TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1352
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.... record (in ITA Nos. 4558 & 4723/Mum/2007 dated 24.06.2011). He would then take us to the relevant parts of the said order, to exhibit of the issues being the same, arising out of the same Memorandum of Understanding (MoU) and the same set of facts, so that the tribunal's order for that year in its case would be applicable for the current years as well. Ground 3 for A.Y. 2007-08 as well as Gd. 'A' of the assessee's CO, concern a fresh issue, and on which arguments would be required to be made. 3. We have heard the parties, and perused the material on record. 3.1 Ground No. 1 for both the years is in respect of sharing of common pool expenses. For the purpose of our discussion, we shall refer to the figures for A.Y. 2005-06. The assessee claimed Rs.1,08,00,859/- by way of debit to its profit and loss account toward reimbursement of administrative/consultancy charges to two group concerns, namely, M/s. Jaigopal Consultancy Services Pvt. Ltd. (Rs.84.15 lacs) and M/s. Ahuja Resource Management (Rs.23.85 lacs). Likewise for A.Y. 2007-08, for which the total charge stood at Rs.17.23 lacs. The A.O. found the assessee's claim unacceptable inasmuch as the assessee had failed to exhibit th....
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....isallowance of interest paid by the assessee to Ahuja Properties Ltd., a sister concern, on the ground of it being paid in excess, i.e., u/s.40A(2)(a). The tribunal was similarly confronted with the said issue for A.Y. 2003-04, which stands dealt with vide paras 41 to 44 of its order dated 24.06.2011 supra; the last para containing its relevant findings : "44. We have heard the rival contentions. The learned D.R. relied on the order of the AO. We have considered the submission. We find that Ahuja Properties is group concern carrying on the business of financing i.e. it borrows from the market and lends to any of the group concerns in requirement of fund. Loans are mostly borrowed through brokers and hence, brokerage of 3% is charged over and above the rate of interest. In assessee's case, loans borrowed from outsiders were in majority of case at the rate of interest including brokerage ranging 18% to 27%. Thus, average rate of interest worked out to more than 18% as against the finding of the AO that the Assessee borrowed from outsiders/others @ 15%. Ahuja Properties has in turn borrowed funds from outsiders and has paid interest ranging from 15% to 21%. It has charge....
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....ated to be rejected. What is relevant is the rate at which the interest is paid, and which by definition would only be with reference to the sums availed of from time to time; being only a price for making available a resource (money), and which also explains its price being defined w.r.t unit of time. This is particularly so where the amount is not fixed, but keeps fluctuating, as in the form of a current account, as in the instant case. In fact, the assessee has itself been charged and has paid interest on that basis. As such, to compute the interest rate on the basis of the peak amount outstanding during the year, i.e., in reckoning the interest rate for the purpose of its comparability with reference to the fair market rate (price) thereof, is misconceived and misleading, and stands rightly rejected by the A.O. In fact, the assessee's explanation itself is a tacit admission of the prevailing interest rate being lower inasmuch as it justifies the interest paid on the basis of incurring interest cost at a much lower rate of 16.60% p.a. and 13.50% p.a. for the two years respectively. 6.2 The ld. CIT(A) for A.Y. 2003-04 allowed the assessee's appeal on the basis of a factual findi....
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....cede a factual examination and determination. In this view of the matter, the reliance on the order by the first appellate authority for A.Y. 2003-04, as well as by the assessee on the order by the tribunal endorsing the findings of the first appellate authority for that year before us, would, therefore, be of no moment or assistance. In fact, if anything, the order of the first appellate authority can only be considered as in endorsement of the interest rate/s, i.e., independent and apart from brokerage, for the previous year relevant to A.Y. 2003-04 as being in the range of 15% p.a., as assumed by the A.O. for that year as also for the current years. As regards the assessee's explanation for the current years, we have already expressed our view of it being without merit. 6.4 Under the circumstances, therefore, we only consider it fit and proper to restore this issue back to the file of the ld. CIT(A) for an adjudication afresh in accordance with law, by issuing definite findings of fact, and after allowing proper opportunity of hearing to both the sides. We decide accordingly. 7. Ground No.3 of the Revenue's appeal for AY 2005-06 is in respect of a disallowance u/s. 40A(2)(a) ....
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....d the parties, and perused the material on record, including the order by the tribunal for A.Y. 2003-04 (supra). The tribunal, relying on the decision by the hon'ble jurisdictional high court in the case of CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom), found that the assessee's claim of having sufficient interestfree advances (Rs.12.88 crores) to cover the interest-free advances (Rs.4.16 crores), qua which the impugned disallowance had been worked out, as valid. This is as this would prima facie raise a presumption of availability of sufficient interest-free funds, so that no disallowance is called for. For the current year, the A.O. has in fact done exactly that. The impugned disallowance of Rs.16,53,270/- has been worked out by him by applying the interest rate of 15% p.a. on the excess of interest-free advances given (Rs.670.27 lacs) over the interest-free advances (credit) availed of by the assessee (Rs.560.05 lacs), i.e., at Rs.110.22 lacs. The ld. CIT(A) examined the assessee's case from the stand point of S. A. Builders Ltd. vs. CIT [2007] 288 ITR 1 (SC), to find that no case of commercial expediency stood made out. The relief allowed by her to the asses....
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.... fact by the tribunal of sufficient interest-free capital, even as was the case with the tribunal in the assessee's case for A.Y. 2003-04. That the said decision by the hon'ble court is rendered on the facts of the case stands confirmed by it in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom). The matter is, thus, primarily and principally factual. We have already clarified of the decision of the tribunal in the assessee's own case for A.Y. 2003-04 as having been influenced by the year-end balances, also adopted by the A.O. in the instant case (the interest-free advances exceeding the interest-free advances availed, i.e., on the basis of the year-end balances), and which may not be indicative of the correct fund availment obtaining during the year, even as argued by the assessee itself. Toward this, we are in agreement with the assessee that it is the average outstanding during the year and not the year-end balance that is relevant. This is as the balance may not be constant but vary from time to time. Secondly, interest, as a measure of the resource cost, would depend on the resource actually utilized. In fact, the interest incurred, a part of which is disallowed f....