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TMI Blog2013 (4) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... xport business being a loss - restriction in section 80AB - held that:- The second issue is no more res integra in view of the binding authoritative pronouncements of the Hon'ble Supreme Court in ITO v. Induflex Products P.Ltd. [2005 (12) TMI 49 - SUPREME COURT] and A.M.Moosa v. CIT [2007 (9) TMI 24 - SUPREME COURT]. - The result of consolidated export activity of manufactured goods and trading goods are to be taken into account for claiming relief under Section 80HHC read with Section 80AB. - Decided in favor of revenue. - I.T.A.No. 93 of 2000 - - - Dated:- 3-8-2012 - MR. THOTTATHIL B. RADHAKRISHNAN MR. K. VINOD CHANDRAN JJ. APPELLANT:- BY ADV. SRI. P.K.R. MENON (SR.), SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH, STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) RESPONDENT:-BY ADV. SRI. A.K. JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI. ANIL D. NAIR JUDGMENT K. VINOD CHANDRAN, J: The above appeal filed by the Revenue relates to the assessment year 1992-93. 2. The assessee company engaged in the business of plantations, inter alia, has business in execution of engineering works, agency service, bio-tech division, etc. In the returns f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Kerala Tea Account and Tamilnadu Tea Account as interest relatable to loans given to the subsidiary companies. ii. Whether, on the facts and in the circumstances of the case, did the Tribunal hold that the subsidiary companies were cent percent owned by the assessee and, if so, is the Tribunal right in holding so based on the submission of Counsel? iii. Whether, on the facts and circumstances of the case and the net result from export business being a loss and also considering the restriction in section 80AB of the Income-tax Act, the assessee is entitled to deduction u/s.80HHC of the Income-tax Act? 6. The Revenue relied on a decision of the Madras High Court in K. Somasundaram and Bros. v. C.I.T. [(1999) 238 ITR 939]. In the said case, a firm engaged in construction, borrowed certain amounts for the purpose of its business and claimed deduction of interest paid on such borrowings. The Assessing Officer found that the assessee had simultaneously been advancing amounts to close relatives, that too interest-free. To the extent of deemed accrual of interest from such interest-free loans, disallowance was made on the deduction claimed on interest paid. The Madras High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance having regard to the circumstances, the disallowance could not be sustained. The said decision is not at all relevant to the facts of the instant case. Woolcombers of India Ltd. v. C.I.T [1982) 134 ITR 219] dealt with the disallowance of interest paid on an overdraft account on the ground that substantial credit drawings in the overdraft account was on account of payment of advance tax. The assessee contended that the payment of advance tax was from the profits of the business of the year and that the overdraft was only with respect to business expenditure. The Calcutta High Court having regard to the fact that the profit of more than Rs.27 lakhs for the year was credited to the overdraft account and that the advance tax paid resulted only in the increase of the overdraft by Rs.14 lakhs, drew a presumption that the taxes were paid out of the profits of the year and not from the overdraft account. Following the said decision, in Indian Explosives Ltd. v. C.I.T. [(1984) 147 ITR 392] the Calcutta High Court again held that when payments towards business expenditure and taxes were made from the same overdraft account, the interest paid on overdraft account maintained for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary companies. The Assessing Officer considered this interest-free loan as a diversion of borrowed funds, since the cash credit account of the assessee showed a huge debit balance. Proportionate interest relating to the said amount was disallowed out of the total interest paid to the bank. While the first appellate authority granted some relief, the Tribunal upheld the disallowance as made by the Assessing Officer. The High Court also dismissed the appeal, recording the finding of fact of the Tribunal, that on the date on which the amount was advanced, there was no credit balance in the bank account of the assessee. The Supreme Court held that the approach of the Tribunal and the High Court was from an erroneous angle. The High Court and the Tribunal had considered the issue on the basis of the facts available with respect to the dates when advances were made and the credit balance available in the assessee's account with the bank. According to the Hon'ble Supreme Court, the test in such cases should be as to whether the advances were as a measure of commercial expediency. Noticing the difference between the expressions "for the purpose of business" and "for the purpose of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... met from internal resources itself. Such funds then cannot be taken to be having been used for or invested in the business. To that extent there cannot be any claim for business expenditure. It is this disallowance that the Assessing Officer has made. We are of the opinion that on the facts as also the discussion of law made above, the 1st question has to be answered in favour of the Revenue and against the assessee. Having answered the question of law in favour of the Revenue, the orders of the Tribunal and the first appellate authority have to be reversed to that extent, reviving the order of the Assessing Officer. 14. In view of our finding on the 1st question, we are of the opinion that that the 2nd question as to the proof of degree of ownership of subsidiary companies pales into insignificance and does not arise for consideration at all. We refuse to answer the said question. 15. One other question raised is with respect to the negative result from export business being considered for deduction under Section 80HHC of the Act. The Assessing Officer disallowed the claim, since the assessee was claiming deduction under Section 80HHC having worked out the same only with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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