TaxTMI 
TaxTMI 
2013 (7) TMI 444
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....tal income was determined at Rs. 89,98,24,992/-. The assessee and the Revenue had filed appeals before Hon'ble ITAT against the order of CIT(A). Hon'ble ITAT vide order ITA Nos. 1351/Ahd/2005 & 1227/Ahd/2005 dated 30.09.2008 and 07.11.2008 has set aside certain issues to the file of A.O. for A.Y. 01-02 and also for A.Y. 02-03 vide order in ITA No.1010/Ahd/2005. Pursuant to the Hon'ble ITAT's direction, the A.O. vide his order dated 29.12.2009 passed u/s. 143(3) r.w.s. 250 of the IT Act had determined the total income at Rs. 63,25,16,401/- for A.Y. 2001-02 and Rs. 79,34,34,060/- for A.Y. 02-03. Aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A). CIT(A), vide his order dated 15.03.2010, allowed the appeal of the assessee. Aggrieved by the aforesaid order of the CIT(A), the Revenue is now in appeal before us and raised following effective grounds in both assessment years: For A.Y. 2001-02 "1(i). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting addition of Rs. 7,97,82,157/- on account of disallowance of interest on interest free loans / advances given by the assessee to its subsidiaries an....
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.... hand, the assessee was paying heavy interest on the secured and unsecured loan. The A.O. was of the view that the assessee has parted the borrowed funds for loan and advances to the parties, the details of which are as under: 1 GNAL 40,82,08,176 2 Narmada Education and Scientific Society 3,48,99,629 3 Gujarat Narmada Finance & Investment Co. Ltd. 1,27,483 Total 44,32,35,288 The A.O. further observed that the assessee was having interest free funds of Rs. 1,75,469.32 lacs and investment of Rs. 2,61,646.15 lacs. If the secured loan were also considered for purchases of assets, the total fund worked to Rs. 2,31,291.63 lacs. Thus, the A.O. held that the borrowed funds were utilized for making interest free advances and made addition of Rs. 7,97,82,157/-. Hon'ble ITAT set aside the issue to the A.O. for the reason that the issue was not considered from the angle of business expediency. Pursuant to the directions of Hon'ble ITAT, A.O. asked the assessee to furnish the details of interest free advances alongwith the reasons and to prove that the money was advanced as a measure of commercial expediency. The assessee, inter alia, submitted t....
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....ly submission that the children of the staff members/officers are benefited from the education institute is not sufficient to prove business expediency. 5.5.2 in respect of advances to Gujarat Narmada Finance & Investment Co. Ltd. the assesse Company has totally failed to prove business expediency as directed by the Hon'ble ITAT and decided In the case of S.A. Builder. The assessee Company has to establish nexus between the expenditure and the purpose of the business. 5.5.3 To avoid/reduce the taxability, the assessee Company has taken the loan and paid and claim the interest in its own case and diverted the fund into the loss making Company. 5.5.4 After considering all the facts of the case and submission made by the assessee Company it is concluded that the assessee Company has totally failed to prove the business expediency of the interest free advances to the subsidiary Companies and hence by applying the rate of interest of 18% P.A. interest payment of Rs,7,97,82,157/- is hereby disallowed and added back to the total income of the assessee Company. Penalty proceeding for furnishing inaccurate particulars and thereby concealment of income is initi....
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....nsuring educational facilities to the children of its employees which in turn would enable it to attract and retain talented employees for the purposes of its business. Thus, the loan is for business purpose for education of children was a part and parcel of staff welfare activity. It was further submitted that the funds were given out of surplus funds available with the company. It was, thus, submitted that the case of the assessee was covered by Hon'ble Supreme Court's decision in case of SA Builders 288 ITR 1. Ld. A.R. further submitted that on identical facts for A.Y. 1992-93, 93-94 & 94-95, the Revenue had preferred appeal before Hon'ble Gujarat High Court. Hon'ble Gujarat High Court dismissed the appeals of the Revenue. He placed on record the copy of the judgments in Tax Appeal No. 399, 400 & 401 of 2000 at page nos. 119 to 126 of the paper book. He further submitted that in this matter, before Hon'ble High Court, the three concerns to which the advances were made were same as in the present case. The assessee has also placed on record a copy of its balance sheet to point out that the interest free share holders funds in the form of capital and reserves and surplus was to th....
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.... company for the purpose of its own business have been diverted for non-business purposes and that no direct nexus had been proved by the Assessing Officer between interest bearing loans taken and interest free advances given. In the light of the aforesaid findings, the decision of the Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals) Chandigarh and Another (supra) would not be applicable to the facts of the present case. When no interest bearing funds have been diverted to the sister concern by way of interest free advances. The question of going into the commercial expediency of such loans would not arise. In fact, in the light of the findings recorded by the Tribunal, the question as formulated while admitting the appeals would not arise as on facts there is no diversion of interest bearing funds to interest free advances. In the circumstances, the Tribunal was justified in deleting disallowance made under section 36(1)(iii) of the Act." Respectfully following the decision of Hon'ble Gujarat High Court, we find no reason to interfere with the order of CIT(A) and thus, we uphold the order of CIT(A) and therefore, this ground of Revenue is ....
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....o not carry any interest. The making of investment is not a distinct activity with an objective of earning tax free income. The borrowing made by the company is always for the purpose of businesses and the income from which is taxable. Considering all these aspects and also considering the judicial pronouncements cited by the ld. AR, I hold that the AO has erred in making disallowance of Rs. 64.00 lacs u/s.14A. This ground of appeal is therefore allowed." 10. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. 11. Before us, the ld. CIT D.R. submitted that the onus was on assessee to prove that no interest bearing fund has been used for the purpose of making investment and which the assessee had not discharged. He placed reliance on the decision of Special Bench in the case of ITO vs. Daga Capital Management (P) Ltd. (2008) 119 TTJ 289 (Mum) for the proposition that the onus is on the assessee to prove that no expenditure was incurred for earning tax free income. He also placed reliance in the case of Dhanuka and Sons vs. CIT (2011) 339 ITR 0319. Ld. A.R., on the other hand, submitted that no new investment has been made by the assessee in the current year. ....