2018 (4) TMI 134 - HC - Income Tax

Disallowance of interest expenditure - whether investments in sister concerns served any business purpose - Held that - The Pr. Commissioner of Income Tax (Central) Ludhiana v. Shri Satish Bala Malhotra Legal Heir of Shri Ashok Kumar Malhotra Prop. M/s Modern Publishers MBD House Railway Road Jalandhar 2017 (4) TMI 1330 - PUNJAB & HARYANA HIGH COURT and The Pr. Commissioner of Income Tax (Central) Ludhiana v. M/s Malhotra Book Depot MBD House Railway Road Jalandhar 2017 (5) TMI 638 - PUNJAB AND HARYANA HIGH COURT as held there was sufficient non-interest borrowing funds out of which the assessee had advanced/invested in sister concerns. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of interest expenditure
2. Whether investments in sister concerns served any business purpose
3. Colorable transaction of interest-free loans/advances to sister concerns

Analysis:
1. The case involved two appeals under Section 260A of the Income Tax Act, 1961, regarding the disallowance of interest expenditure of ?1,94,74,037 by the Income Tax Appellate Tribunal (ITA) for the assessment year 2011-12. The Assessing Officer disallowed the expenditure as the assessee had investments in sister concerns but had not received any interest in return. The Commissioner of Income Tax (Appeals) upheld the disallowance, which was later deleted by the ITA. The main issue was whether the interest expenditure was justifiable given the circumstances.

2. The Tribunal's decision to delete the addition of interest expenditure was challenged by the revenue in the High Court. The High Court noted that similar issues had been considered in previous cases where the revenue's appeals were dismissed. The High Court referred to specific cases where appeals on similar issues were not upheld, indicating a consistent judicial stance on such matters. This led to the dismissal of the appeals by the revenue.

3. The High Court emphasized that the issue raised in the present case had already been settled in previous judgments, reinforcing the principle that interest expenditure related to investments in sister concerns must serve a business purpose to be considered valid. The Court cited specific cases where similar appeals were rejected, establishing a precedent that guided the decision to dismiss the current appeals. The consistent application of legal principles in similar cases led to the rejection of the revenue's appeals in this instance.