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TMI Blog2017 (3) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business. The assessee has significant interest in the business of subsidiaries, as these subsidiaries are in same business as that of assessee. It is further noted that major portion of the amounts were invested in the earlier years. No disallowance has been made in assessment year 2007-08 or earlier. Thus, keeping in view, the legal position as discussed above and facts of this case, it can be said that amount invested in the subsidiaries company was arising out of commercial expediency and was thus for the purpose of business of the assessee. Therefore, we reverse the decision of the ld. Commissioner of Income Tax (Appeals) and allow the appeal of the assessee Since, the addition on the basis of which the penalty was levied has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty of ₹ 2,25,60,040/- holding that the assessee has furnished inaccurate particulars of income and has committed a clear default within the meaning of section 271(1)(c) read with explanation (1) to section 271(1)(c) of the Act, thereby suppressing its real income by ₹ 6,63,78,465/-. In appeal the Ld. CIT(A) confirmed the penalty order. The assessee has challenged the impugned order by raising the following grounds of appeal:- 1. The Ld. CIT(A) erred in law and facts in upholding levy of penalty of ₹ 2,25,62,040/- u/s 271(1)(c) of the Act in respect of disallowance of interest of ₹ 6,63,78,465/- u/s 36(1)(iii) of the Act. The reasons given by him for doing so are wrong, contrary to the facts of the case and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency has been deleted by the co-ordinate Bench vide order dated 03/02/2016 holding as under:- 2.8. For making a disallowance u/s 36(1)(iii) of the Act essentially, there has to be a finding that the borrowed money were utilized for non-business purposes. As was held in CIT vs Hotel Savera 148 CTR (Mad.) 585 ; 239 ITR 795 (Mad.). In this context, the fact that the assessee had ample funds or resources at his disposal and need not have borrowed funds is not a relevant matter for consideration. All that is germane is whether the borrowing was, or was not, for the purposes of business. In City Motor Service Ltd. vs CIT (1966) 61 ITR 426 (Mad. ) The assessee used the borrowed capital for giving loans on interest to others in normal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business or any branch of the business is closed for which the loan had been taken. 2.10 It is true that no allowance no sham or colorable transaction is permissible. If the object of the borrowing is illusory or colorable and not genuinely for the business purposes, then the provision has no application. To be admissible as an allowance under the section interest must be paid in respect of the capital borrowed. Where the money borrowed have been utilized for business purposes and also earning income under the residuary head income from other sources the interest paid on money so borrowed should be bifurcated proportionately between the business income and income from other sources (H.K. Investment Pvt. ltd. vs CIT 211 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 36(1)(iii) of the Act. It is noteworthy that while coming to this conclusion, the Hon ble Apex Court applied the decision already taken in S.A. Builders Ltd. vs CIT (supra) and also considered in Madhav Prasad case (1979) 118 ITR 200 (SC), CIT vs Malayalam Plantation Ltd. (1964) 53 ITR 140 (SC), CIT vs Birla Cotton Spinning and Weaving Mills Ltd. (1971) 82 ITR 166 (SC) and CIT vs Dalmia Cements (B.) Ltd. (2002) 254 ITR 377 (Del.), CIT vs Abhishek Industries Ltd. (2006) 286 ITR 1 (P H). Identical ratio was laid down in S.P. Jaiswal Estates (P.) Ltd. vs ACIT (2013) 140 ITD 19 (Kolkata)(TM); 29 taxman.com 221 (Kolkata)(Trib.)(TM). 2.12 To sum up the matter, in the light of the aforesaid judicial pronouncement and the factual matr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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