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TMI Blog2015 (6) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion M/s Prayag Enterprises Ltd. may have continued its relationship with the assessee in the course of business of the assessee, but there should be a valid reason and expectation that the amount advanced is for the purpose of the business and the recipient is expected to carry out some specific activities to improve the business of the assessee. In the present case it has been stated that the assessee expected to expand the market reach. It was further stated that the assessee was looking out for fresh acquisition of additional manufacturing facility. The assessee has not explained elaborately as to how Prayag Enterprises Ltd. is expected to expand its market reach and also not brought out any details of specific direct companies which have been identified in connection with fresh acquisition. Hence, a mere statement that advances have been made for these purposes cannot be accepted. Further examination as to the specific services expected to be done either for expanding the market reach or for making fresh acquisition do not appear to have been made by the lower authorities. In SA Builders [2002 (6) TMI 162 - ITAT CHANDIGARH-A],it has been held that the borrowed funds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res cannot be said to have any connection to the existing business relationship with the assessee and the Assessing Officer stated that it is difficult to believe existence of business prudency especially when huge amount of ₹ 43.60 Crores of interest bearing borrowed funds are given as interest free trade advance. 3. Before the CIT (A), it was submitted by the assessee as follows: Trade advance of ₹ 43.60 Crores to M/s. Prayag Enterprises Limited: M/s. Prayag Enterprises P. Ltd., is the delcredere agent for the assessee and other distilleries in Andhra Pradesh bottling the brands of United Spirits Limited (USL). This advance had been given to enable M/s. Prayag Enterprises Ltd., to strengthen its marketing and distribution net work in the state of Andhra Pradesh and also to scout for acquisition of distilleries in the name of the assessee. In view of the fact that the assessee already has business relationship with M/s. Prayag and also due to the close proximity of M/s. Prayag to the USL top brass (the assessee's principles) it is submitted that the advance of ₹ 43.60 Crores to M/s. Prayag has been made only during the course of assessee's business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount as advance which could be used immediately if an attractive opportunity arises. g) The Assessing Officer accepted the appellant's submission that the advances to M/s. Pearl Distilleries P. Ltd., and M/s. Diadem Enterprises P. Ltd., were made during the course of and for the purpose of the appellant's business. As per section 36(1)(iii) of the Income Tax Act, 'the amount of interest paid in respect of capital borrowed for the purpose of business or profession' has to be allowed as deduction. In the preceding paragraph the appellant has unambiguously demonstrated as to how the amount paid to PRAYAG is relevant for its business. The decision of the Hon'ble Supreme Court in S.A. Builders Vs. CIT(A) [288 ITR 1] perfectly fits to the facts of the appellant's case. 5. The CIT (A) held as under: I have considered the submissions made by the appellant, gone through the order of the Assessing Officer and also citation relied on by the appellant. It is seen from the records that the appellant-company is engaged in manufacture of Indian Made liquor. It is also seen from the records that Prayag Enterprises Ltd., has been rendering services to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the services rendered by PRAYAG, which could not be presented before the Assessing Officer in the shape that might have impressed him. Nonetheless, it is a fact that PRAYAG has been helping the appellant in marketing its products for the last many years. Now, in as much as the new job given to PRAYAG by the appellant is concerned also, there is no dispute. There is also no dispute that part of the term loan has been given to PRAYAG for the new job assigned. Now, it appears that the Assessing Officer was not satisfied with the job done by the PRAYAG and as such not allowed the interest on term loan proportionately. A moot question that arises here is that who has to be satisfied with the job of PRAYAG, whether it is the appellant or the Assessing Officer? The answer is the appellant. In case, the Assessing Officer is not satisfied, then what has to be the consequence? The answer is no consequence, because, it is for the appellant to decide but not the Assessing Officer. As per the appellant, the services rendered so far are satisfactory; hence no interference should be tolerated from the Assessing Officer, without assigning cogent reasons. Since, no reasons were assigned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Prayag Enterprises Ltd has lot of clout and influence among the IML manufacturers in the State of Andhra Pradesh and the assessee had intended to strengthen its market reach and also enhance its manufacturing capacity. The assessee approached M/s Prayag Enterprises Ltd with a mandate to look for acquisitions on behalf of the assessee. It was stated that M/s Prayag Enterprises agreed to undertake the assignment provided it is given certain amount as advance which could be used immediately if an attractive opportunity arises. 9. We find that the company has borrowed a total of ₹ 130.00 crores out of which ₹ 57.42 crores was paid to M/s Pearl Distilleries Ltd; ₹ 22 crores to M/s. Diadem Enterprises P Ltd and ₹ 43.60 crores to M/s Prayag. While the AO found that the loans to M/s Pearl Distilleries Ltd and M/s Diadem Enterprises (P) Ltd were for the purpose of business, the AO did not find any direct discernible reason for granting the advance to M/s Prayag Enterprises Ltd. The AO held that the reasons for advance as explained by the assessee is very vague and does not justify the claim of the assessee that it is for the business purposes. The AO also held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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