TaxTMI 
TaxTMI 
2013 (9) TMI 377
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....nishing return and hence the Assessing Officer disallowed the said amount. In appeal, the assessee submitted that the ex-gratia is not in the nature of bonus and is not covered by section 43B of the Act. The CIT(A) made an observation that the claim made under ex-gratia may not be covered under section 43B. However, he confirmed the disallowance on the ground that the same was not paid before the due date for furnishing the return. 3. Aggrieved, the assessee is in appeal before us. 4. We have heard both the parties and perused the material on record. We are of the opinion that the CIT(A) having held that ex-gratia is not covered by section 43B, is not justified in upholding the disallowance relying on the decision of Hon'ble Madras High Court in the case of CIT vs. Mettur Chemicals & Industrial Corporation Ltd. (1999) 239 ITR 537 (Mad.) as the amount of ex-gratia cannot be regarded as bonus and requirements of section 37 are fully satisfied, we delete the addition. 5. The next issue is with respect to disallowance of interest of Rs.64,82,223/-, the Assessing Officer found that the assessee has invested an amount of Rs.15 crores towards share application money in various co....
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....d accordingly made the disallowance at that amount only. The Assessing Officer relied on the decision of V. Baby & Co. 254 ITR 248 and disallowed the claim of interest made by the assessee. On appeal before the CIT(A), the assessee has explained as follows : 3.4. "The investment of Rs.500 Lakhs in M/s.GVK Infrastructure Holdings Ltd., was shown to have been funded out of amount of Rs.48,09,000/- received on sale of mastergain units, and interest-free loans of RS.72.40 lakhs, RS.I00 lakhs and Rs.275 lakhs (total Rs.447 lakhs) received from M/s.Pinakini Shares & Stock Braking Pvt. Ltd. The balance of Rs.5 lakhs was explained as having been met out of income from operations. (Pages 22, 26 and 28 of paper book) 3.5. The investment of Rs.500 Lakhs in M/s.Trinity Advisors Pvt.Ltd. was shown to have been funded out of amount of RS.500 lakhs received against sale of shares in M/s.GVK industries Ltd. (Pages 22, 26 and 28 of paper book. Also see schedule 5 to balance sheet - page 18 of paper book) 3.6 The investment of Rs.250 lakhs in M/s.GVK Power Pvt.Ltd was shown to have been met out of RS.175 lakhs of income from consultancy and Rs.75 lakhs of income from operations. (Pages 22, ....
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....ere from internal accruals, realisation of old investments etc. but not out of borrowed funds. The learned Counsel for the assessee also filed details of short term loans raised from Bank of Nova Scotia and the details of utilisation of the loans to show that such loans were utilised either for reducing working capital borrowings or for giving inter-corporate deposits/loans on which interest was earned during the year. The Learned Counsel for the assessee pointed out that it earned interest of Rs.2,18,87,669/- as against Rs.150,39,154/- earned in the preceding year. There is thus increase of RS.68 lakhs in interest earning. The learned Counsel for the assessee also pointed out that it incurred interest of Rs.67,71,274/- during the year as against Rs.80,55,606/- in the preceding year resulting in reduction of expenditure by Rs.13 lakhs. 9. Learned Counsel for the assessee also submitted that the CIT(A) failed in appreciating that the assessee obtained interest-free funds which were utilised for making the impugned investments. The CIT(A) ought to have appreciated that the mere fact that realisation of investment and interest-free loans etc. were routed through the CC/OD accounts ....
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....pany, were made out of withdrawals made from different bank accounts maintained with IOB, IDBI and ICICI Bank Ltd. Since there were transfer of amounts from one bank account to another, it can be construed that borrowed funds have also been utilized for making the above investment of Rs. 2.5 crores which have been made by way of deposits made on different dates spread over a period from 03.09.2003 to 29.03.2004". 12. In these circumstances, we remit the issue to the file of the Assessing Officer and the assessee shall prove by adducing the relevant details with respect to the following : (i) It has been making inter corporate deposits out of its surplus funds and has been earning substantial interest on such deposits and loans since many years. (ii) The investments made during the year are from internal accruals and realisation of old investment. (iii) The assessee has been earning profits for the last 20 years. (iv) The short term loan of Rs.3.5 crores taken from Bank of Nova Scotia was either utilised for making interest bearing inter corporate deposits to various concerns or for working capital need of the assessee company. (v) During the year the interest earning....
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....interest of Rs.1,ll,64,992/- was disallowed. 17. In first appeal, the assessee reiterated the submissions made before the A.O It was also submitted the monies invested by the assessee were either out of the monies generated from the operations of its business or by liquidating investments made in earlier years. The assessee pointed out that there was overall reduction in investments to the tune of Rs,12,39,44,052/- and secured loans also came down by Rs.6,36,81,746/- (from 15,45,89,211/- to Rs.9,09,07,465/-. The assessee also submitted that it had strategically invested R.s.14,80,45,000/- in M/s.GVK Petrochemicals Ltd., which was supplying one of the main raw materials required in production of finished products of the assessee viz., PPS and MFPB. In this connection the assessee also relied on the decision of the Apex Court in the case of C.I.T vs SA Builders Ltd., 288 ITR 1 SC wherein their lordships held that if advance is given for purposes of business, no disallowance of interest is required to be made. 18. The CIT(A) noticed the decision in the case of CIT vs Prem Heavy Engg. Works (P) Ltd., 150 Taxman 90 ALL (285 ITR 554) wherein the assessee company had borrowed certai....
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....d evidence to show that it had interest-free funds available for making investments in sister concerns. In the case of investments in Trinity Advisors Pvt. Ltd., the assessee furnished details showing that return of share application money from GVK Infrastructure Holding Pvt. Ltd., was available for making the investment Similarly the return of share application money from Trinity Advisors Pvt. Ltd., was used for investment in GVK Cements Pvt. Ltd. Similarly the additional investment in M/s.GVK Petrochemicals Pvt. Ltd was met out of return of share application money from M/s. Visual Quest India (P) Ltd., , sale of IClCI investments and ICD converted into equity. The learned C.I.T(A) is not justified in sustaining the disallowance without considering the evidence placed on record by the assessee. Having noticed several decided cases which supported the assessee's claim the learned C.I.T(A) erred in merely following the order of his predecessor which itself was based on incorrect premises. The learned CIT(A) ought to have appreciated that not only there was increase in the reserves and surpluses from RS.39.29 crores to Rs. 42.52 crores during the year but the secured loans also had g....
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....st bearing funds for investment in Associated Companies. 28. In first appeal, the learned CIT(A) gave partial relief following reasoning of his predecessor in the appellate order for the assessment year 2004-2005. The assessee also went in appeal before the ITAT. The assessee makes submissions before the ITAT to substantiate its claim that he did not utilised interest bearing funds in making any of the impugned investments. Now the department's appeal in assessment year 2006-2007 in ITA.No.900/H/2010 has raised two grounds of appeal which are as follows : 1. "The CIT(A) erred in facts and in law in following the decision of predecessor CIT(A) in the case of assessee for assessment year 2004-05 thereby ignoring the facts of intervening assessment year 2005-06 and ignoring the changes in facts and circumstances of the case. 2. The order of CIT(A) is beyond the scope of provisions of section 251 of the Income Tax Act as the issue of disallowed interest in the assessment order was not confirmed, reduced, enhanced or annulled". 29. The learned Counsel for the assessee, submitted that having accepted the decision of the CIT(A) for assessment year 2004-05, the department canno....