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TMI Blog2022 (11) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, we feel that the ld. CIT(A) has exceeded his jurisdiction and the enhancement made by the ld. CIT(A) deserves to be deleted . Thus Ground No. 1 of the assessee is allowed. Interest on income tax refund - HELD THAT:- AO noted that the assessee had received income tax refund amounting to Rs.4,29,218/- but the assessee in the income tax return had shown interest amount of Rs.1,17,100/- only. During the course of assessment proceedings, the assessee could not dispel the doubt raised by AO about the interest amount of Rs.1,17,100/- . Hence, the AO made of Rs.3,12,118/- to the total income of the assessee. In first appeal, the ld. CIT(A) confirmed the action of the AO. During the course of hearing, the ld. AR of the assessee has not advanced any submissions or arguments controverting the findings of the ld. CIT(A) as to the addition sustained by the ld. CIT(A) amounting to Rs.3,12,118/-. In this view of the matter, the ground No. 2 of the assessee is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- "Brief General Facts: The appellant company is engaged in the business of owning, running and managing hotels since 1996. The assessee filed ROI declaring total income of Rs.52,03,990/-(PB 4-6). The case was selected for the scrutiny u/s 143(3) and assessment was completed determining total income of Rs.90,39,480/- after making disallow u/s 14A and disallowing towards unpaid employees' contribution of ESI and PF. In the first appeal, the ld. CIT (A), however, on one hand completely disagreed with the disallowance made by AO u/s 14A and in place thereof, made an altogether new issue by examining the case under section 36(1)(iii) whereby theincome to the extent of Rs. 1,69,70,854/- was enhanced. The ld.CIT (A) issued a notice u/s 251(2) (Refer CIT(A) Pg-11) which was duly replied( PB 73-79),by the appellant however, feeling dissatisfied, the CIT(A) made the disallowance. Hence this appeal. GOA 1: Rs.1,69,70,854/-: The ld.CIT(A) erred in disallowing interest expenses of Rs.1,69,70,854/- u/s 36(1)(iii). Facts: The appellant company had made investments in AOP and subsidiaries in the earlier years which continues till this year. The closing balances of various investmentsas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate to compute disallowance out of interest expenses claimed by the appellant @ 13% of Rs. 15,00,83,600/-which amount to Rs. 1,95,10,868/-. Thus a sum of Rs.1,95,10,868/- is being disallowed u/s 36(1)(iii) of the Act as theses were not incurred for the purposes of the business of the appellant company. Consequently, the income of the appellant is hereby enhanced by a sum of Rs. 1,69,70,854/-(1,95,10,868 - 25,40,014)." Hence this appeal. Submissions: 1. Investments are made for business purposes: The investments made by the assessee in subsidiaries and AOP are as under: S.No Particulars of investments& investors Amount Rs Remarks 1 Equity shares of Comfort Living Hotels Pvt. Ltd. 7,57,02,300/- Theco. has taken over running business and management of the Hotel in Delhi in FY 2003-04 (A.Y. 2004-05)which is commercially expedient and also evident from the financial statements of Comfort Living Hotels Pvt. Ltd. The ld AO has also accepted the same as commercial expedient investment and has not taken while disallowing exempt investment u/s 14A.(AO Pg 5-6 ) 2 Equity shares of Maharani Buildestate Pvt. Ltd. 99,00,000/- The investment made in Maharani Buildesta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after successfully running the renowned hotel at Jaipur namely Maharani Palace for last ten years, expanded its business out of Rajasthan and bought a running hotel in Delhi. The appellant company became holding company hence it cannot be said that this investment was not for the business purpose. The investment so made in adding one more hotel property at Delhi achieved multi-fold capital appreciation since acquisition and as and when, it shall be sold then obviously the entire long term capital gain shall be taxed in the hands of the assessee Company. 1.2 Investment in Maharani Buildstate Pvt. Ltd (PB-41): 1.2.1 The appellant company also made investment in M/s Maharani Buildestate Private Limited in the year AY 2006-07 of Rs. 99 lacs for acquisition of shares andthus became holding company by acquiring 99.9% shareholding. This investment was also made for taking up a real estate project in Delhi and in this endeavor, Maharani Buildstate Private Limited acquired some properties in Delhi. The company successfully completed its projects which fact is fully evidenced by the fact of whopping turnover of Rs.46 Crores in AY 2011-12(PB-97) and Rs. 54 Lakh in AY. 2012-13. 