2016 (6) TMI 521 - AT - Income Tax

Disallowance of deduction for interest paid by the assessee on its borrowing from HDFC Bank - advancing money for purchase of property - nexus with business - Held that - The objects in the Memorandum of Association are clearly in favour of the impugned transaction and establish a direct nexus between the business of the assessee and the advancing of money. Our view is also fortified with the financials of the assessee in as much as in the Balance Sheet under the Head Stock-in- trade there is a balance of ₹ 880,083,323/- which includes building of ₹8,38,915,200/-. These figures are exhibited being Balance Sheet and its schedules for the year ending 31.03.2002. These factual datas clearly show that assessee is very much in business in the real estate and showing the same as stock-in-trade in its Balance sheet. Even in its Profit and Loss account, the assessee has shown ₹ 63,46,92,800/- as sale of building & forfeiture receipts. Our aforementioned factual observations clearly show that the revenue authorities have grossly erred in not accepting assessee s contention that is one of the businesses is in real estate. The Tribunal in the first round of litigation has directed the assessee to establish direct nexus between the advancing of money to SSKI and its commercial expediency. In our understanding of the fact, as mentioned elsewhere, the assessee has successfully discharged its onus and has complied with the directions of the Tribunal. We set aside the findings of the ld. CIT(A) and direct the A.O. to delete the additions - Decided in favour of assessee

Summary

Issues:
1. Disallowance of deduction for interest paid by the assessee on borrowing from HDFC Bank.
2. Whether there is a direct nexus between the advancing of money to SSKI and its commercial expediency.

Analysis:
1. The appeals by the Assessee against two separate orders of the ld. CIT(A)-VIII, Ahmedabad dated 07.08.2012 were disposed of by the Appellate Tribunal. The common grievance in both appeals related to the disallowance of deduction for interest paid on borrowing from HDFC Bank. The A.O found that the assessee utilized borrowed funds for non-business purposes, leading to the disallowance of interest expenses. The Tribunal directed the A.O to redecide the issue, considering whether the loan to SSKI was for commercial expediency. The assessee explained the purpose of the loan, but the A.O disallowed the interest expenses again, leading to an appeal before the Tribunal.

2. The Tribunal analyzed the Memorandum of Association of the assessee company, highlighting relevant clauses that supported the business transactions in question. It was noted that the company engaged in real estate business, as evidenced by its financial statements. The Tribunal found a direct nexus between the advancing of money to SSKI and the commercial expediency of the assessee. The Tribunal concluded that the revenue authorities erred in not accepting the assessee's contention and directed the A.O to delete the disallowed amounts for both assessment years. The appeals of the Assessee were allowed based on the established nexus between the business activities and the advancing of money.