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TMI Blog2015 (9) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in law in holding that the interest of Rs. 54,63,630/- is allowable following similar judgment of the CIT(A) in earlier years. The department's appeals for earlier years for similar disallowance are pending before the ITAT. 2. Brief facts of the case are that the assessee-Company, in the relevant assessment year, was engaged in the business of manufacturing of wagons, textile machineries and other engineering items, etc. The assessee was also engaged in textiles business. The Assessing Officer noticed that during the year, following three Companies merged with the assessee-company:- (i) Evershine Merchants Pvt. Ltd., (ii) Neora Hydro Limited, (iii) Shree Export House Limited. The assessee-company had filed its return of income declaring total income of Rs. 90,20,47,840/-. The assessment was completed at the total income of Rs. 97,00,52,907/-, inter alia, making addition of Rs. 54,63,630/- in respect of interest on advances to M/s. Neora Hydro Limited and disallowance of set off of accumulated business loss of amalgamating Company M/s. Neora Hydro Limited under section 72A of the Income Tax Act, 1961. Ld. CIT(Appeals) while partly allowing the assessee's appeal del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT -vs.- Gujarat NRE Coke Limited in ITA No. 2138/KOL/2007 held that the assessee had started office work in 1999-2000 and had been obtaining approvals from various Government Departments for starting the ultimate business of power production. He observed that from the audited accounts for the year ended 31.03.2004, in the Directors' report, detailed discussions were there about placement of orders, import of machineries and installation of the same and various steps taken in the process of establishing the Unit. He further pointed out that similarly, details were mentioned in the accounts for the subsequent years. Ld. CIT(Appeals) following the order of Tribunal held that the assessee was engaged in the business for more than three years. 5. Ld. Departmental Representative for the Revenue submitted that merely certain steps were taken towards business does not imply that the assessee was engaged in the business. 6. Ld. Sr. Counsel filed before us a list wherein it shows that M/s. Neora Hydro limited entered into a settling agreement with Texmaco Limited for supplying Texmaco Limited 7 to 9 million units of electricity annually. The Government of West Bengal through its State El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infully refer to the provision of Section 72A(2) of the Act as under: "[(2) Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless - (a) The amalgamating company - (i) Has been engaged in the business, in which the accumulated loss occurred or depreciation remains unabsorbed, for three or more years; (ii) Has held continuously as on the date of the amalgamation at least three-fourths of the book value of fixed assets held by it two years prior to the date of amalgamation ; (b) The amalgamated company - (i) Holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation; (ii) Continues the business of the amalgamating company for a minimum period of five years from the date of amalgamation; (iii) Fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the Revenue stands dismissed. 9. Brief facts apropos Ground No. 2 are that the Assessing Officer noticed that upto 01.08.2007, Neora Hydro Limited was an independent Company to whom assessee had advanced total sum of Rs. 13.94 crores without charging interest. He observed that the interest-free advance had been given from Cash Credit Account on which interest had been paid by the assessee. He, therefore, disallowed a sum of Rs. 54,63,630/- out of interest paid on Cash Credit Account in respect of interest-free advances to Neora Hydro Limited. 10. Ld. CIT(Appeals) deleted the addition following the decision of the Hon'ble Jurisdictional High Court in the case of CIT -vs.- Britania Industries Limited reported in 280 ITR 525 and in the case of J.K. Industries -vs.- CIT, wherein it has been held that assessee may give interest-free advances to its sister concern wherever the expenditure was made from the mixed account and the assessee had sufficient funds of its own to advance money out of that to the sister concern. He pointed out that the assessee had 50% share in the sister concern which amalgamated with Group Company later on. There was a business interest of supply of el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest-free advances were given for the purpose of business ignoring the fact that the condition as laid down under the provision of section 36(1)(iii) of the Income-tax Act were not fulfilled?" Conclusion: From the above discussion, we find in relation to each assessment years involved in this appeal that the recipient of interest-free loan was no a firm of relatives; the advance was made for the purpose of business within the meaning of section 36(1)(iii); that there was regular course of business between the assessee and the firm; and that the advances were made to MCAP in the regular course of business; such advances were made in the course of business for commercial expedience and for the purpose of business; the findings arrived at by the learned Tribunal were not perverse; the entire expenditure was made from the mixed account' therefore, there would be a presumption that the amount was made out of the own fund of the assessee and not from, the borrowed capital; that there were sufficient funds and that the advances were made from the mixed account. Therefore, the Commissioner (Appeals) and the learned Tribunal both were right in presuming that the advance was made out f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it after providing for taxation and dividend amounted to Rs. 30.37 crore and the said interest-free loans of Rs. 87.30 crore were given out of the said internal accruals of the appellant. Thus, it should be presumed that the subsidiaries were paid out of the profit of the assessee which is far in excess of the amount of subsidiaries and there was no justification of adding a sum of Rs. 27,200/- as approved by the Tribunal. We, therefore, set aside the order of the Tribunal and direct the Assessing Officer not to deduct any amount from expenditu9re on the ground that interest-free loan was given to is sister concerns from the borrowed fund when the profit was far in excess and entire deposits were made in the said account and at the same time disallowance of foreign travel expenditure of the spouse of the appellant's Managing Director who accompanied her husband on business visits amounting to Rs. 7,44,549/- is also set aside. The appeal is, thus, allowed by answering both the points formulated in this appeal in the negative and against the Revenue." 9. Even Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Powers Ltd. (2009) 313 ITR 340 (Bom.), wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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