TaxTMI 
TaxTMI 
2015 (3) TMI 895
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....rowed funds, to its sister concern?; (2) Did the ITAT fall into error in holding that the sum of Rs. 25,04,385/- brought to tax by the AO on the interest free deposit of ` 1,75,50,000/- was not sustainable?; (3) Is the ITAT's order- that the assessee's revised net taxable income of Rs. 4,08,24,559/- held by the CIT (A) to be unsustainable - and its acceptance of Rs. 1,63,60,896 as net taxable income (for AY 2008-09) erroneous? 3. The assessee is engaged in manufacturing and trading of auto components and dealership business of Maruti vehicles. In addition, it is also engaged in leasing business, CNG conversion of vehicles and high security license plates. The objects of the company also include dealing in real estate. During assessment for AY 2007-20008, it was noticed from the return of income that the assessee paid interest on borrowed capitals amounting to Rs. 7,54,44,421/-. At the same time, the assessee gave interest free advances to its associate company, M/s DD Properties (P) Ltd to the tune of Rs. 23,28,50,000/-. The assessee, in its return of income stated that the said advance was given to M/s DD Township Ltd, a company under same management in terms of Memorandum of ....
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....ge rate of interest which resulted in limited relief to the assessee. The CIT (A) concluded that there was "direct nexus between the interest bearing funds and interest free funds of Rs. 23,28,50,000 given to DD Properties (P) ltd. The Balance Sheet shows that the appellant has a working capital limit with Indian overseas Bank and it is appearing under the head „Secured loans‟. Further from the perusal of copy of account of Indian Overseas Bank from which the appellant has issued cheqeus to DD Properties (P) ltd. as interest free funds, (being alleged as advance for properties), it is seen that on all the days when the payments were made to DD Properties (P) ltd., the balance as per bank statement had always been a debit balance i.e. overdraft. Hence beyond any iota of doubt, it is evident that interest bearing funds from Indian Overseas Bank have been given to DD Properties (P) Ltd..... In such an event when there is a direct payment from the Indian Overseas Bank on which interest is being paid by the appellant, I fail to understand how the appellant claims that the payment made to DD Properties (P) ltd is from his own funds and from interest free funds, when the fact....
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....and no borrowed funds were used for these advances and that no disallowance of interest expenditure was made during those years in orders made under Section 143(3) and no disallowance could be made in the assessment years in dispute, as facts were identical. It was also held that the disallowance under Section 36(1)(iii) cannot be extended to advances given in the AY which are opening balances during the year. 8. The ITAT recorded its conclusions as follows: "14. We have heard the rival contentions. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and the orders of the authorities below, we hold as follows. 15. The Ld.CIT(A) after considering the arguments of the assessee at para 7 states as follows: "From the perusal of the appellant‟s submissions, I am in agreement with the appellant‟s claim that in their case the disallowance u/s 36(1)(iü) cannot be made because no property/capital assets have been acquired by them." 16. This specific finding of the Ld.CIT(A) has not been challenged by the Revenue either in the grounds of appeal or by way of an argument during the course of appeal proceedings. When it ....
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....i) even otherwise, because the proportionate amount of interest is needed to be added back, as the assessee during the course of the assessment proceedings has itself submitted that it has advanced the loans to its associate company for the purpose of acquiring a show room. This clearly meant "extension of existing business or profession". The revenue also disputes the factual findings of the ITAT regarding the actual advances having been made in previous years, pointing out that financial years 2005-06 and 2006-07 correspond to the assessment years in dispute. It is also urged that the finding regarding the acceptance- in scrutiny assessments- for previous years, having become final could not have been rendered. It is argued that the ITAT should not have followed the previous year's decisions, given that each assessment year constitutes a fresh cause, affording the revenue a new look at the materials placed before it. The assessee, on the other hand, contends that the ITAT's decision is entirely fact based, as it had the benefit of looking into the records. It is urged that in fact, for the assessment years in question, no advances were made to the assessee's sister concern. Havin....
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....hat the ITAT held against the Revenue on this aspect. The ITAT noted the terms of the Memorandum of Understanding (MOU) dated 28.05.2005 entered into with D.D. Properties where it had agreed to invest money in the project by way of advance. This document had not been rejected either by the AO or the CIT (A). The balance sheet of D.D. Properties Pvt. Ltd., a sister concern was also considered by the ITAT. This disclosed that as on 31.03.2006 it had inventories in the form of land to the extent of Rs. 32.4 crores. In these circumstances, given the nature of the MOU, the ITAT in our opinion rightly concluded that the Revenue's reasoning was unsound. The ITAT also relied upon Sassoon J. David & Co. Pvt. Ltd. v. CIT, 118 ITR 261 (SC). This Court had in a similar context, held in Commissioner of Income Tax v Bharti Televenture [2011] 331 ITR 502 (Del) that: "11. The Hon'ble Supreme Court further held that though, the borrowed amount was not utilized by the assessee in its own business and had been advanced as an interest-free loan to the sister concern, but that is not relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commer....
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....rlier part of the said year, the assessee had entered into an agreement, which itself kept the security deposit amount @ Rs. 25 lakhs. The assessee contended that the arrangement had been originally settled nearly a decade ago and given the increase in rental values over the years, the increase in security deposit amount was warranted and in any case, it was a commercial decision which could not have been gone into unless the AO had concrete material to contend that the transaction was a sham or illusory. Whether that amount was used for business or not ultimately depended on the assessee and not anyone else. 13. This court does not discern any rationale in the revenue's argument here. That the assessee needed the premises is not in dispute; equally it had a consistent and long standing arrangement with the sister concern, is undisputed. The rental arrangement was in the form of a commission payable according to the business of the owner of the premises, i.e the sister concern. It was not disputed that the security deposit had not been increased for a long time. That it was initially kept at the old level but increased during the year was a matter of fact. However, singling out th....