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TMI Blog2015 (2) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in our considered view, the CIT(A) was not justified in deleting the disallowance made by the AO. We, therefore, set aside the order of the CIT(A) in respect of the issue under consideration and restore back the order of the AO. - Decided in favour of revenue. Disallowance of interest on interest free loans / advances given by the assessee to its subsidiaries and associate concerns - Held that:- AO has disallowed interest expenditure on advances given to the sister concern on the ground that the borrowed funds were utilized for business purpose by the assessee by advancing the interest free advance to the sister concerns. On appeal the CIT(A) had deleted the disallowance by following his order for Asstt.Year 2007-08. We find that the order of the CIT(A) for Asstt.Year 1997-98 was appealed by the Revenue, and the Tribunal confirmed the order of the CIT(A) deleting the disallowance of interest expenditure. No distinguishing features could be pointed out by the DR. It is also observed that in the years under appeal also, advances were given to the same parties. Thus, the facts being identical, respectfully following the precedents, we confirm the order of the CIT(A), and the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming part of the return of income. The AO did not allow the deduction in the assessment by observing as under: "3.7 I have carefully considered the facts of the case as well as the submission of the assessee Company. First of all the assessee Company has made provision of the loss during the year under consideration and provisions of loss/expenses are not allowable. The expenses can be allowed only on the basis of actual payment. As per the submission of the assessee Company it had paid the amount of ₹ 3,50,00,000/- directly to the GMDC by installment of ₹ 50 lakhs each in May 1999, August 1999, November 1999, February 1999, May 2000, August 2000 and November 2000. The payment was made in the F.Y. 1999-2000 and 2000-01. As directed by the Hon'ble ITAT, in the order in ITA No. 832 to 834/And/1998 dated 31.03.2000 for the A.Y. 1992-93 to 1994-95 and held that the loss did not occurs in the period of accounts. The assessee itself has claimed in its alternative submission that loss be allowed as a deduction in the year in which the accounts are finally settled with the liquidator and final payment is received. 3.8 In the reply the assessee company has simply submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d undertaking to the GMDC on behalf of GNAL. GNAL, wholly owned subsidiary of the appellant company, was declared sick and was ordered on 02-08-1995 to be wound by Gujarat High Court. Accordingly, GMDC had filed civil suit against the appellant in the civil court of Ahmedabad being the guarantor for recovery of dues along with interest. It was also submitted that to amicably settle the dues, a joint meeting of GMDC with GNFC was held on 3rd March 1997 under the chairmanship of Principal Secretary, Energy & Petrochemical Dep't, Government of Gujarat which was attended by Addl. Chief Secretary, Industries, MD, GMDC and MD, GNFC. It was finally decided in the meeting that GNFC should make payment of ₹ 3.50 crores towards full and final settlement of dues to GMDC and repayment should be made in installments. It was also decided that in view of settlement, the suit filed by the GMDC also to be withdrawn. The Board of Directors of both the companies ratified the decision taken in the aforesaid meeting under the chairmanship of the Principal Secretary and therefore full and final settlement with GMDC can be said to have taken place during the year. To reduce the interest burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of provision. The CIT(A) also held that the facts of the judgment relied upon by the assessee in the case of CIT Vs. Amalgamations Pvt. Ltd., (1997) 226 ITR 188 (SC) are different from the facts of the assessee. 8. Assessee, being aggrieved, filed appeal before the Tribunal. The assessee submitted that diversification steps taken in June, 1986 were taken in right direction and it was expected that the assessee would realize substantial profits in the years to come, in view of high profit margin of various private sector companies engaged in manufacturing of two three wheelers. However, on account of various constraints, viz. change in market conditions, resistance in the minds of customers against "Girnar" scooters, inefficiency of work-force inherited from government owned corporations and other reasons, GNAL suffered heavy losses. The assessee made all efforts to ensure that GNAL comes to the expectation and start making profit. With the above object in view, the assessee contributed funds to see that GNAL survived and revived so that the investment is saved and safeguarded. However, the above could not be achieved and hopes to recover amount advanced to the subsidiary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss under Section 28(4) of the I.T.Act. The relevant questions which are required to be considered are whether the loss has arisen in the course of business, and if so, in what year it has arisen. For determining whether the loss, if any, is a deductible loss, Articles and Memorandum of the company must be seen, and more particularly, whether advancement of loan to subsidiaries is one purpose of the company. It is also to be ruled out that loss, if any suffered, is not a capital loss. During the course of hearing, attention was not drawn to all relevant material necessary for the determination of the issue. The other question as to when this loss accrued and is to be allowed is easier to answer. Accounting period of the assessee for the relevant Asstt.Year 1994-95 ended on 31-3-1994. The order of BIFR declaring GNAL fit for winding up and that of the Hon'ble Gujarat High Court approving above scheme of winding up and appointment of Official Liquidator taking over the assets of the company in liquidation came much later. In other words, all the above events occurred much after 31st March, 1994. Therefore, the loss did not accrue in the