TaxTMI 
TaxTMI 
2013 (8) TMI 518
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..... 10,13,05,222/-. Aggrieved by the order of Assessing Officer(Assessing Officer), Assessee carried the matter before CIT(A). CIT(A) vide order dated 31.12.2012 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A) both the Assessee and Revenue are in appeal before us. 4. The ground raised by the Assessee reads as under: 1. The Learned Commissioner of Income Tax, (Appeals)-VI, Baroda has erred in law and on facts of the case by holding that the appellant has given interest free loan of Rs. 2,50,00,000/- to Garda Foundation, and accordingly, proportionate interest for the period of loan granted is to be disallowed out of interest expenditure. 5. On the other hand, the ground raised by the Revenue reads as under: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing to cancel disallowance of interest free credit to Gharda Chemicals Limited (GCL) and in further directing to restrict interest disallowance in respect of interest free loan to Gharda Foundation. We now take up Assessee's appeal in ITA No. 556/Ahd/2013 6. During the course of assessment proceedings Assessing Officer noticed that ....
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....lowance). This ground of appeal is partly allowed. 7. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us. 8. Before us the learned A.R. submitted during the year under appeal the reserves and surplus of the Assessee as per the audited Balance Sheet increased by Rs. 9.40 crore (opening balance as on 1/4/2008 was Rs. 56.41 crore and balance as on 31.3.2009 was Rs. 65.82 crore) whereas the interest free loan given to Gharda Foundation was Rs. 2.5 crore. It was thus submitted that since the Assessee was having sufficient interest free funds, the same were used to lend money to Gharda Foundation. The learned A.R. further submitted that the increase in secured loan was from banks for the purpose of working capital limits. He also placed on record, the copy of the balance sheet at page 15 of the paper book in support of his contention of having sufficient interest free funds. He thus submitted that no interest bearing funds have been used for lending the money and for which he also placed reliance on the decision of Bombay High Court in the case of CIT vs. Reliance Utilities and Power Limited 2009 313 ITR 340 (Bom.) in his support. He also placed reliance in t....
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.... 14. During the course of assessment proceedings, Assessing Officer noticed that Assessee has obtained working capital facilities from Bank of Baroda and has paid interest and other financial charges to the tune of Rs. 68.55 lakhs out of the total expenses of Rs. 125.45 lakhs under the head interest and finance charges. He further noticed that the Assessee was showing receivable of Rs. 8,01,40,700/- due from Gharda Chemicals Ltd, the Assessee's holding company on 31.03.2009. He further noticed that Assessee has not charged interest on the aforesaid debit balance. The Assessee was asked to justify not charging of interest. The submissions made by the Assessee was not acceptable to the Assessing Officer. He concluded that it was a case of parking of interest bearing funds of the Assessee with its associate. He further noticed that Assessee has borrowed funds for working capital facilities and by not enforcing the payment of closing debit balance of Rs. 8.01 crore, the Assessee has given an undue advantage to its holding company. He was of the view that had the Assessee not resorted to diversion of funds and had been regular in receiving outstanding payments from the beginning of the ....
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.... or customers but the business relationship with GCL was on different terms being a holding company and in that capacity GCL has provided specialized services to assessee in the field of manufacturing and marketing. All these facts were narrated to Learned CIT (A) through written submissions which were placed before us on page No. 138 to 190 of Paper-book. From this discussion, it is evident that the assessee company had a regular business transaction and it was not for any extraneous consideration. In the regular course of business purchases and sales have been made with the said concern and not with the intention to siphon out the borrowed funds. The factum of the case thus demonstrated that the assessee has taken a commercial decision keeping in mind the interest of its business and the other surrounding circumstances under which the assessee was getting facilities. Once it was a commercial decision, then the courts have held that it is not proper for the revenue authorities to step into the shoes of a business man to decide whether such a commercial decision was advantageous or not. Rather, we are of the view that the AO has proceeded merely on this presumption that the borrowe....
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....year 2003-04 in ITA NO. 501/Ahd/2008 and other appeals Revenue had raised the following grounds in appeal before Hon. Tribunal . "1. The learned CIT(A) has erred on facts and in law in directly to rework out the interest disallowance after allowing for 4 months credit period in respect of each transaction with the holding company. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that interest of Rs. 1,29,25,000/- was for huge debit balance which the assessee was not regularly and timely recovering. Regular and timely recovery of the debit balances had direct bearing on the assessee's profitability." 18. The Hon. Tribunal vide order dated 27.03.2012 decided the issue against the Revenue by holding as under: 3.4 We have carefully considered the rival submissions and also perused the materials available on record and the paper book submitted by the Ld. A.R. At the outset, it is observed that this issue is covered in favour of the Assessee in assessee's own case by the order of the ITAT, B Bench, Ahmedabad dated 31.05.2011 in ITA NO. 460/Ahd/2008 for the assessment year 2001-02 as submitted by the ld. A.R....
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....s a proper for the revenue authorities to step in to the shoes of a business man to decide whether such a commercial decision was advantageous or not. Rather, we are of the view that the Assessing Officer has proceeded merely on this presumption that the borrowed funds of Bank of Baroda have been siphoned to GCL, but no specific instance or transaction was demonstrated. As far as the ld. CIT(A)'s view was concerned, the grant of four months credit facility also appeared to be on presumption because that facility must not be applied in uniform manner to all the parties. In general, as per the business trend, each customer has its own terms and condition and, therefore, the terms of payment differ from one party to another party. A businessman's view point must be seen and for that, the test of commercial expediency to be adjudged from business benefit. Therefore by one single yard-stick all the transactions having different nature of character or modalities must not be measured. We are of the view that this is not the case where some undue advantage was passed on to the said holding company. In the light of the above discussion, we therefore conclude that the disallowance was made m....