1.3 Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llegation of the CIT(A) that M/s Naveen Tak AOP was not doing any business is completely wrong on the face of it as the ld.CIT(A) has himself (CIT(A) Pg-17) admitted that M/s Naveen Tak AOP got a sum of Rs.7,42,992/- in A.Y. 2012-13 and Rs.18,16,329/- in A.Y. 2013-14 in the form of rebate/commission in the subjected year. However, the profit of the AOP could be Rs.65,458/-in A.Y. 2012-13 and Rs.1,98,012/- in A.Y. 2013-14 but this fact is not having any bearing on the case of the assessee because in any business there cannot be guaranteed profits every year, as held in the case of M/s S.A. Builders Ltd. vs. CIT(A) & ANR (2007) 288 ITR 1 (SC)/[2007] 158 Taxman 74 (SC) (DPB 1-3) " ..... that once it is 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 his profit. The IT authorities must put the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been affirmed by the Hon'ble SCvide order dated 30.04.2012. Kindly refer Addll. CIT vs Tulip Star Hotels Ltd. (2012) 21 Taxmann.com 97 (SC) (DPB 6 ) 2.2 CIT vs Reliance Communications Infrastructure Ltd. (2012) 21 Taxmann.com 118 (Bom HC) (DPB 7-10) wherein it was held that: " Where the assessee, as in the present case, has significant interest in the business of the subsidiary and utilizes even borrowed money for furthering its business connection, there is no reason or justification to make a disallowance in respect of the deduction which is otherwise available u/s 36(1)(iii)" 2.3 CIT vs Phil Corporation Ltd. (2011) 14 Taxmann.com 58 (Bom)(DPB 11- 14) "The reasoning of the Tribunal that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the sister/subsidiary company to have controlover that company and, therefore, the element of interest paid on the overdraft was not susceptible of bifurcation and, therefore, the assessee was entitled to the deduction under section 36(1)(iii). [Para 11]Thus, the Tribunal was right in deleting the addition of Rs. 19,73,333. [Para 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction claimed by the assessee under section 36(1)(iii) relied upon the judgment of the Bombay High Court in the case of Phaltan Sugar Works Ltd. (supra). In that case, a division Bench had observed that moneys borrowed were utilized in the business of a subsidiary of the assessee and not in the business of the assessee as such and that consequently the Tribunal was notjustified in holding that interest on loans borrowed for advances to the subsidiary was allowable under section 36(1)(iii). The view which has been taken by the division Bench in Phaltan Sugar Works (supra) has expressly now been overruled by the Supreme Court in the case of S.A. Builders Ltd. ( supra). [Para 9]" 4. Not all the Loans are given in current year: 4.1 As mentioned earlier the assessee made investments in these ongoing concerns basis and at the time of investment both the firms were passing through a financial hardship. This is the reason the assessee could get the properties at a very reasonable price, hence for their revival both the companies were in a dire need of money and being a holding company the appellant company advanced the money as and when required. The closing balances of loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Living Hotels P Ltd (Rs.) Maharani Build Estate P Ltd (Rs.) Total (Rs.) 2008-09 53,60,708 1,29,09,742 1,82,70,450 2009-10 90,49,875 1,33,43,775 2,23,93,650 2010-11 45,46,339 3,03,22,567 3,48,68,906 Total 1,89,56,922 5,65,76,084 7,55,33,006 Less TDS 24,63,929 72,93,236 97,57,165 Net Amount 1,64,92,993 4,92,82,848 6,57,75,841 Thus, reducing such amount of interest debited to their account of Rs. 6.58Cr. the effective actual interest free advances to the subsidiaries stood as to Rs.6.34 Cr. in A.Y. 2012-13 & 7.67Cr. in A.Y. 2013-14 and not Rs.12.92 Cr. in A.Y. 2012-13 & 14.25Cr. in A.Y. 2013-14as wrongly considered by the ld. CIT(A).However, the ld. CIT (A) purportedly ignored this factual aspect and considered the entire Rs.12.92 Cr. in A.Y. 2012-13 &Rs.14.25Cr. in A.Y. 2013- 14 for the purposes of making disallowance u/s 36(1)(iii). 