TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 1055
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....f commercial and residential complexes. It has filed its return of income for the assessment years 2000-01 to 2002-03. The Assessing Officer processed the return under Section 143(1) of the Act. Subsequently, return of income was selected for scrutiny and notices under Section 143(2) and under Section 142(1) were also issued calling upon the assessee to furnish the necessary particulars. The authorized representative of the assessee appeared before the Assessing Officer and produced necessary documents contending that the assessee availed a sum of Rs. 2.50 crores from M/s. Karnataka State Industrial Investment and Development Corporation (hereinafter referred to as "the KSIIDC" for short) as medium term corporate loan on 23-07-1999 and 26-07-1999. Immediately thereafter, during the period from 23-07-1999 to 29-09-1999, an amount of Rs. 248.10 lakhs was advanced to Dynasty Developers Private Limited, which is a sister concern of the assessee, carrying on construction of various commercial and residential projects. The authorized representative of the assessee contended that the borrowed amount advanced to its sister concern was in the nature of sale consideration that was being paid....
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....o as 'the DDPL" for short). The veracity of exchange of letter between the assessee and its sister concern to treat the loan as an advance payment for the area to be purchased in the so called project "Embassy Meadows", was not above board. The said DDPL has not yet started the Project. Hence, the assessee is not entitled for any deduction towards interest paid on the loan availed and dismissed the appeals. However, some relief was given insofar as other expenditure is concerned. The assessee being aggrieved by the order passed by the Tribunal, has preferred these appeals. 3. These appeals were admitted on 11-11-2009 to consider the following substantial questions of law: (i) Whether the Tribunal was justified in law in disallowing interest on borrowed loan on the facts and circumstances of the case? (ii) Whether the Tribunal failed in law to apply the ratio of the Apex Court in S. A.Builders Vs. CIT reported in 288 ITR 1(SC) in matter of commercial expediency of appellant on the facts and circumstances of the case? (iii) Whether the Tribunal was justified in law in holding that earning of income is precondition for allowing expenditure under Section 36(iii) of the....
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....ney borrowed from the Bank and lent to the sister concern without charging interest for the purpose of its business is an allowable deduction under Section 36(1)(iii) of the Act. The finding recorded by the Tribunal, First Appellate Authority and Assessing Authority, is without any basis and contrary to law. Apart from that, the profit earned out of the said amount has already been taxed for the assessment year 2003-04. Disallowing the interest portion amounts to double taxation and sought for setting aside the same. In support of his contention, he relied upon the following judgments: (1) (2007) 288 ITR 1 (SC) (S.A.BUILDERS LTD. v/s COMMISSIONER OF INCOME-TAX (APPEALS) AND ANOTHER; (2) (1969) 74 ITR 723 (COMMISSIONER OF INCOME-TAX, BOMBAY CITY II v/s BOMBAY SAMACHAR LTD., BOMBAY); (3) (1979) 118 ITR 200 (MADHAV PRASAD JATIA v/s COMMISSIONER OF INCOME-TAX, U.P.); (4) (2008) 298 ITR 194 (SC) (DEPUTY COMMISSIONER OF INCOME-TAX v/s CORE HEALTH CARE LTD.); and (5) (1965) 56 ITR 77 (SC) (COMMISSIONER OF INCOME-TAX, MADRAS v/s INDIAN BANK LIMITED.) 5. On the other hand, Sri. K. V. Aravind, learned counsel appearing for the Revenue argued in support of the order passed by the ....
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....and claimed it as an expenditure while preparing the profit and loss account and filed the returns. The said returns were taken up for scrutiny and notice under Section 143(2) was issued for appearance before the Assessing Authority. Also notice under Section 142(1) was issued calling for necessary particulars. In pursuance of the same, an authorized representative of the assessee appeared and produced necessary documents. The Assessing Authority, after examining the matter, disallowed the expenditure towards interest and other expenditures on the ground that though the assessee availed loan of Rs. 2.50 crores, the said amount was not utilized for its business, whereas the same was diverted to its sister concern as a loan transaction. Though the authorized representative made a submission before the Assessing Authority that the loan availed by the assessee was diverted to the sister concern as interest free business advance, since the sister concern of the assessee provisionally allotted an area of 30000 sq.ft. along with 25 covered car parking area which was valued at Rs. 3.50 crores, the assessee claimed deduction of interest on the loan availed. However, the Assessing Officer di....
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..... In view of that, all the authorities have concurrently held that the amount advanced is not a business expediency and it is only a loan transaction. Hence, the assessee is not entitled for any deduction towards the interest paid for availing the loan. We find no infirmity or irregularity in the said finding. 8. The principle of commercial expediency has to be applied on the basis of analysis of the facts of each case. The decision of the Hon'ble Supreme Court in S.A.Builders case can be applied, only if commercial expediency is established with facts. Unless interest free loan goes to business interest of the assessee, there cannot be any commercial expediency. For example, if the Company or a Firm supplying raw materials for construction of the building help the assessee to carry on the business more successfully, certainly commercial expediency can be canvassed. However, in the instant case, loan amount advanced to the assessee's sister concern has not been used for construction of the "Embassy Meadows" building, but it was used for some other Project. No prudent businessman would invest in a project which has not yet been commenced. What the assessee would get from th....