TaxTMI 
TaxTMI 
2015 (1) TMI 909
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....and no fresh loan is raised during the year to give share application money and the disallowance of interest is uncalled for. 3. The additions made are illegal and bad in law and it are based on surmises and conjectures. The addition made cannot be justified by any material on record. 4. That the explanations given, evidence produced and material available on record has not been properly considered and judicially interpreted. 5. That the interest u/s 234B has been wrongly and illegally charged as the appellant could not have foreseen the additions and as such there is no default of advance tax. In any case the interest charged u/s 234B is also excessive." 3. Vide Ground Nos. 1 to 4 the grievance of the assessee relates to the confirmation of disallowance amounting to Rs. 42,52,000/- made by the AO on account of interest. 4. Facts of the case in brief are that the assessee filed the return of income on 16.10.2007 showing Nil income which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 08.09.2008. Later on, the case was selected for scrutiny. 5. During the course of assessment proceedings the AO noticed that the assessee had....
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....s CIT (1979) 118 ITR 200 (SC) Marolia and Sons (1981) 129 ITR 475 (All.) Milapchand Rs. Shah Vs CIT (1965) 58 ITR 525 (Mad.) Roopchand Chabildass and Sons Vs CIT (1967) 63 ITR 166 (Mad.) H. R. Sugar Factory (P.) Ltd. (1991) 187 ITR 363(All) CIT Vs Saraya Sugar Mills (P.) Ltd. (1992) 193 ITR 575(All) Bombay Samachar Ltd. (1969) 74 ITR 723 (Bom.) Ram Kishan Oil Mills Vs CIT (1965) 56 ITR 186 (MP) Amna Bai Hajee Issa Vs CIT (1964) 51 ITR 835 (Mad.) H. P. Lohia (1993) 203 ITR 928 (Cal.) Sridev Enterprises (1991) 192 ITR 165 (Kar.) 8. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessee company was engaged in the business of financing and investment activities which were very well within the main object defined by its Memorandum of Association and Article of Association. It was further stated that the assessee was authorized to conduct the activities of financing, lending and investment which had been conducted by the assessee during the year as was apparent from the balance sheet and also from the chart as prepared by the AO in the assessment order with regard to the source and application of funds. It was co....
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....ee company had taken unsecured loan specifically for diverting the same to give share application money was not correct. The assessee also submitted to the ld. CIT(A) as under: "Further kindly note that the Assessee Company has received unsecured loan of Rs. 5,50,00,000/- and paid Share Application Money of Rs. 4,25,00,000/- in AY 2006-07 and not in AY 2007-08 which is under consideration. The Assessee Company continued to pursue the above Finance and Investment activities in assessment year under Appeal which is evident from Fund Flow Statement for AY 07-08 attached herewith. From the Fund Flow statement, your honor will also appreciate that Assessee Company has given Inter Corporate Deposits of Rs. 1,53,00,000/- to M/s ACBPL and earned Interest Income of Rs. 12,87,124/-. Further the Assessee Company has received new loan of Rs. 2,50,00,000/- from M/s ACBPL & M/s Bhandari Consultancy & Finance Pvt. Ltd. and repaid the old loan of Rs. 3,00,00,000/- out of Rs. 5,50,00,000/- of Unsecured Loans taken during last year. The detailed chart of Unsecured Loan taken/repaid during the year and interest paid is enclosed herewith. The interest paid for Rs. 49,97,341/- during the year und....
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....al income of Rs. 26,93,374/- consisting of Rs. 12,87,124/- from interest income and Rs. 14,06,250/- as dividend income but the assessee had failed to establish that the share application money was paid for the purpose of business. He further observed that the amount had been shown by the assessee as share application money just for the name sake, as no shares were allotted and the amount was received back just after the year end i.e. in April, 2007. The ld. CIT(A) observed that merely because a company was authorized by its Memorandum to invest in shares, it would not imply that any amount paid which was stated or shown by the assessee as share application money was for the purpose of the business. Therefore, the interest amount could not be allowed as deduction to the assessee either u/s 37 or 36(1)(iii) of the Act and even otherwise, under all circumstances, the amount would be hit by provisions of Section 14A of the Act and would therefore be not allowable to the assessee. The ld. CIT(A) also observed that the assessee was claiming entire expenditure of Rs. 53,86,403/- including interest expenses of Rs. 49,97,341/- as business expenses on the ground that object clause in the Mem....
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....sessment order dated 30.11.2009. The reliance was also placed on the following case laws: CIT Vs Holcim India P. Ltd. in ITA No. 486/2014 & 299/2014. Judgment dated 05.09.2014 of Hon'ble Delhi High Court CIT Vs Reliance Utilities & Power Ltd. (2009) 313 ITR 340(Bom.) CIT Vs Sridev Enterprises (1991) 192 ITR 165 (KAR) 13. In his rival submissions the ld. DR reiterated the observations made by the AO and strongly supported the orders of the authorities below. He further submitted that the assessee utilized the interest bearing funds for non-business purpose, therefore, the disallowance was rightly made by the AO and the ld. CIT(A) was fully justified in confirming the addition made by the AO. 14. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is an admitted fact that the assessee was a Non-Banking Financial Company and its Memorandum of Association and Articles of Association authorized it to do the business of Financing and Investment. The assessee in the preceding year received unsecured loans of Rs. 5,50,00,000/- which were initially utilized for giving Inter Corporate De....
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....L and M/s Bhandari Consultancy & Finance Pvt. Ltd., the said amount was utilized for making the repayment of the old loan therefore the interest paid amounting to Rs. 49,97,341/- was allowable u/s 36(1)(iii) of the Act and the AO was not justified in making the disallowance on account of notional interest @ 10% on the share application money of Rs. 4,25,00,000/-. In the instant case it is an admitted fact that the AO allowed the claim of the assessee regarding interest on borrowed capital in the preceding year i.e. the assessment year 2006-07 and there is no change in the facts for the year under consideration vis-à-vis the preceding year, moreover, the loan received in the year under consideration was utilized for making the repayment of the old loans. Therefore, no disallowance was called for in the year under consideration even by keeping view the principles of consistency. In this regard, the Lordships of the Hon'ble Karnataka High Court in the case of CIT Vs Sridev Enterprises (1991) 192 ITR 165 (supra) has observed in para 7 as under: "7. We are in agreement with the view expressed by the Appellate Tribunal. The status of the amount outstanding from Nalanda on the f....