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TMI Blog2013 (8) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-7-2013 - Shri Mukul Kr. Shrawat, J. M. And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri M. G. Patel Aarti Shah For the Respondent : Shri O. P. Vaishnav, CIT DR ORDER Per Shri Anil Chaturvedi,A. M. 1. These two appeals, one filed by the Assessee and the other filed by the Revenue are against the order of CIT(A)-VI, Baroda dated 31.12.2012 for assessment year 2009-10. 2. The facts as culled out from the order of lower authorities are as under. 3. Assessee is a company engaged in the business of manufacturing of insecticides, pesticides and its formulation and intermediates. It is a subsidiary of Gharda Chemicals Limited. Assessee electronically filed its return of income for A.Y. 2009-10 on 29.09.2009 declaring total income of Rs. 3,98,87,075/-. The case was selected for scrutiny and thereafter the assessment was framed under Section 143(3) vide order dated 16.12.2011 and the total income was determined at Rs. 10,13,05,222/-. Aggrieved by the order of Assessing Officer(Assessing Officer), Assessee carried the matter before CIT(A). CIT(A) vide order dated 31.12.2012 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered while making disallowances under this head. This interest free loan to Gharda Foundation is neither for business expediency nor from the business development. Considering the totality of the circumstances of the case interest and financial charges in respect of interest free loan/advance of Rs. 2.5 crores to M/s Gharda foundation are to be disallowed on prorata basis. Accordingly the Assessing Officer is directed to verify from the records the outstanding period and work out interest at the same rate at which the appellant is being charged by the bank. Mathematically interest is worked out as under:- = (2,50,00,000 x n/365 x r/100) n= no. of days the loan to Gharda Foundation was outstanding r= interest rate charged by the bank on which capital facilities (say 11.25%) The addition to the extent of interest worked out as above is confirmed and the appellant gets relief to the extent of balance (68,50,000/- disallowance). This ground of appeal is partly allowed. 7. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. 8. Before us the learned A.R. submitted during the year under appeal the reserves and surplus of the Assessee as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a presumption would arise that investment would be out of interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investment. 11. In the case of CIT vs. Raghuvir Synthetics (supra), The Hon. Gujarat High Court has held as under: Head note: INTEREST ON BORROWED CAPITAL - INTEREST -FREE LOANS TO SISTER CONCERNS- HUGE FUNDS AVAILABLE WITH ASSESSEE WITHOUT ANY INTEREST LIABILITY- NO EVIDENCE THAT BORROWED MONEY UTILISED FOR PURPOSE OF ADVANCE TO SISTER CONCERNS- INTEREST ALLOWABLE. 12. In vies of the aforesaid facts and placing reliance on the aforesaid decisions of Hon. High Courts, we are of the view that no disallowance on account of interest can be made in the hands of the Assessee in the present case. Thus this ground of Assessee is allowed. 13. In the result the appeal of the Assessee is allowed. Now we take Revenue's appeal in ITA No. 675/Ahd/2013 14. During the course of assessment proceedings, Assessing Officer noticed that Assessee has obtained working capital facilities from Bank of Baroda and has paid interest and other financial charges to the tune of Rs. 68.55 lakhs out of the total expenses of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was dealt with in the following manner. That as far as the liability towards bank was concerned, the Learned AR has placed on record certain figures to demonstrate that the said bank liability has gone down in comparison to the last year. That it has also been argued before us that even the notional interest @ 15 % was incorrect because the prevailing rate charged by the Bank was only 11.25% during the year. That the assessee was otherwise having a regular business transactions of purchase and sales with GCL. That the said GCL was the major customer during that year. That it has also been placed on record that the assessee was purchasing certain raw-material from GCL which was its monopoly product. That the vehement contention was that in the like manner the assessee was also enjoying credit facility against purchases made from GCL. That it was not a case of mere purchase and sale as it has happened with other debtors or customers but the business relationship with GCL was on different terms being a holding company and in that capacity GCL has provided specialized services to assessee in the field of manufacturing and marketing. All these facts were narrated to Learned CIT (A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we hereby reverse the said view of the Learned CIT(A) as well. This ground of the assessee is, therefore, allowed." As far as the disallowance with respect to this outstanding dues against Gharda Chemical Limited are concerned, the same is covered vide above decision of Hon. ITAI (Ahd). 15. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. 16. Before us, the learned D.R. relied on the order of Assessing Officer whereas the learned A.R. submitted that the facts of the case in present appeal are identical to that of A.Y. 2001-02. He further submitted that on identical facts, the Hon. Tribunal in Assessee's own case has allowed the appeal of the Assessee for earlier years. He placed on record at page 106 to 155, the copy of the aforesaid order. He thus supported the order of CIT(A). 17. We have heard the rival submissions and perused the material on record. We find that for assessment year 2003-04 in ITA NO. 501/Ahd/2008 and other appeals Revenue had raised the following grounds in appeal before Hon. Tribunal . "1. The learned CIT(A) has erred on facts and in law in directly to rework out the interest disallowance after allowing for 4 months credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it has happened with other debtors or customers but the business relationship with GCL was on different terms being a holding company and in that capacity GCL has provided specialized services to assessee in the field of manufacturing and marketing. All these facts were narrated to ld. CIT(A) through written submissions which were placed before us on page Nos. 138 to 190 of paper-book. From this discussion, it is evident that the assessee-company had a regular business transaction and it was not for any extraneous consideration. In the regular course of business purchases and sales have been made with the said concern and not with the intention to siphon out the borrowed funds. The factum of the case thus demonstrated that the assessee has taken a commercial decision keeping in mind the interest of its business and the other surrounding circumstances under which the assessee was getting facilities. Once it was a proper for the revenue authorities to step in to the shoes of a business man to decide whether such a commercial decision was advantageous or not. Rather, we are of the view that the Assessing Officer has proceeded merely on this presumption that the borrowed funds of Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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