TaxTMI 
TaxTMI 
2016 (3) TMI 365
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....t made by the appellant in M/s Abhitex International, Panipat, which was made for business consideration only, hence is altogether arbitrary, against the provisions laid under law, illegal and uncalled for." 4. Facts of the case in brief are that the assessee was engaged in the business of operation and maintenance of Industrial Park which had been built by M/s RMZ Corp Holdings Pvt. Ltd. and was acquired by the assessee in the year 2005. The assessee had been deriving income from the units located in the Industrial Park. During the year under consideration the assessee had received gross receipt of Rs. 28,59,81,773/- after including other incomes, the assessee arrived at gross total income of Rs. 6,81,02,483/- on which deduction u/s 80IA(4)(iii) of the Act amounting to Rs. 4,49,07,385/- was claimed and taxable income of Rs. 2,31,95,098/- was arrived. The assessee had filed return of income on 10.06.2008 by declaring taxable income of Rs. 2,31,95,100/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 19.03.2009. Later on, the case was selected for scrutiny. The AO asked the assessee to furnish various details to substantiate its ....
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....n 31.03.2007 came to Rs. 40,87,02,301/-. According to the AO there was clear nexus for diversion of funds to the associate concern of the assessee. He further observed that the partnership deed of M/s Abhitex International revealed that no interest was payable to the assessee for the capital contributed by it. Whereas the assessee had fully borne the interest and finance charges on its own account which was clearly detrimental to the interest of the revenue. The AO disallowed proportionate interest on the funds transferred to the sister concern, treating the same for non-business purposes. The AO fund that the assessee had paid interest @ 8.9% (on an average) to the ABN Amro Bank. Accordingly, disallowance of Rs. 3,63,74,505/- was made and added to the income of the assessee. 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the action of the AO was not justified as the same was not based on proper appreciation of facts and was in violation of legal position on the issue. It was further submitted that the borrowings from the bank got reduced from Rs. 136 crores as on 31.03.2006 to Rs. 124 crores as on 31.03.2007 and the assessee had non-inte....
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....ten reply before him. Your honour, as has been mentioned/, stated in opening para above with regard to submissions made earlier vide Pages 10-12 of the Paper Book, in addition the commercial expediency is further explained/substantiated which squarely covers the issue in assessee/appellant's favour to prove that no disallowance out of interest was called for: A) Brief Facts That M/s RMZ Corp. Holdings Private Ltd. The Millenia, Tower B, Level 12-14, No. 1&2, Murphy Road, Ulsoor, were the owners of- (i) Land, building and other facilities at Plot Nos.14 and 15, Road No #2 HITEC City Layout, Survey No.64 (Part), Madhapur Village, Serilingampali Mandal, Ranga Reddy District Hyderabad(AP) 500081 (ii) The above property was approved by Andhra Pradesh Industrial Infrastructure Corporation Ltd. for commercial purposes(IT PARK). For the purpose/objective of acquiring the ownership/share holding of said Company, Paliwal Group in Panipat made the investment while acquiring the Shares in the names of-(a) Paliwal Overseas Pvt. Ltd. (b) Paliwal Industries (P) Ltd. (c) Sh.Avinash Chander Sharma (d) Smt. Rani Paliwal W/o. Sh.Avinash Chander Sharma (e) Sh. A....
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....ch is reproduced hereunder:- "11. Learned counsel further submitted that the opinion of different persona with regard to the fact as to whether a particular transaction is to be entered into or not would be subjective and differs from each other. The Assessing Officer may look at the facts from a conservative point of view whereas the assesses may have to look for a broader aspect keeping in view long term planning. Many a times, to keep the flag flying, the group companies have to be supported with funds from financially healthy companies. The manner in which the transaction has been entered into by the assessee can at the best be termed as tax planning, but in no way it can be opined as tax evasion. Tax planning is permissible. Reliance for the purpose was placed upon M/s. McDowell and Company Limited v. Commercial Tax Officer, (1985) 154 ITR 148 and Union of India v. Azadi Bachao Andotan(2003) 263 ITR 706." Besides the above relevant para in the judgement there are two Paras extracted from Apex Court decision in- SA Builders Limited V. Commissioner of Income Tax(Appeals) and another (2007) 288 ITR 1, wherein the Hon'ble S.C. had agreed per decision of juris....
