TaxTMI 
TaxTMI 
2015 (6) TMI 70
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.... the loan was diverted for non-business purposes. It is seen from the assessment order that Prayag Enterprises Ltd., is rendering services as delcredere agent to the assessee for a long time and it is also rendering similar services to other distilleries bottling the brands of UB Group in the state of Andhra Pradesh. During the year under consideration, the assessee has paid an amount of Rs. 2,43,12,028/- to Prayag Enterprises Ltd., as delcredere commission and therefore, the Assessing Officer opined that the trade advance of Rs. 43.60 Crores cannot be said to have any connection to the existing business relationship with the assessee and the Assessing Officer stated that it is difficult to believe existence of business prudency especially when huge amount of Rs. 43.60 Crores of interest bearing borrowed funds are given as interest free trade advance. 3. Before the CIT (A), it was submitted by the assessee as follows: Trade advance of Rs. 43.60 Crores to M/s. Prayag Enterprises Limited: M/s. Prayag Enterprises P. Ltd., is the delcredere agent for the assessee and other distilleries in Andhra Pradesh bottling the brands of United Spirits Limited (USL). This advance had been gi....
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....ioned loan, the appellant applied the funds; * Rs. 57.42 crores was paid to M/s. Pearl Distilleries Ltd., * Rs. 22.00 crores was paid to M/s. Diadem Enterprises P. Ltd., and * Rs. 43.60 crores was paid to M/s. Prayag Enterprises P. Ltd., f) The appellant intended to strengthen its market reach and enhance its manufacturing capacity by acquiring more Distilleries and approached PRAYAG with a mandate to look for acquisitions for its. PRAYAG agreed to undertake the assignment provided it is given certain amount as advance which could be used immediately if an attractive opportunity arises. g) The Assessing Officer accepted the appellant's submission that the advances to M/s. Pearl Distilleries P. Ltd., and M/s. Diadem Enterprises P. Ltd., were made during the course of and for the purpose of the appellant's business. As per section 36(1)(iii) of the Income Tax Act, 'the amount of interest paid in respect of capital borrowed for the purpose of business or profession' has to be allowed as deduction. In the preceding paragraph the appellant has unambiguously demonstrated as to how the amount paid to PRAYAG is relevant for its business. The decision of....
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....ceed. There is no dispute that PRAYAG is an expert in marketing of the appellant's product. Appellant and the PRAYAG are having long relationship as business partners. The appellant wanted to expand its market reach including acquisitions, for which PRAYAG has readily accepted with a condition that it needed the advance for the job. From the term loan obtained, the advance was paid, on which also there is no dispute. Now probably, the Assessing Officer wanted tangible evidence to be shown to him for the services rendered by PRAYAG, which could not be presented before the Assessing Officer in the shape that might have impressed him. Nonetheless, it is a fact that PRAYAG has been helping the appellant in marketing its products for the last many years. Now, in as much as the new job given to PRAYAG by the appellant is concerned also, there is no dispute. There is also no dispute that part of the term loan has been given to PRAYAG for the new job assigned. Now, it appears that the Assessing Officer was not satisfied with the job done by the PRAYAG and as such not allowed the interest on term loan proportionately. A moot question that arises here is that who has to be satisfied with....
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....ugh the agreements dated 28.10.2004, 1.4.2006, 1.4.2009 and 1.4.2010 and is still continuing. During the period the business relationship of the assessee with M/s Prayag Enterprises Ltd has been very extensive both in volume and value. M/s Prayag Enterprises Ltd has very efficient and vast marketing network in the state of Andhra Pradesh including the UB Group of Companies and is engaged in the services for marketing their products. 8. The assessee in the course of hearing submitted that M/s Prayag Enterprises Ltd has lot of clout and influence among the IML manufacturers in the State of Andhra Pradesh and the assessee had intended to strengthen its market reach and also enhance its manufacturing capacity. The assessee approached M/s Prayag Enterprises Ltd with a mandate to look for acquisitions on behalf of the assessee. It was stated that M/s Prayag Enterprises agreed to undertake the assignment provided it is given certain amount as advance which could be used immediately if an attractive opportunity arises. 9. We find that the company has borrowed a total of Rs. 130.00 crores out of which Rs. 57.42 crores was paid to M/s Pearl Distilleries Ltd; Rs. 22 crores to M/s. Diade....