TaxTMI 
TaxTMI 
2012 (6) TMI 131
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....sake of convenience. 2. The common grounds raised by the assessee in these four appeals are as follows: 2. The learned CIT erred in holding that the order of the assessment made u/s 143(3) r.w.s. 153A of the Act on 31.12.2008 is in any way prejudicial to the interests of the Revenue. 3. The CIT erred in holding that the interest paid on borrowed funds for purchase of units of Andhra Pradesh Gas Power Corporation Ltd. (APGPCL) is not allowable as a deduction. The CIT ought to have seen the fact that purchase of units from APGPCL is for the purposes of business. 4. The CIT ought to have considered the fact that by purchasing the said units, the assessee could get power at concessional rate and the conce....
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....year (in Rs.) Interest @ 12% (in Rs.) 2001-02 5,00,00,000 60,00,000 2002-03 10,00,00,000 1,20,00,000 2003-04 8,00,00,000 96,00,000 2004-05 5,75,00,000 69,00,000 3.1. From the above, it is seen that the assessee company has claimed expenditure towards interest paid/payable to ICICI Bank on the loan taken utilised for the purpose of investment in shares in APGPCL. Subsequently, these shares were sold and the resultant capital gains were claimed as exempt u/s 10(23G) of the Act. As such, the interest paid for the above assessment years which was incurred against the exempt income is to be disallowed u/s 14A of the Act. 3.2. The provisions of section 14A of the Act specify that any expenditure....
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.... of APGPCL mentioned in schedule B is secured by way of pledge of 1323920 Equity Shares of Rs.10/- each of APGPCL held by the company and also secured by personal guarantee of Learned departmental representative.J. Rameswar Rao, Chairman and MD and also by Corporate Guarantee on M/s My Home Constructions limited and collateral security on commercial property worth of Rs.126 lakhs belonging to M/s Ranjit Constructions. ii) Further, when the shares are sold out, the assessee has computed capital gain transfer of the shares when it has claimed exempt u/s 10(23G). Thus, from the books of account, it is apparent that the assessee has made investment in shares of APGPCL. The return on such investment being dividend is exempt. Again when....
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....u/s. 36(1)(iii) of the I.T Act, if such acquisition is for commercial purpose. Further, the AR also relied on the judgement of the Supreme Court in the case of S A Builders Ltd. vs. CIT (288 ITR 1) (SC) wherein it is held that once it established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the business man 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 business man can be compelled to maximise his profit. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view of....
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....of investment. The background of the investment in APGPCL is that the assessee is depend upon APSEB for the purpose of supply of power. The APGPCL was formed by Transmission Corporation of Andhra Pradesh on 31.10.1998 and business commencement certificate was issued on 2.12.1998. The main purpose of formation of this company is to generate power for consumption by its shareholders called as the "participating companies". The capital is contributed by participating industries in the ratio of the power supplied by APGPCL for consumption of participating industries. The power generated by the APGPCL is not for sale and it is formed for the mutual benefit of the shareholders and not for gaining any profit. For the purpose of distribution of pow....
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....pose of acquisition of shares of APGPCL for the purpose of business advantage and it cannot be considered as investment in relation to earning of income exempted from tax. The benefit derived by the assessee by this investment is more than interest incurred by the assessee towards loan from ICICI Bank. The investment in the shares by the assessee by borrowing money from ICICI Bank to be seen with saving of power cost. The assessee derived exorbitant benefit on the cost of power. Had the assessee not investment in the shares of APGPCL, the assessee should have incurred additional expenditure towards supply of power. Admittedly, the investment in shares of APGPCL by borrowing money from ICICI Bank and saving of power cost is having direct nex....