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TMI Blog2024 (4) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... represented only 2.56% of the total share capital of AEC and therefore, there cannot be any intention of the respondent-assessee to become a tool to acquire the shares of AEC by Torrent Group. No substantial question of law. X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons to support his conclusion that the facts in the case of Sarabhai Sons (P) Ltd (supra) are clearly distinguishable as compared to the facts of the present case. The Memorandum of Association of the assessee company clearly shows that the main object of the company was to carry on the business of acquiring, holding and selling of shares and debentures. The assessee acquired the shares of NKL out of funds borrowed from M/s. AHPL, which was well covered within the main object clause of assessee's business as enumerated in the memorandum of Association. These shares were also sold in the next year. The assessee received income from dividend on these shares in the year under consideration. It is true that the dividend has been assessed under the head "income from other sources" by virtue of a special provision containing in the IT Act but such an income would still form part of income from the business carried on by the assessee. It may be relevant here to reproduce the extract from the Head Note of the judgment of the Hon'ble Supreme Court in the case of CIT vs. Cocanda Radhaswami Bank Ltd. (1963) 57 ITR 306(SC) : "the scheme of the IT Act is that income tax is one ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest expenditure incurred on capital borrowed for purchase of shares was allowable as deduction under the corresponding provisions contained in the IT Act, 1992. The said judgment of the Bombay High Court has been approved by the Hon'ble Supreme Court as already stated herein before. The view taken by the CIT (A) is fully fortified by the aforesaid judgment of Hon'ble Bombay High Court in the case of Ormerods (India) Pvt. Ltd. (supra). 6.3 In view of the aforesaid facts and discussion and in view of the elaborate reasons given in the order of the CIT(A), I am of the considered opinion that the view taken by the CIT(A) is perfectly valid and justified. Therefore, do not find any justification to interfere with the view taken by him. The Revenue's Appeal, in my view, has no merit. 5. It was contended that facts and circumstances are similar, Tribunal in the case of Ataku Holdings Pvt. Ltd. (Supra) has in detail explained case of Sarabhai Sons Pvt. Ltd. (supra), which was a case of acquisition of 100% control over the company against which, in the case of assessee, percentage of share acquired is very small. In assessee's case also main object of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest is not allowed as business expenditure, then the same may be allowed to be capitalized towards cost of purchase of shares. 6. We have heard the rival submissions and perused the material available on record. We are of the view that facts of the Akalu Holdings Pvt. Ltd. and Aashini Lease Finance Pvt. Ltd. for A.Y. 1996-97 and 1997-98 are similar, the Tribunal has considered all aspects i.e. Memorandum of Association, acquisition of minor percentage of shares of group concerns, subsequent sale of shares, the case of Sarabhai Sons Pvt. Ltd. (supra) has been distinguished and the case of Ormerods (India) Pvt. Ltd has been applied, which has been approved by the Hon'ble Supreme Court, in view of these facts, we hold that the assessee's case is covered in favour of the assessee by the ITAT judgment in the case of Ataku Holdings Pvt. Ltd., a group concern, respectfully following the same, we uphold the order of the CIT(A) allowing interest as business expenditure. Since we allow the claim of assessee, there is no necessity to go into alternate plea of the assessee. 7. In the result, Revenue's appeal is dismissed." The CIT (Appeal) as well as the Tribunal bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l investment made by the assessee in the take over and acquisition of business of AEC amounted to only Rs. 22,59,969/-. To this extent, there is no difficulty. The problem arises where the AO has detected that after acquiring the shares of AEC Ltd., the assessee herein has sold the shares of AEC at Rs. 63,57,925/-and further that subsequently, the said AEC Ltd, has been taken over and acquired by the Torrent Group, The record indicates, prima facie, that the assessee Company had acquired the shares of AEC through finánces arranged mainly from Torrent Group (sister companies) along with two other companies only to enable Torrent Group to acquire and take over the business of AEC. The question, therefore, which arose for consideration before the High Court was: Whether the assessee was entitled to deduction in respect of interests paid by it to the Torrent Group? Prima facie, it appears to us that the High Court has lost sight of the above facts which, if proved and established, would indicate circular trading entered into solely with the idea of evading tax. This prima