6.Sufficient Interest Free Funds Available: 6.1 Without prejudice to the above, if it is assumed that the loans & advances given by the assessee to its subsidiaries has not been used for business purpose then also no disallowance is warranted as the assessee hadsufficient interest free funds availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal had allowed deduction and followed the earlier view and on facts, then, there is no perversity when nothing contrary to the factual material was brought on record by the Revenue-No substantial question of law arises from such a view of the Tribunal" 6.3.2 CIT vs Reliance Utilities and Power Limited (2009) 313 ITR 340 (Mum)/ (2009) 178 Taxmann 135 (Bom)-(DPB 34-35) In this case the appellant company claimed the availability of interest free funds in the form of Share Capital (Rs.180 Crores), Reserves and Surplus (Rs.120.80 Crores) Depreciation Reserve (95.39 Crores), hence total availability of Rs.398 Crores was claimed. The Hon'ble High Court decided the matter by holding as under: "If there are funds available both, interest-free and overdraft and/or loans are taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds are sufficient to meet the investments. In the instant case said presumption was established considering the findings of fact, both by the Commissioner (Appeals) and the Tribunal. [Para 10] In view of above, the instant appeal was to be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee advance short term loan/advance, the AO could not disallow part of interest. It is also an admitted fact, as observed by the tribunal, that the AO was not able to pin pointedly come to a definite conclusion that how interest bearing loans has been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-à-vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on application of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partner/proprietor being more than the interest free short term advances, has in the case of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CRT (Raj.) 384 while relying on the judgments rendered in (a) S.A. Builders Ltd. V/s CIT (2007) 288 ITR 0001 (SC); (b) Munjal Sales Corporation v/s CIT (2008) 298 ITR 298 (SC) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the tune of Rs.398.19 crores. In view thereof, it was submitted that from the analysis of the balance-sheet, the Assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the Assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue approached this Court by way of an Appeal." 6.3.8 Hero Cycle P. Ltd vs. CIT (2015) 128 DTR 1/379 ITR 347 (SC) also directly supports the case of the assessee. "In that case, the company had given Loans & Advances of Rs.34 lacs to its directors and charged interest @ 10% only, whereas it availed the loan @ 18% hence, disallowance was made by the AO saying that the money borrowed by the assessee can't be treated for the purposes of the business of assessee. Before the ld. CIT(A), the assessee demonstrated that there was a sufficient credit balance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest for business expediency or/and relatives, and none can be forced to charge interest. 7. No Nexus Established: 7.1The law is well settled that before making disallowance u/s 36(1)(iii), the AO must have established a nexus between the interest-bearing funds and the interest free loans given. In the present case, the AO has completely failed to prove the nexus between the interest-bearing funds and the interest free loans given. Alternative and without prejudice to the above 8. Credit wrongly given of shorter amount even though admitted: Pertinently, the ld. CIT(A), as per his own calculations, worked out the availability of the interest free fund with the assessee of Rs. 10.79 Cr. (at Pg-10) as against the claimed amount of Rs. 17.67 Cr. by reducing the amount of accumulated depreciation of Rs.6.88Cr. However, while computing the available interest free fund for the purposes of computation of the disallowance of interest, he allowed the credit of Rs. 8.56 Cr. only as against the amount contended by the CIT(A) himself of Rs.10.79 Cr. which, appears to be typing mistake only. He appears to have taken the figure of the preceding year of Rs. 8.56 Cr. wrongly as against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "6. We have given our thoughtful consideration to the rival contentions and have looked into the provisions of law. 7. X X X X X X A perusal of ss. 246 to 251 makes it clear that any questions arising out of the assessment orders in an appeal by the assessee can be possible and wide powers are given to the appellate authority, but these powers are circumscribed to the assessment order in the matters arising thereof or a matter arising out of