9911796707
TMI Blog2015 (1) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... by keeping view the principles of consistency. In the present case also the assessee made the investment in share application money for a sum of 4,25,00,000/- whereas the Share Capital alongwith Reserve 5,60,39,195/-(Rs. 2,25,00,000/- + 3,65,39,195/-) which clearly established that interest-free funds available with the assessee were more than the investments made in share application money. Therefore, the disallowance made by the AO on account of notional interest was not justified and the ld. CIT(A) arbitrarily confirmed the same. We, therefore, delete the disallowance made by the AO and sustained by the ld. CIT(A). - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of ₹ 4,34,54,162/- to various parties which included an amount of ₹ 4,25,00,000/- given to M/s Sarvesh Coal Tech Pvt. Ltd. as share application money. He further observed that the assessee had not explained how this amount, given or invested as share application money related to assessee's business and how interest paid on this amount qualified as deduction under the Act. According to him the assessee had borrowed fund from various parties and had paid huge amount of interest on those loans. However, the money was invested as share application money in M/s Sarvesh Coal Tech Pvt. Ltd. without any business need and without producing any return. The AO reproduced the source of fund and utilization of the funds as under: Source of Fund Amount (Rs.) Utilization of Fund Amount (Rs.) Share Capital 2,25,00,000 Investment in Shares 5,71,00,000 Reserve and surplus 3,65,39,195 Share Application money given 4,25,00,000 Unsecured loan 5,00,00,000 Total 10,90,39,195 9,96,00,000 7. From the above chart the AO concluded that the assessee was having ₹ 5,00,00,000/- interest bearing borrowed funds and had given ₹ 4,25,00,000/- as share application money which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. It was also contended that the assessee had given another Inter Corporate Deposits of ₹ 70,00,000/- in January 2006 to M/s ACBPL out of refund of M/s AEPL for ₹ 50,00,000/- and the assessee earned interest income of ₹ 27,92,023/- on Inter Corporate Deposits given during the Financial Year 2005-06 and paid interest of ₹ 15,81,288/- on unsecured loan taken. 9. It was stated that the assessee company was pursuing its finance and investment activities by giving loans and advances/inter corporate deposits and investing in share capital/capital application money. It was further stated that the assessee company received back Inter Corporate Deposits of ₹ 5,90,00,000/- from M/s ACBPL during February and March 2006 and invested ₹ 4,00,00,000/- in share application money of M/s Sarvesh Coal Tech Pvt. Ltd. as per following details: 28.02.2006 - ₹ 1,00,00,000/- 27.03.2006 - ₹ 1,00,00,000/- 29.03.2006 - ₹ 1,00,00,000/- 31.03.2006 - ₹ 1,00,00,000/- Total: ₹ 4,00,00,000/-(Outstanding as on 31.03.2006) It was also stated that the assessee company had invested ₹ 25,00,000/- in share application money of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a decision which is normally entrusted by the shareholders of the Company to its faithful management who take the decisions depending upon the financial needs, aspirations, goals or objects set for the company. Hence, we find that the Ld. AO has erred in holding that "money was invested as Share Application Money in M/s Sarvesh Coal Tech Pvt. Ltd. without any business need and without producing any return". It is general practice in the industry that in some cases interest is paid by the receiver of Share Application Money in case there is any specific clause in an agreement (if entered) between payer and receiver of funds in this regard. Hence if any such interest would have accrued to the Assessee Company during the year that would have been chargeable as Business Income and interest expenditure made for borrowed capital in this regard will be allowed as business income. So if no income has accrued, is that mean that transaction was for non business purposes? It seems to be that returned Loss for the year under assessment has tempted the Ld. AO to think about this aspect from the angle of yield. The Ld. AO has failed to appreciate the purpose and language worded for Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made before the authorities below and further submitted that the assessee company is a Non-Banking Financial Institute and the interest bearing loans were received in the preceding year which were also used in the earlier year but no disallowance was made while framing the assessment u/s 143(3) of the Act. The ld. Counsel for the assessee drew our attention towards copy of assessment order dated 28.11.2008 for the assessment year 2006-07 wherein the returned income of the assessee was accepted. The reliance was also placed on the judgment of the Hon'ble Karnataka High Court in the case of CIT Vs Sridev Enterprises (1991) 192 ITR 165 (KAR). It was further stated that since the assessee was in the business of Financing so giving of loan was its business activity and the ld. CIT(A) had given a wrong finding that the provisions of section 14A of the Act were applicable. It was also stated that the provisions contained in Rule 8D of the I.T. Rules, 1962 were not applicable because those have been inserted w.e.f assessment year 2008-09 while the case under consideration relates to the assessment year 2007-08. It was further stated that the AO himself admitted in the details of source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 Total 10,90,39,195 9,96,00,000 15. From the above chart it is clear that the assessee was having Share Capital and Reserves & Surplus amounting to ₹ 5,90,39,195/- and the share application money given was of ₹ 4,25,00,000/- which clearly shows that the interest free funds available with the assessee were more than the amount given for share application money. In the present case it is an admitted fact that the assessee was a Non-Banking Finance Company and was engaged in the business of providing loans and advances and Inter Corporate Deposits. This fact has been admitted by the AO in para 2 of the assessment order dated 30.11.2009. In the year under consideration the assessee received interest bearing unsecured loans of ₹ 5,00,00,000/- while the investment in shares was of ₹ 5,71,00,000/-. In other words the amount received through unsecured loan was utilized in making the investment in shares which is a part of the business activity of the assessee as provided in its Memorandum of Association and Articles of Association. In the instant case the assessee received the unsecured loans in the preceding year and not in the year under consideration. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said amounts advanced during the previous year would result in a contradictory finding; it will not be equitable to permit the Revenue to take a different stand now in respect of the amounts which were the subject-matter of previous years' assessments; consistency and definiteness of approach by the Revenue is necessary in the matter of recognizing the nature of an account maintained by the assessee so that the basis of a concluded assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the Revenue as a good debt in a particular year cannot subsequently be held by it to have become bad prior to that year." 16. Therefore, by keeping in view the ratio laid down in the aforesaid referred to case no disallowance was called for in the hands of the assessee for the year under consideration. 17. On a similar issue the Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd. (2009) 313 ITR 340 has held that: "If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee raised a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