facie view is expressed only in support of our present order as relevant aspects have not been considered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Torrent lease & Fin. P. Ltd. Rs. 2,09,022/- On verification of details of the utilisation of funds borrowed from the above concerns it is found that the funds borrowed were utilised for investment in shares of Ahmedabad Electricity Co. Ltd. in F.Y. 95- 96 (A.Y. 96-97) Further in assessment order for A.Y.95-96 it is also held that the investment made in these shares was not for business purpose but for acquiring control over the company Ahmedabad Electricity Company Limited and so it was also held that the investment in these shares was not made for the purpose of the business of the assessee and so interest expenditure was held as not incurred for business purpose but as capital expenditure for acquiring controlling right over company. This finding is also on the basis of Hon'ble Gujarat High Court's decision in the case of Surabnai & Sons Pvt. Ltd., V/s. CIT(1993) 201 ITA 471. In view of the detailed discussion made in the order of A.Y. 1996-97 the interest expenditure was not found allowable. As the facts of the case in this year are also same, discussion and findings given in the assessment order regarding same issue of interest expenditure is also held fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the disallowance of Rs. 2,44,76,566/- made by the Assessing Officer u/s. 36(1)(iii) of the I.T. Act, 1961, being interest expenses. The Assessing Officer has observed that the appellant has claimed interest of Rs. 4,15,13,775/- to the concerns covered u/s. 40A(2)(b) of the I.T. Act, viz. M/s. torrent Financiers and Torrent Lease and Finance Pvt. Ltd. he has referred to the assessment order passed for A.Y. 1996-97 and stated that it was observed that the borrowed funds were used for investment in shares of ahmedabad Electricity Company Limited. It was held in that assessment order that the investment in these shares was not made for the business purposes but for acquiring controlling right in the said company and hence interest was disallowed. The Assessing Officer further stated that the facts for this year are also similar and hence the finding given in the assessment order for A.Y. 1996-97 are applicable to this year also. He has also referred to the sale of part of the shares of A.E.C. for Rs. 21,94,90,197/- and stated thaht the appellant has repaid major part of the borrowing out of the sale proceeds. He has stated that the torrent Group has acquired control over A.E.C. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AEC by the fact that in the subsequent year the assessee has sold the shares and shown substantial business profit. It is seen that the case of Hon'ble gujarat High Court, reported at 201 IT relied upon by the Assessing Officer is quite on different facts. Therefore, the facts on the basis of which addition has been made in itself are incorrect and wrong. 3.3 (ii) In view of the above, it Is held that the interest claimed by the appellant is admissible under section 36(1)(iii) as business expenditure and therefore, the disallowance of Rs. 1,87,12,121/- made by the Assessing Officer is directed to be deleted" 3.3. As the facts for this case are similar, following the said appellate order, I delete this disallowance." 3.5. Learned advocate Mr.Patel submitted that as observed by the Hon'ble Supreme Court on the basis of the facts which are narrated by the Assessing Officer as stated in the aforequoted orders, the interest payment of Rs. 4,15,13,775/- is claimed by the assessee under Section 40A(2)(b) of the Income Tax Act, 1961 (for short 'the Act') out of which the Assessing Officer disallowed the amount of Rs. 2,44,76,566/- on the ground that the respondent-assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts narrated in the order of CIT (Appeals) that total investment made by the assessee in the take over and acquisition of business of Ahmedabad Electricity Company (for short 'the AEC') amounted to only Rs. 22,59,969/- which is only 2.56% of the share capital of the AEC. Moreover, the respondent-assessee when sold the shares of AEC at Rs. 63,57,925/- has declared substantial profit liable to tax. 6. In view of findings of fact recorded by the CIT (Appeals) as quoted hereinabove which is in turn concurred by the Tribunal and when both final fact finding authorities have arrived at the same concurrent findings of fact, no further investigation is required to be undertaken to inquire about circular trading entered into solely with the idea of evading tax by the respondent-assessee acquiring the shares of AEC through finances arrange mainly from sister companies of the Torrent Group along with two other companies to enable the Torrent Group to acquire and take over the business of AEC. 7. In view of the above facts emerging from the record, no question of law much less any substantial question of law can be said to have arisen from the impugned order passed by the Tribunal as both CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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