the proceedings, even the appellate authority can suo motu consider the questions arising thereof but there is no provision to go beyond the matter arising out of the proceedings before the assessing authority, more particularly for which separate provisions are made in the Act. The Tribunal had elaborately discussed the provisions of the Act and the case law on the subject and has rightly come to the conclusion that new sources not mentioned in the return or considered by the ITO are beyond the scope of powers of the AAC. The case relied on by the Learned Counsel for the petitioner that power of setting aside the assessment order remanding the case for reconsideration of the whole matter including the evasion by the assessee, is not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) (iii) of the Act. However, the ld. CIT(A) have made enhancement of income of Rs. 3.24 Lac u/s 2 (22) (e) and of Rs. 97,303 u/s 2(24) (iv) and also of cash credit of Rs. 1.32 Lac u/s 68. In this context, the above decision was rendered. The ratio laid in the above case squarely apply on the present case also in as much as here also, whereas the AO may disallowance u/s 36 (1) (iii) of the Act. Though the AO and CIT (A) both dealt with the issue relating to the interest but in any case, they applied altogether different provisions of the Act and each provision has got his own significance operating in different fields and provides for disallowance/ income hence cannot be intermixed/ inter changed to justify the action of the ld. CIT u/s 251 (2) of the Act. 10.4 CIT Vs. Sardari Lal & Co. (2002) 120 Taxman 595 Delhi (DPB 49), which is a decision rendered by larger bench and also examined the earlier decision given in the case of CIT Vs. Union Tyres (1999) 240 ITR 556 (Del) and held that "having considered various decisions of the High Courts, as well as the Supreme Court, it is inevitable that whenever the question of taxability of income from a new source of income is concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 23.06.2012) on income tax refund for AY 2009-10 and 2011 respectively totaling to Rs. 4,29,218/- was received by the appellant company during the year under consideration. The appellant has shown only interest income on income tax refund at Rs. 1,17,100/- only. It is trite law that income of a year has to be determined correctly in view of the provisions of the Act. It is an undisputed fact that the appellant has received income of Rs. 4,29,218/- on income tax refunds and thus the same is to be included in the total income of the appellant. It does not make any difference whether the appellant was aware of said interest income on income tax refund or not while determining the total income of the appellant. (iv) In view of the above discussion, it is held that the AO was justified in making addition of Rs. 3,12,118/- on account of interest income on income tax refund to the income of the appellant. Hence, the addition of Rs. 3,12,118/- made by the AO is hereby sustained. Thus, this ground of appeal is hereby rejected." 7. Apropos Ground No. 1 of the assessee for the assessment year 2012-13, we have heard both the parties and perused the materials available on record. It is note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the ld. AO. The addition made by the ld. AO is confirmed and that of the ld. CIT(A) is reversed. In this view of the matter, we feel that the ld. CIT(A) has exceeded his jurisdiction and the enhancement made by the ld. CIT(A) deserves to be deleted . Thus Ground No. 1 of the assessee is allowed. 9. Now we take up the Ground No. 1 of the assessee in ITA No. 299/JP/2017 for the assessment year 2013-14 wherein the ld. CIT(A) has enhanced the income of the assessee by Rs.1,67,70,854/- u/s 36(1)(iii) of the Act as against disallowance made by the AO of Rs.25,40,014/- u/s 14A of the Act. 10. We have heard both the parties and perused the materials available on record. The Bench noted that the facts and circumstances of the case are similar and it is not imperative to repeat the same facts. Therefore, the decision taken by this Bench in ITA No. 298/JP/2017 for the assessment year 2012-13 in Ground No. 1 of the assessee shall apply mutatis mutandis. Thus Ground No. 1 of the assessee is allowed. 11. Apropos Ground No. 2 of the assessee for the assessment year 2013-14, we have heard both the parties and perused the materials available on record. During the course of assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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