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TMI Blog2020 (3) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... peals to the file of the Assessing Officer for passing fresh order as per law after considering the aforesaid precedents namely order dated 08.02.2016 of Co-ordinate Bench of ITAT, Delhi in assessee s own case for Assessment Years 2007-08 2008-09 [ 2016 (3) TMI 365 - ITAT DELHI], Principal Commissioner Vs. DLF Home Developers Ltd. [ 2019 (1) TMI 1536 - DELHI HIGH COURT] , Principal Commissioner Vs. IL FS Energy Development Company Ltd. [ 2017 (8) TMI 732 - DELHI HIGH COURT] and Maxopp Investment Ltd. vs. Commissioner of Income Tax [ 2018 (3) TMI 805 - SUPREME COURT] - Appeal allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee against the aforesaid impugned appellate order dated 01.04.2014 of the Ld. CIT(A) for Assessment Year 2009-10. (C) Now coming to ITA No. 1292/Del/2015 for Assessment Year 2010-11, briefly stated, the facts are, that Assessing Officer passed Assessment Order under Section 143(3) of I.T. Act wherein the disallowance of ₹ 4,28,65,241/- was made by disallowing interest expenses under Section 36(1)(iii) of I.T. Act. The Assessee filed appeal before the Ld. Commissioner of Income Tax (Appeals) -7, who, vide impugned appellate order dated 20.01.2015 dismissed the assessee's appeal and confirmed the aforesaid addition of ₹ 4,28,65,241/-. The present appeal before us vide ITA No. 1292/Del/2015 has been filed by the assessee against the aforesaid impugned appellate order dated 20.01.2015 of the Ld. CIT(A). (D) At the time of hearing before us on 09.12.2019, the Ld. Counsel for Assessee placed reliance on order dated 08.02.2016 of Co-ordinate Bench of ITAT, Delhi in assessee's own case for Assessment Years 2007-08 & 2008-09 vide ITA Nos.- 1978 & 1979/Del/2011. The relevant portion of the aforesaid order dated 08.02.2016 of Coordinate Bench of ITAT, Delhi, is reprod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AO there was clear nexus for diversion of funds to the associate concern of the assessee. He further observed that the partnership deed of M/s Abhitex International revealed that no interest was payable to the assessee for the capital contributed by it. Whereas the assessee had fully borne the interest and finance charges on its own account which was clearly detrimental to the interest of the revenue. The AO disallowed proportionate interest on the funds transferred to the sister concern, treating the same for non-business purposes. The AO fund that the assessee had paid interest @ 8.9% (on an average) to the ABN Amro Bank. Accordingly, disallowance of ₹ 3,63,74,505/- was made and added to the income of the assessee. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the action of the AO was not justified as the same was not based on proper appreciation of facts and was in violation of legal position on the issue. It was further submitted that the borrowings from the bank got reduced from ₹ 136 crores as on 31.03.2006 to ₹ 124 crores as on 31.03.2007 and the assessee had non-interest bearing funds of ₹ 34,67,15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /, stated in opening para above with regard to submissions made earlier vide Pages 10-12 of the Paper Book, in addition the commercial expediency is further explained/substantiated which squarely covers the issue in assessee/appellant's favour to prove that no disallowance out of interest was called for: A) Brief Facts That M/s RMZ Corp. Holdings Private Ltd. The Millenia, Tower B, Level 12-14, No. 1&2, Murphy Road, Ulsoor, were the owners of- (i) Land, building and other facilities at Plot Nos.14 and 15, Road No #2 HITEC City Layout, Survey No.64 (Part), Madhapur Village, Serilingampali Mandal, Ranga Reddy District Hyderabad(AP) 500081 (ii) The above property was approved by Andhra Pradesh Industrial Infrastructure Corporation Ltd. for commercial purposes(IT PARK). For the purpose/objective of acquiring the ownership/share holding of said Company, Paliwal Group in Panipat made the investment while acquiring the Shares in the names of-(a) Paliwal Overseas Pvt. Ltd. (b) Paliwal Industries (P) Ltd. (c) Sh.Avinash Chander Sharma (d) Smt. Rani Paliwal W/o. Sh.Avinash Chander Sharma (e) Sh. Abhishek Paliwal S/o. Sh. Avinash Chander Sharma. All the above mentioned assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent persona with regard to the fact as to whether a particular transaction is to be entered into or not would be subjective and differs from each other. The Assessing Officer may look at the facts from a conservative point of view whereas the assesses may have to look for a broader aspect keeping in view long term planning. Many a times, to keep the flag flying, the group companies have to be supported with funds from financially healthy companies. The manner in which the transaction has been entered into by the assessee can at the best be termed as tax planning, but in no way it can be opined as tax evasion. Tax planning is permissible. Reliance for the purpose was placed upon M/s. McDowell and Company Limited v. Commercial Tax Officer, (1985) 154 ITR 148 and Union of India v. Azadi Bachao Andotan(2003) 263 ITR 706." Besides the above relevant para in the judgement there are two Paras extracted from Apex Court decision in- SA Builders Limited V. Commissioner of Income Tax(Appeals) and another (2007) 288 ITR 1, wherein the Hon'ble S.C. had agreed per decision of jurisdictional Delhi H.Court(CIT V. Dalmia Cement(Bharat) Limited 254 ITR 377. Sir, Para 31 & Para 32 SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 100/- was acquired by Paliwal Group in five names as under: No. of share Amount M/s Paliwal Industries (P) Ltd. 18000 34,79,94,000/- M/s Paliwal Overseas (P) Ltd. 9000 17,39,97,000/- Avinash Chander Sharma 6750 13,04,97,750/- Rani Paliwal W/o 6750 13,04,97,750/- Shri Avinash Chander Sharma Abhishek Paliwal S/o Shri Avinash Chander Sharma 4500 8,69,98,500/- 45000 86,99,85,000 That the above investment in shares was done as per details & copies produced before your honour on 28.03.2011. Your honour, having acquired the entire shareholding of RMZ Corp. Holdings (P) Ltd. by the above persons, the same company was thus a sister concern of the group and vice versa. That copy of ROC return is also produced. (4) That the appellant/assessee M/s Paliwal Infrastructure had entered into as a partner in M/s Abhitex International, Panipat w.e.f. 01.04.2006. Copy of partnership deed as desired is produced herewith. That the copies of account for period ending 31.03.2007 also bears out of the share profit entry of ₹ 39,24,346/- as on 30.03.2007. It is hoped that above information/clarification sought will meet the desired compliance by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as justified to disallow the interest of amounting to ₹ 3,63,73,505/- which was an expenditure for the earning of exempted income. Though, the AO did not mention the provision of Section 14A I.T. Act, 1961 while disallowing the said interest of ₹ 3,63,73,505/- yet the provision of section 14A is clearly applicable. Hence, the disallowance made by the AO of ₹ 3,63,73,505/-is upheld u/s14A of the I.T. Act, 1961. (v) I further find that the appellant is entitled for deduction u/s 80IA(4)(iii) of the I.T. Act, 1961. The AO is directed to determine the quantum of deduction after considering the disallowance of interest of ₹ 3,63,73,505/- as upheld in this order in preceding para and allow the same on revised income after giving the appeal effect. (vi) I further find that the provision of section 115JB is also applicable in this case. The AO is directed to re-compute the book profit as per law after giving the appeal effect to this order. This ground of appeal is disposed off in the manner indicated above." 9. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 6,21,06,011/- Add interest on loan (Presuming that if investment was not made by P.Infra in Abhitex International it had to pay less interest to Bank) ₹ 4,32,26,524/- Net Business Income ₹ 10,53,32,535/- Exemption u/s 80IA(4)(iii) ₹ 10,53,32,535/- Returned Income from other sources ₹ 5,88,57,074/" 11. It was stated that the assessee was having the surplus funds on account of depreciation, rent receipts and net profit which were sufficient for making the investment in the partnership firm as a partner. It was contended that the investment in the partnership firm was made for the business exigency, therefore, the disallowance made by the AO was not justified. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid @ 8.9% on the closing outstanding balance of ₹ 40,87,02,301/- in the partnership firm M/s Abhitex International. However, he did not consider this vital fact that the investment was made by the assessee due to commercial expediency and not to earn any interest, this investment has been made by the assessee as a contribution of capital in the partnership firm in which the assessee entered as a partnership for acquiring ownership. In the present case, it is also noticed that for the year under consideration, the assessee was having internal accrual in the form of depreciation amounting to ₹ 11.60 crores and also having a surplus fund amounting to ₹ 31.68 crores, so, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition in the following manner:- "26. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC)], if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of ₹ 34 lakhs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilize those funds for giving advance to its Directors. On the basis of aforesaid discussion, the present appeal is allowed, thereby setting aside the order of the High Court and restoring that of the Income Tax Appellate Tribunal." 16. In the present case also the assessee company 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 H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Commissioner Vs DLF Home Developers Ltd. (Supra) and Principal Commissioner Vs IL & FS Energy Development Company Ltd. (supra) are not entirely discernible from the records. Representatives of both sides Ld. DR for Revenue as well as Ld. Counsel for Assessee, were in agreement that all relevant facts are not readily available; and both sides, therefore, submitted that the issues in dispute in both appeals may be remanded to the file of the Assessing Officer for fresh order, in accordance with law, having regard to the relevant facts and circumstance; and after taking into consideration aforesaid precedents, namely order dated 08.02.2016 of Co-ordinate Bench of ITAT, Delhi in assessee's own case for Assessment Years 2007-08 & 2008-09 vide ITA Nos.- 1978 & 1979/Del/2011; Principal Commissioner Vs. DLF Home Developers Ltd. (supra), Principal Commissioner Vs. IL & FS Energy Development Company Ltd. (supra) and Maxopp Investment Ltd. vs. Commissioner of Income Tax (supra). As both sides have agreed at the time of hearing before us, that all the relevant facts required for adjudicating the issues in dispute are presently not available on record and also; both as sides have submitted t ..... 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