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TMI Blog2020 (1) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... r of credit discounting with the banks and has availed of the loan and has paid interest on the bank credit. Commissioner of Income Tax (Appeals) has upheld the aforesaid finding and has held that the assessee has tried to give the whole arrangement a colour of business expediency falling within the purpose and nexus to business. But on a close scrutiny, it is evident that it is nothing but shouldering the interest burden on itself, thereby diverting the benefit in favour of the sister concern. It has further been held that where the borrowing is illusory or colourable, the interest paid on such borrowings is not allowable. No prudent businessman pays interest on the payment to his creditors and at the same time does not charge corresponding interest on the delayed payment from its debtor. It has further been held that the aforesaid arrangement has been made with an object to circumvent the provisions of the Act to facilitate its sister concern to rest on the shoulders of the appellant. It has also been held that the appellant has deliberately created an artificial and colourable devise for reducing its income offered for taxation through an arrangement of letter of credit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. Accordingly, the aforesaid question of law is answered against the assessee and in favour of the revenue. - I.T.A. NO.85 OF 2010 - - - Dated:- 8-1-2020 - THE HON BLE MR. JUSTICE ALOK ARADHE AND THE HON BLE MR. JUSTICE RAVI V. HOSMANI APPELLANT: SMT. JINITA CHATTERJEE, ADV., SRI. S. PARTHASARATHI, ADV RESPONDENT: Sri. K.V. ARAVIND, ADV. JUDGMENT Smt.Jinita Chatterjee, learned counsel for the appellant. Mr.K.V.Aravind, learned counsel for the respondent. 2. This appeal has been preferred by the assessee under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the Act , for short) which was admitted by a Bench of this Court by an order dated 20.04.2010 on the following substantial questions of law: a) Whether in law, the Tribunal is justified in ignoring the fact that the expenditure on borrowals was a business expenditure in as much as the same had been incurred during the course and for the purpose of business of the Appellant? b) Whether in law, the Tribunal is justified in rejecting the claim un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed. 4. Learned counsel for the appellant, while inviting the attention of this Court to Section 36(1)(iii) of the Act, submitted that in order to attract the applicability of the aforesaid provision, three conditions are required to be satisfied namely that the money must have been borrowed by the assessee, it must have been borrowed for the purpose of business and the assessee must have paid the interest on the aforesaid amount. It is further submitted that in case such conditions are complied with, the appellant is entitled to the benefit under Section 36(1)(iii) of the Act. It is further submitted that the Assessing Officer, the Appellate Authority as well as the Tribunal ought to have appreciated that the appellant had satisfied the aforesaid requirement and therefore, the appellant was entitled to the benefit contained in Section 36(1)(iii) of the Act. Learned counsel for the appellant further submitted that the appellant had obtained loan on account of business expediency and had paid interest on the amount of loan. However, the aforesaid aspect has not been appreciated. In support of the aforesaid submissions, reliance has been placed on the decisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest burden of sister concern namely M/s. Canara Wood and Plywood Pvt. Ltd. which is a private limited company enjoying the benefit of 80HHC of the Act and thus, the profit of the assessee is artificially reduced and in turn the income offered for taxation is decreased. It has further been held that this artificial arrangement has been made to reduce the interest burden on the sister concern. The Commissioner of Income Tax (Appeals) has upheld the aforesaid finding and has held that the assessee has tried to give the whole arrangement a colour of business expediency falling within the purpose and nexus to business. But on a close scrutiny, it is evident that it is nothing but shouldering the interest burden on itself, thereby diverting the benefit in favour of the sister concern. It has further been held that where the borrowing is illusory or colourable, the interest paid on such borrowings is not allowable. Reference has been made to the decision of the Supreme Court in the case of MC DWELL CO. LTD. VS. COMMERCIAL TAX OFFICER (1985) 154 ITR 148. The Tribunal, by the impugned order, in paragraph 6.2 has held that the assessee firm has supplied its finished products to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of genuineness of the transaction can be examined in the fact situation of the case. The aforesaid question has been examined in detail by the authorities under the Act by assigning reasons. 9. It is once again reiterated that all the authorities under the Act have assigned valid and cogent reasons which is evident from perusal of the orders passed by them. Therefore, by no stretch of imagination, it can be held that the sister concern of the appellant is eligible for more deduction under Section 80HHC of the Act on mere surmise and conjectures. The finding that the sister concern is eligible for more deduction under Section 80HHC of the Act is based on mere surmise and conjectures also does not arise for consideration. Accordingly, the aforesaid question of law is answered against the assessee and in favour of the revenue. 10. In view of the preceding analysis, the fourth substantial question of law framed by this Court is also answered against the assessee and in favour of the revenue. 11. In the result, we do not find any merit in this appeal. The same fails and is hereby dismissed. - - TaxTMI - TMITax - Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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