counsel, however, relies upon a series of decisions of this Tribunal, which has decided this issue in favour of the assessee, and submits that he would like to keep the issue alive. Respectfully following the judgment of the Hon ble Kerala High Court in the case of N. J. Jose and Co. (P.) Ltd. (supra), we uphold the grievance of the Assessing officer and reverse the order of the CIT(A) on this issue.

Summary

Issues:
1. Disallowance of interest on interest-free advances made to a sister concern.
2. Addition of profit on sale of shares and assets to book profit under section 115JB.

Issue 1 - Disallowance of Interest on Interest-Free Advances:
The Assessing Officer challenged the CIT(A)'s decision to delete the interest amount of Rs. 17,59,189 added on interest-free advances made to a sister concern. The assessee contended that the advance was made for commercial expediency, making the corresponding interest an allowable business expenditure. The CIT(A) agreed with the assessee, citing the Supreme Court judgment in the case of M/s. S.A. Builders Ltd., which clarified that interest on funds borrowed for interest-free loans can be allowed if given for commercial expediency. The ITAT Mumbai upheld the CIT(A)'s decision, noting that the Assessing Officer's approach was superficial and did not consider the business expediency aspect. The tribunal found no reason to disturb the CIT(A)'s well-reasoned conclusions, emphasizing the wide import of the term "commercial expediency" and the business purpose behind the advances.

Issue 2 - Addition of Profit on Sale of Shares and Assets:
The second issue involved the addition of Rs. 1,05,78,350 as profit on the sale of shares and assets to the book profit under section 115JB. The Assessing Officer contended that the decision of the Jurisdictional High Court in a specific case was applicable. However, the ITAT Mumbai noted that the issue was now covered against the assessee by a judgment of the Hon'ble Kerala High Court. Despite the assessee's reliance on previous tribunal decisions in their favor, the ITAT Mumbai upheld the Assessing Officer's grievance, following the judgment of the Hon'ble Kerala High Court. Consequently, the tribunal allowed Ground No.2 of the appeal, partially favoring the revenue.

In summary, the ITAT Mumbai upheld the deletion of disallowed interest on interest-free advances due to commercial expediency, citing relevant legal precedents. However, the tribunal allowed the addition of profit on the sale of shares and assets to the book profit under section 115JB based on the judgment of the Hon'ble Kerala High Court, partially favoring the revenue in this aspect.