9911796707
TMI Blog2016 (3) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... N. K. Saini, AM: These two appeals by the assessee are directed against the order dated 30.03.2011 and 31.03.2011 of ld. CIT(A)- XVII, New Delhi for the assessment years 2007-08 and 2008-09 respectively. 2. Since the issue involved is common and the appeals were heard together so these are being disposed off by this common order for the sake of convenience and brevity. 3. First we will deal with the appeal for the assessment year 2007-08 in ITA No. 1978/Del/2011. The only effective ground raised in this appeal reads as under: That in the facts and circumstances of the case of the appellant, the order of the learned Commissioner of Income Tax (Appeals) in confirming disallowance of Interest of ₹ 3,63,74,505/- in respect of investment made by the appellant in M/s Abhitex International, Panipat, which was made for business consideration only, hence is altogether arbitrary, against the provisions laid under law, illegal and uncalled for. 4. Facts of the case in brief are that the assessee was engaged in the business of operation and maintenance of Industrial Park which had been built by M/s RMZ Corp Holdings Pvt. Ltd. and was acquired by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 15,00,000 8. ABN Amro Bank Account Twds tfr of funds Ch. No.135610 dated 25.11.2005 1,00,00,000 9. ABN Amro Bank Account Twds tfr of funds Ch. No.298434 dated 31.12.2005 5,00,000 10. ABN Amro Bank Account Twds tfr of funds Ch. No.135613 dated 31.12.2005 35,00,000 11. ABN Amro Bank Account Twds tfr of funds Ch. No.301647 dated 27.02.2006 35,00,000 12. ABN Amro Bank Account Twds tfr of funds Ch. No.135621 dated 16.03.2006 35,00,000 13. ABN Amro Bank Account Twds tfr opf funds Ch. No.135622 dated 16.03.2006 1,25,00,000 14. ABN Amro Bank Account Twds tfr opf funds Ch. No.797817 dated 30.06.2006 3,00,000 Opening Bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of facts and was in violation of legal position on the issue. It was submitted that the borrowing from the bank got reduced from ₹ 136 crores as on 31.03.2006 to 124 crores as on 31.03.2007. It was further submitted that the appellant had non interest bearing funds of ₹ 34,67,15,557/- during the F. Y. 2005-06 and non interest bearing funds of ₹ 31,68,35,3577/- during F. Y. 2006-07 as under: S.N. Particulars F.Y. 2005-06 F.Y. 2006-07 1. Share Capital 45,00,000 45,00,000 2. Reserve Surplus 6,33,13,861 6,47,722 3. Current Liabilities 27,89,01,966 31,16,87,635 TOTAL 34,67,15,557 31,68,35,357 It was submitted that besides the above non interest bearing funds, the appellant had also during F.Y 05- 06 and 06-07 the cash flow funds availability w.r.t. Depreciation of Fixed assets ₹ 12.30 Cr in A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s w.r.t. the said investment and respective withdrawals are contained in the copies of accounts produced. The Paidup capital of M/s. RMZ Futura(now present name as M/s. Paliwal Infrastructure) was ₹ 45 lakhs only as against which the above mentioned five persons of Paliwal Group including two companies invested the amount as stated above i.e. ₹ 86,99.85,000/- which finds place in the respective balance sheets of all the five assessees. Your honour, the paid up share value remained the same as per the balance sheet of the appellant company. (iv) That the amount was made available by M/s Paliwal Infrastructure, the appellant company to M/s. Abhitex international, Panipat was in lieu of commercial expediency only i.e. the management of the company firm belong to same group of family members only and the investment was withdrawn at one stage from said firm only as mentioned in Para(i) above by three partners. (B) Commercial Expediency Your honour, having stated the relevant facts in brief as above and from the statement of relevant accounts it would be amply clear that at one stage amount was withdrawn for acquiring shares by three Individuals i.e. Partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established that there was nexus between the expenditure and the purpose of the business(which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. In view of above it is prayed that disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 39,24,346/- as on 30.03.2007. It is hoped that above information/clarification sought will meet the desired compliance by the appellant. 8. The ld. CIT(A) after considering the submissions of the assessee confirmed the disallowance made by the AO by observing in para 8 of the impugned order as under: 8. I have carefully considered the submissions of the appellant and perused the assessment order. My observations on this issue are as under: (i) I find that the appellant company became partner in Abhitex International during the year to the extent of 12% share in profit. It contributed ₹ 45,81,77,955/- as share capital in the said firm, out of which ₹ 5,34,00,000/- were withdrawn during the year. The said contribution was made out of borrowed funds from the ABN Amro Bank. The AO disallowed the proportionate interest of ₹ 3,63,73,505/-payable to the said bank against the aforesaid borrowed funds. The AO further observed that it was a diversion of funds to the group concern without having any business purpose. (ii) The Ld. AR emphasized that it was not a case of diversion of borrowed funds but it was investment as capital in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated above. 9. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee borrowed the funds from the bank and lent some of it to its associate concern as capital contribution for becoming the business partner. Therefore, the test was to be applied whether this was done as a measure of commercial expediency and if it was so, the interest should have been allowed. It was further stated that the assessee alongwith its shareholders held 88% share in M/s Abhitex International and the balance 12% had been held by the daughters of the Promoters of the assessee company, hence, the assessee company and the firm are under the same management. It was contended that the intention of the assessee was not to reduce incidence of Income Tax by doing so, because the profits of the Industrial Park are eligible for 100% deduction under clause (iii) of sub-section (4) of Section 80IA of the Act, whereas its associate concern s profits are fully taxable. It was further contended that even if the addition has been made it will not attract any tax incidence because the claim of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified. The reliance was placed on the judgment of the Hon ble Supreme Court in the case of Hero Cycles (P) Ltd. Vs CIT (Central), Ludhiana (2015) 43 SCD 134 (copy of the said order was furnished which is placed on the record). 12. The reliance was also placed on the decision of the Hon ble Jurisdictional High Court in the case of CIT Vs Dalmia Cement (B.) Ltd. reported at 254 ITR 377. It was emphasized that interest free funds were available with the assessee company which were used as a contribution of capital in the partnership firm. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) on account of notional interest was not justified. The reliance was placed on the following case laws: CIT (Central), Ludhiana Vs Rockman Cycle Industries (P.) Ltd. 238 CTR 363 Commissioner of Income-tax vs. Excel Industries Ltd. 358 ITR 295 13. In her rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observations made by the ld. CIT(A) in the impugned order. She further submitted that the assessee earned share profits of ₹ 31,24,346/- from M/s Abhitex International being partner and such profit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be said that whole of the investment amounting to ₹ 40,87,02,301/- was out of the borrowed funds. Therefore, the ld. CIT(A) was not justified in confirming the action of the AO for making the disallowance by presuming that the interest @ 8.9% amounting to ₹ 3,63,73,505/- was to be paid by the assessee on the amount contributed as a partner s capital in the firm M/s Abhitex International. In the present case, whatever interest bearing funds were raised by the assessee from the AB Ambro Bank were utilized in the business for the business purposes and even the investment in partnership firm M/s Abhitex International was made for business exigency. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified as the interest paid by the assessee, if any, on the funds raised for business purpose was allowable u/s 36(1)(iii) of the Act. On a similar issue the Hon ble Jurisdictional High Court in the case of CIT Vs Dalmia Cement (B.) Ltd. (supra) held as under: Under Section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. 28. Thus, the ratio of Madhav Prasad Jatia's case [1979 (118) ITR 200 (SC)] is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under section 36(1)(iii) of the Act. 29. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court that the expression for the purpose of business is wider in scope than the expression for the purpose of earning profits vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc. In the process, the Court also agreed that the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany made the contribution in the partnership firm M/s Abhitex International wherein it was having 12% share. The amount was invested keeping in view the business expediency as the group to which the assessee belonged acquire the entire share holdings of RMZ Corporation Holdings Pvt. Ltd., so it was not a case of divertion of borrowed fund, rather it was investment as a capital in the firm M/s Abhitex International for the business purposes and in the light of commercial expediency. Therefore, by keeping in view the ratio laid down of the Hon ble Jurisdictional High Court and the Hon ble Apex Court in the aforesaid referred to cases, we are of the view that the disallowance of interest made by the AO and sustained by the ld. CIT(A) was not justified. In that view of the matter the impugned disallowance is deleted. 17. In ITA No. 1979/Del/2011 for the assessment year 2008-09, the facts are identical as were involved in ITA No. 1978/Del/2011 for the assessment year 2007-08, the only difference is in the figure of the disallowance made by the AO and sustained by the ld. CIT(A). Therefore, our findings given in former part of this order shall apply Mutatis Mutandis for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
