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TMI Blog2014 (6) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case, the AO was right in charging interest on the monies given by it as advances. 3. The Ld. CIT(A)-VII, Hyderabad ought to have appreciated the fact that the assessee company has neither written off the advances nor has made any provision for doubtful debts even in subsequent years. Also, the assessee company has approached judicature for justification of their claim of having advanced the monies along with interest (termed by the company as "Damages") from the recipient company i.e. M/s. SCSL which has merely placed these amounts under "Suspense" - without denying having received these monies by it. 4. The facts, in brief, are that the assessee company is one of the 37 companies which was under the control of Sri B Ramalinga Raju and his family members and had transactions with M/s. Satyam Computer Services Ltd. (for short SCSL). Sri B Ramalinga Raju was the erstwhile Chairman of M/s. SCSL. On 7th January, 2009, Sri B. Ramalinga Raju, lifted the veil of secrecy on the affairs of the company M/s. SCSL and made a confessional statement addressed to the Board of Directors of the Co., M/s. SCSL. The same was marked to various authorities like SEBI and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .25 19 Kolar Green Fields Pvt Ltd 36.23 0.00 36.23 0.00 36.23 20 Atreyee Agro Farms Pvt Ltd 30.00 5.00 35.00 0.00 35.00 21 Dhatu Agro Farms Pvt Ltd 30.00 5.00 35.00 0.00 35.00 22 Hakra Agro Farms Pvt Ltd 30.00 10.00 40.00 0.00 40.00 23 Bahudhanya Agro Farms Pvt Ltd 30.00 10.00 40.00 0.00 40.00 24 Manaslu Agro Farms Pvt Ltd 32.00 8.00 40.00 0.00 40.00 25 Trishul Green Fields Pvt Ltd 33.00 7.00 40.00 0.00 40.00 26 Kanigiri Agro Farms Pvt Ltd 30.00 10.00 40.00 8.00 32.00 27 Pingala Agro Farms Pvt Ltd 20.00 17.00 37.00 25.00 12.00 28 Bilgiri Agro Farms Pvt Ltd 25.00 15;00 40.00 15.00 25.00 29 Kalindi Green Fields Pvt Ltd 20.00 20.00 40.00 24.50 15.50 30 Panchakalyani Agro Farms Pvt Ltd. 0.00 47.90 47.90 22.65 25.25 31 Panchamukhi Agro Pvt Ltd 0.00 45.20 45.20 19.66 25.54 32 Parvatagiri Agro Farms Pvt Ltd 0.00 42.90 42.90 20.82 22.08 33 Saptaswara Agro Farms Pvt Ltd 0.00 35.00 35.00 15.25 19.75 34 Ekadanta Green Fields Pvt Ltd 0.00 36.50 36.50 17.92 18.58 35 Giriputra Green Fields Pvt Ltd 0.00 36.50 36.50 17.85 18.65 36 Aranya Agro Farms Pvt Ltd 0.00 14.50 14.50 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Chairman of M/s. SCSL Shri Ramalinga Raju, in his letter dated 78th January, 2009 has stated that the Balance Sheet of the M/s. SCSL as on September 30, 2008 carried an interest liability of Rs. 12,304 Millions, on account of the funds arranged by him. On January 8, 2009, the said company, M/s. SCSL, received letters from 37 companies, including the four assessees herein, requesting confirmation by way of acknowledgement of the alleged amounts received as alleged advances. All these letters were followed by legal notices from these companies dated 4th/5th August, 2009. 8. It was submitted that the M/s.SCSL has not acknowledged any of its liability to any of the 37 companies and has replied to the legal notices stating that the claims are legally untenable and that the Enforcement Directorate is investigating the matter under the Prevention of Money Laundering Act of 2002 and directed the companies to furnish details with regard to the alleged advances and has further directed the companies not to return the alleged advances until further instructions from the Enforcement Directorate. It was further submitted that the assessees herein have filed suits for recovery of advances be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat once it is proved that the advances have been made by the assessee companies to M/s.SCSL, the companies following the mercantile system of accounting, ought to have accounted for the interest income in their books of account for the relevant accounting year. He submitted that the CIT(A) has erroneously held that the interest income is to be brought to tax in the year in which the City Civil Court decides the matter and pronounces its order with regard to rate of interest on the suit amount. He submitted that the income of the relevant assessment year has to be brought to tax in that year only. He submitted that the income or liability cannot be preponed or postponed to another assessment year. Thus, according to him, the order of the CIT(A) in the case of the assessees is erroneous and has to be set aside and the assessment orders on this issue have to be restored. 12. The learned counsel for the assessee, Shri Devdas, on the other hand, supported the orders of the CIT(A) and submitted that the important factor to be considered is that the company, M/s.SCSL, has denied its liability to pay any amounts to the assessee companies, and therefore, there is no certainty of recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that the assessee companies have any right to receive such amounts of interest or that the interest income has accrued to the assessees. 14. Let us know examine the legal principles governing such issues- 1. The Hon'ble Supreme Court in the case of CIT V/s. Walchand & Co. P. Ltd. (65 ITR 381), while considering the provisions of S.10(2)(xv) and S.33(iv) of the Indian Income-tax Act, 1922, has held that in applying the test of commercial expediency or determining whether an expenditure was wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. 2. The Hon'ble Bombay high Court in the case of CIT V/s. Reliance Utilities and Power Ltd. (313 ITR 340) held that if there were funds available both interest free and overdraft and /or loans taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the assessee, if interest free funds would be sufficient to make the investments. 3. The Hon'ble Gujarat High Court in the case of Highwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract between the parties for charging of interest on the funds advanced, the notional interest income cannot be brought to tax. 16. 14. Applying these principles to the facts of the cases before us, we find that the assessees have stated before the CIT(A) that the amounts advanced are from out of the share application monies and temporary advances. It is so stated on the basis of entries in the Balance Sheet and the Profit & Loss Accounts of the respective assessees filed along with their returns of income. In the absence of any contract between the assessee companies and M/s. SCSL for charging of interest on the advances, the assessees are not entitled to receive any interest income on such advances. Therefore, merely because the assessee is following mercantile is system of accounting, it cannot be said that the interest has accrued to the assessees. Further, merely because the assessees have claimed interest at the rate of 18% per annum in the suits filed for recovery of advances, it cannot be said that the said rate of interest is applicable as M/s. SCSL has not admitted the liability of even the amounts of advance. As such, we find that there is no certainty with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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