2012 (11) TMI 6 - AT - Income Tax

Revenue's Appeal Dismissed on Interest Disallowance Decision

ASST COMMISSIONER OF INCOME TAX Versus M/s APOLLO HOSPITALS ENTERPRISES LTD

ASST COMMISSIONER OF INCOME TAX Versus M/s APOLLO HOSPITALS ENTERPRISES LTD - TMI Issues Involved:1. Deletion of disallowance of interest on borrowed capital amounting to Rs. 15,22,917/-.Issue-Wise Detailed Analysis:1. Deletion of disallowance of interest on borrowed capital amounting to Rs. 15,22,917/-:The Revenue appealed against the order of the Commissioner of Income Tax(A)-III, Chennai, which deleted the disallowance of interest on borrowed capital amounting to Rs. 15,22,917/-. The Assessing Officer had disallowed this interest on the grounds that the assessee advanced Rs. 1.70 crores to M/s. Apex Builders and M/s. Kalpatharu Enterprises Ltd., both controlled by the promoters or their relatives, without receiving any interest. The Assessing Officer applied a 10.75% interest rate to calculate the disallowance.The assessee argued that under Section 36(1)(iii), interest paid on borrowed capital for business purposes is deductible. The loans were taken for specific projects or working capital, and the advances were given from the assessee's own funds. The Commissioner of Income Tax(A) allowed the appeal, citing the decisions in C.I.T Vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom.) and C.I.T. Vs. Hotel Savera in 239 ITR 796 (Mad.), which supported the assessee's position.The Revenue's representative contended that there was no commercial expediency and relied on several judgments, including C.I.T. Vs. Accelerated Freeze Drying Co. Ltd in 324 ITR 316 (Kerala) and K. Somasundaram & Bros. Vs. C.I.T. in 238 ITR 939 (Mad.), arguing that surplus funds should have been used to repay loans rather than giving interest-free advances.The Tribunal noted that the Assessing Officer did not provide any finding that the borrowed capital was diverted for non-business purposes. The Commissioner of Income Tax(A) found that the assessee had substantial own funds, and the advances were made from these funds. The Tribunal upheld this finding, stating that the Revenue did not discharge its onus to show a nexus between the interest-free advances and the interest-bearing borrowed capital.The Tribunal also clarified that the decisions relied upon by the Revenue did not apply to the facts of this case. For instance, in C.I.T. Vs. Accelerated Freeze Drying Co. Ltd., the Kerala High Court emphasized the need for commercial expediency, which was not the assessee's argument here. Similarly, the Delhi High Court's decision in Punjab Stainless Steel Industries Vs. C.I.T. involved advances from a Cash Credit account, which was not the case here.In conclusion, the Tribunal found no justifiable reason to interfere with the order of the Commissioner of Income Tax(A) and dismissed the Revenue's appeal, thereby upholding the deletion of the disallowance of interest on borrowed capital. The appeal of Revenue was dismissed.