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TMI Blog2017 (8) TMI 950X X X X Extracts X X X X X X X X Extracts X X X X ..... for upgradation of the quality of service w.r.t. data center entered set up by the assessee in JV with ITI Limited. The onus is on the assessee to prove that these interest expenses are allowable in accordance with the provisions of the 1961 Act. The assessee shall be allowed by the AO to file all relevant evidences/ explanations in its defense, which shall be admitted by the AO in the interest of justice. Needless to say that the A.O. shall provide adequate and sufficient opportunity to the assessee of being heard in accordance with principles of natural justice in accordance with law. - I.T.A. No. 1077/Mum/2015 - - - Dated:- 18-8-2017 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Vimal Punmiya Shri Bharat Kumar For The Revenue : Shri V. Justin ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 1077/Mum/2015, is directed against the appellate order dated 30.01.2015 passed by learned Commissioner of Income Tax (Appeals)- 22, Mumbai (hereinafter called the CIT(A) ), for assessment year 2011-12, appellate proceedings before learned CIT(A) had arisen from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assesseee has utilized the funds for various purposes during the year which were mainly borrowed funds as the share capital of the company was ₹ 18 crores while it has total loan liability of ₹ 96.97 crores. It was observed by learned AO that the unsecured loan had increased to ₹ 44.31 crores as at 31st March, 2011 as against unsecured loan of ₹ 29.20 crores as at 31st March 2010, and the assessee had debited total interest expenses of ₹ 11,15,68,076/- in the Profit Loss account. It was also observed by the AO that the assessee company has accumulated loss of ₹ 6.73 crores as at 31.03.2011. It was also observed by the AO that interest free advances were given by the assessee for purchase of fixed asset which assets were not put to use during the year. The assessee explained that during the previous year relevant to the impugned assessment year, the assessee had given certain advances to purchase additional equipment for existing data centre project at Bangalore but in the next year the assessee decided not to put additional equipments and with great difficulty the assessee could recover the original amount of advances. The assessee has pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to establish that the said advances were given for legitimate business need of the assessee as the said interest on borrowed capital was not being incurred wholly and exclusively for the purpose of the business. It was further held by the AO, without prejudice to the above conclusion that the proportionate interest expenses on the borrowed funds used by the assessee for making advances is not allowable under proviso to section 36(1)(iii) of the Act because the said fixed asset has not been put to use, for the following reason:- i. The assessee company has made advances of ₹ 10,64,00,398/- for the purpose of acquisition of fixed asset for extension of the existing business. The purpose of acquisition of these assets is to set up a new unit augmenting the existing capacity of the assessee company to extend the existing business of the assessee. ii. The assessee company has used the borrowed funds for the purpose of making these advances, as there are no own funds available to the assessee company as discussed in the para 4.2 above. iii. the assessee company has also not claimed at any time during the assessment proceedings that the source for making th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the capital cost of ₹ 81.50 crores. It was submitted that it had given advances to the suppliers for replacement of equipment in the existing data centre without creating any additional capacity. It was submitted that no fresh loans were taken during the financial year. The assessee gave details of loan raised by it, for which the position is as under:- S No. Name of the loan account Opening balance as on 01.04.2010 (Rs in crores) Closing balance as on 31.3.2011 (Rs in crores) 1 Trimax IT Infrastructure and Services Limited 29.20 44.31 2 State Bank of Hyderabad 23.24 17.20 3 Bank of India 23.66 17.46 TOTAL 76.10 78.97 It was submitted that loan amount increased as the unpaid amount stood credited to loan account. It was submitted that the assessee had earned cash profit of ₹ 5.75 crores from operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.20 44.31 2 State Bank of Hyderabad 23.24 17.20 3 Bank of India 23.66 17.46 TOTAL 76.10 78.97 When we examined the above table, it is clear that the loans from State Bank of Hyderabad and Bank of India were reduced during the year. Loans from Trimax IT Infrastructure and Services Limited had increased from ₹ 29.20 crores to ₹ 44.31 crores i.e .about ₹ 15 crores increase in loans during the year. 3.4 The appellant further states that there was a cash profit of ₹ 5,75,27,704/- from the operations which were utilized for the payment of advances of these equipment. The appellant also submitted details in which advances were given to various parties and in its submissions further states that this year itself advances were recovered and orders for new equipment were cancelled. 3.5 After considering the submissions of the appellant, it is clear that the appellant's loans from Trimax IT Infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the matter can be set aside to the file of the A.O. for proper verification/ examination and de-novo determination of the issue on merits. 9. The ld. D.R. relied on the orders of authorities below and fairly submitted that the matter can be set aside to the file of the A.O. for verification/ examination and de-novo determination of the issue on merits . Thus, in nut-shell both the parties have fairly agreed that this matter need to be restored to AO for de-novo determination of the issue on merits. 10. We have heard rival contention and perused the material placed on record. We have observed that the assessee is engaged in providing data center services to ITI Limited being a joint venture project set up at Bangalore with the capital cost of ₹ 81.50 crores. ITI Limited is a Government of India Undertaking being a Public Sector Company. The assessee has a JV with the said ITI Limited and it is claimed that the assessee as part of its obligation under the said JV had given advances to the suppliers for replacement of equipment in the existing data centre which was set up in JV with ITI Limited without creating any additional capacity in order to enhance quality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc with respect to the plan of upgradation/modernization/ enhancement of quality of services scheme w.r.t. data center which was approved/accepted by the said ITI Limited and the assessee being JV partners, for due consideration, examination and verification by the A.O.. The onus is on the assessee to prove the genuineness of the said transaction of granting advances to equipment suppliers . The assessee is also directed to produce the details/project report of various machinery/equipment required for the upgradation/improvement in quality of services as approved by ITI Limited, which ultimately did not materialized and got cancelled and the amount was refunded by the supplier parties. Thus, for proper verification and enquiry and establishing genuineness of the said transactions, the matter is set aside to the file of the A.O. and assessee is directed to produce all cogent evidences as detailed above before the A.O. to establish the genuineness of the transaction in context of the claim of the assessee for upgradation of the quality of service w.r.t. data center entered set up by the assessee in JV with ITI Limited. The onus is on the assessee to prove that these interest expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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