period of accounting. The assessee itself has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that to amicably settle the dues, a joint meeting of GMDC with GNFC was held on 3.3.1997 wherein it was finally decided that GNFC should make payment of ₹ 3.50 crores towards full and final settlement of dues to GMDC and repayment should be made in instalments. It was also decided that in view of settlement, the suit filed by the GMDC also to be withdrawn. The Board of Directors of both the companies ratified the decision taken in the aforesaid meeting under the Chairmanship of the Principal Secretary, Govt. of Gujarat and therefore, full and final settlement with GMDC can be said to have taken place during the year. In order to reduce the interest burden, the assessee being the sole guarantor had paid the principal liability of ₹ 3.5 crores. The CIT(A) held that assessee has finally arrived at the settlement during the year under consideration, and considering the facts of the case and following the direction of the Tribunal and the decision of the CIT Vs. Amalgamations Pvt. Ltd. (supra) directed the AO to allow all the claims of the assessee. 14. Being aggrieved the Revenue is in appeal before us. 15. The DR relied on the findings of the AO, whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company and GMDC took place. 18. We find that even if the version of the CIT(A) taken as correct, then also, the loss being crystallized on 3.3.1997, the same was in the Asstt.Year 1997-98 and not during the assessment year under consideration i.e. Asstt.Year 1998-99. Therefore, the CIT(A) was not justified in deleting the disallowance on the above count. Further, no material was brought on before us to show that the assessee's liability to make payment of ₹ 3.50 crores was crystallized during the under consideration and that no part of the payments were also made during the year under consideration. Therefore, in our considered view, the CIT(A) was not justified in deleting the disallowance made by the AO. We, therefore, set aside the order of the CIT(A) in respect of the issue under consideration and restore back the order of the AO. 19. Common ground of appeal raised by the assessee in ground no.2 in A.Y.1998-99 and sole ground of appeal in the Asstt.Years 1999-2000 and 2000-2001 is as under: "2(i). On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of [Rs. 8,74,18,857/- for A.Y.1998-99, ₹ 8,32,03,857/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the Tribunal has deleted the disallowance from out of interest expenditure by observing as under: "39. Now, we take up the Departmental appeal in ITA no.1373/Ahd/2007 for AY 2003-04. In Ground no.1, the brief facts are that the AO disallowed the interest of ₹ 8,00,14,405/- claimed u/s 36(1)(iii) of the Act on the ground that the borrowings were utilized for non-business purpose. 40. The learned CIT(A) vide para 5.3 of his order allowed the claim of the assessee since the assessee had been allowed in earlier years the claim on identical matters and therefore it is a covered matter. 41. We have heard the rival contentions and perused the facts of the case. We concur with the views of the learned CIT(A) and the decision of the Tribunal Ahmedabad Bench in assessee's own case for AY 1995-96 as referred to in the order of the learned CIT(A) vide para 5.2.3 and therefore we find no infirmity in the order of the learned CIT(A). Thus, Ground no.1 of the Revenue's appeal is dismissed." 23. He further submitted that the Tribunal vide order dated 5.8.2014 in the case of assessee in ITA No.1416 & 1696/Ahd/2010 for A.Y.2007- 08 again deleted the disallowance on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) had deleted the disallowance by following his order for Asstt.Year 2007-08. We find that the order of the CIT(A) for Asstt.Year 1997-98 was appealed by the Revenue, and the Tribunal confirmed the order of the CIT(A) deleting the disallowance of interest expenditure. No distinguishing features could be pointed out by the DR. It is also observed that in the years under appeal also, advances were given to the same parties. Thus, the facts being identical, respectfully following the precedents, we confirm the order of the CIT(A), and the grounds of the appeal of the Revenue in all the years under appeal are dismissed. 27. Now, we adjudicate the Cross Objection of the assessee. Cross Objection No.125/Ahd/2013 in ITA No.1986/Ahd/2010 : Asstt.Year 1998-99 28. In the Cross Objection filed by the assessee for Asstt.Year 1998- 99, the assessee has taken the following sole ground of Cross Objection: "1. In the facts and circumstances of the case, if it is held in Department's appeal no.1986/A/2010 that the amount of ₹ 3.50 crores being provisions for payment made to Gujarat Mineral Development Corporation Ltd. (GMDC) in respect of amount advanced by them to Gujarat Narmada Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee-company to GMDC is allowable as deduction to the assessee-company in the year of payment, we do not find any force in the Cross Objection of the assessee. Therefore, the Cross Objection filed by the assessee is dismissed. Cross Objection No.126/Ahd/2013 in ITA No.1988/Ahd/2010 : Asstt.Year 2000-01 32. In the Cross Objection filed by the assessee for Asstt.Year 2000- 01, the assessee has taken the following sole ground of Cross Objection: "1. In the facts and circumstances of the case, if it is held in Department's appeal no.1986/A/2010 for A.Y.1998-99, hearing of which has been fixed along with the present appeal, that the provision made for ₹ 3.50 crores in respect of payment made to Gujarat Mineral Development Corporation Ltd. (GMDC) for the amount advanced by them to Gujarat Narmada Valley Auto Ltd. (GNAL) is allowable in the year of payment, the same may please be directed to be allowed as deduction from the profit of A.Y.2000-01, as the payment has been made in the previous year relevant to A.Y.2000-01. It is submitted that it be so held now." 33. Cross Objection filed by the assessee is barred by limitation of 995 days. The assessee has filed condonat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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