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....d as under: "(3) That entire share holding of RMZ Corp. Holdings (P) Ltd. i.e. 45000 shares of Rs. 100/- was acquired by Paliwal Group in five names as under: No. of share Amount M/s Paliwal Industries (P) Ltd. 18000 34,79,94,000/- M/s Paliwal Overseas (P) Ltd. 9000 17,39,97,000/- Avinash Chander Sharma 6750 13,04,97,750/- Rani Paliwal W/o 6750 13,04,97,750/- Shri Avinash Chander Sharma Abhishek Paliwal S/o Shri Avinash Chander Sharma 4500 8,69,98,500/- 45000 86,99,85,000 That the above investment in shares was done as per details & copies produced before your honour on 28.03.2011. Your honour, having acquired the entire shareholding of RMZ Corp. Holdings (P) Ltd. by the above persons, the same company was thus a sister concern of the group and vice versa. That copy of ROC return is also produced. (4) That the appellant/assessee M/s Paliwal Infrastructure had entered into as a partner in M/s Abhitex International, Panipat w.e.f. 01.04.2006. Copy of partnership deed as desired is produced herewith. That the copies of account for period ending 31.03....
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....earned the share profit of Rs. 39,24,346/-from the said firm of M/s Abhitex International being partner and such profit is exempt from tax in the hand of the appellant. Thus, the AO was justified to disallow the interest of amounting to Rs. 3,63,73,505/- which was an expenditure for the earning of exempted income. Though, the AO did not mention the provision of Section 14A I.T. Act, 1961 while disallowing the said interest of Rs. 3,63,73,505/- yet the provision of section 14A is clearly applicable. Hence, the disallowance made by the AO of Rs. 3,63,73,505/-is upheld u/s14A of the I.T. Act, 1961. (v) I further find that the appellant is entitled for deduction u/s 80IA(4)(iii) of the I.T. Act, 1961. The AO is directed to determine the quantum of deduction after considering the disallowance of interest of Rs. 3,63,73,505/- as upheld in this order in preceding para and allow the same on revised income after giving the appeal effect. (vi) I further find that the provision of section 115JB is also applicable in this case. The AO is directed to re-compute the book profit as per law after giving the appeal effect to this order. This ground of appeal is disposed o....
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....of Rs. 5,88,57,074/- as business income of the assessee is exempt u/s 80IA(4)(iii) of the Act as per the following calculation: "Income from Indl. Park claimed Rs.6,21,06,011/- Add interest on loan (Presuming that if investment was not made by P.Infra in Abhitex International it had to pay less interest to Bank) Rs.4,32,26,524/- Net Business Income Rs.10,53,32,535/- Exemption u/s 80IA(4)(iii) Rs.10,53,32,535/- Returned Income from other sources Rs.5,88,57,074/" 11. It was stated that the assessee was having the surplus funds on account of depreciation, rent receipts and net profit which were sufficient for making the investment in the partnership firm as a partner. It was contended that the investment in the partnership firm was made for the business exigency, therefore, the disallowance made by the AO was not justified. The reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Hero Cycles (P) Ltd. Vs CIT (Central), Ludhiana (2015) 43 SCD 134 (copy of the said order was furnished which is placed on the record). 12. The reliance was also placed on the decision of the Hon'ble Jurisdictional High Court in the case....
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.... that no tax was paid on the above said share profit earned by the assessee. The AO made the disallowance of Rs. 3,63,73,505/- by presuming that said interest was to be paid @ 8.9% on the closing outstanding balance of Rs. 40,87,02,301/- in the partnership firm M/s Abhitex International. However, he did not consider this vital fact that the investment was made by the assessee due to commercial expediency and not to earn any interest, this investment has been made by the assessee as a contribution of capital in the partnership firm in which the assessee entered as a partnership for acquiring ownership. In the present case, it is also noticed that for the year under consideration, the assessee was having internal accrual in the form of depreciation amounting to Rs. 11.60 crores and also having a surplus fund amounting to Rs. 31.68 crores, so, it cannot be said that whole of the investment amounting to Rs. 40,87,02,301/- was out of the borrowed funds. Therefore, the ld. CIT(A) was not justified in confirming the action of the AO for making the disallowance by presuming that the interest @ 8.9% amounting to Rs. 3,63,73,505/- was to be paid by the assessee on the amount contributed as a....
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....me Tax (Appeals) and Another' [2007 (288) ITR 1 (SC)]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner:- "26. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC)], if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court that the interest on the borrowed fund in such a case could not be allowed, as it could not be sai....