TaxTMI 
TaxTMI 
2016 (6) TMI 976
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....55,09,642/-. Subsequently, vide order under section 154 of the Act, the income of the assessee was revised to Rs. 588,02,16,620/-. 2.2 Subsequently, the AO, based on information received from the Investigation Wing of the Department relating to the 2G cases, initiated re- assessment proceedings under section 147 of the Act by recording reasons for action in this regard and issued notice under section 148 of the Act to the assessee on 30.05.2012. The re-assessment was completed under section 143(3) r.w.s. 147 of the Act vide order dated 27.02.2013 wherein the income of the assessee was determined at Rs. 602,14,99,280/- in view of the following ands/disallowances: - (i) Disallowance of transport expenses Rs. 46,028/- (ii) Disallowance of interest u/s. 36(1)(iii) Rs. 12,87,36,636/- (iii) Disallowance of upfront fee Rs. 1,25,000/- 2.3 Aggrieved by this order of the assessment passed under section 143(3) r.w.s. 147 dated 27.02.2013 for A.Y. 2008-09 the assessee preferred an appeal before the CIT(A)-7, Mumbai. The learned CIT(A) disposed off the assessee's appeal vide the impugned order dated 26.04.2013 allowing the assessee partial relief. In the impugned order the learne....
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....hout any consideration, ostensibly for the purpose of investing in share capital of the subsidiary which was not allotted and the money returned a year later. The learned D.R. was heard and placed strong reliance on the order of the Assessing Officer (AO) on this issue in disalloing the interest paid on loan taken from Central Bank of India for the reason that the interest bearing funds were diverted for non-business purpose. 5.2 Per contra, the learned A.R. for the assessee supported the finding of the learned CIT(A) on these issues, i.e. of deletion of the disallowance of interest of Rs. 12,87,36,636/- under section 36(1)(iii) of the Act paid on loan of Rs. 500 crores taken from Central Bank of India and the upfront fee of Rs. 1,25,00,000/- paid by the assessee to the Bank in this regard. The learned A.R. for the assessee reiterated the submissions put forth before the learned CIT(A), vide letters dated 12.04.2013 and 17.04.2013. It was submitted that Datacom Solutions P. Ltd. [now Videcon Telecommunication Ltd. (VTL)] is a subsidiary of the assessee who held 64% of its share capital. The assessee advanced the amount of loan taken from Central Bank of India to VTL for acquirin....
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....ee's business and therefore the disallowance of Rs. 12,87,36,616/- out of interest expenditure claimed by the assessee under section 36(1)(iii) of the Act was unwarranted in the facts of the case and deleted the same. In that view of the matter, i.e. that the amount of Rs. 500 crores advanced as share application money by the assessee to VTL was for the purposes of the assessee's business, the learned CIT(A) held that the upfront fee of Rs. 1,25,00,000/- paid to Central Bank of India in respect of the loan of Rs. 500 crores is also to be allowed as a deduction. In paras 6.4 and 6.5 of the impugned order, the learned CIT(A) has held as under: - " 6.4 I have considered the A.O.'s order as well as the appellant's A/R submission. It is the submitted by the appellant that the share application money advanced was during the course of its regular business activities. The appellant had not charged any interest on these advances as there was no such contract. Hence, any interest paid on borrowings for the purpose of business activity is allowable u/s.36(1)(iii) of the Act. According to the provisions of Section 36(1 )(iii) of the Act, an assessee is entitled to deduction of....
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....t, i.e. investment. Thus, the same cannot be treated as having been incurred for non-business purpose and disallowed. This view is also supported by the decision of Videocon International Ltd. which amalgamated with the appellant company VIL, for AY 2003-04 in ITA No. 4784/Mum/2008 wherein similar issue of disallowance of interest on share application money advanced was involved. The Hon'ble Mumbai ITAT in that case upheld the deletion of the disallowance of interest on share application money advanced on the reasoning that "the utilization of the fluids has been found to be in accordance with the objects clause in the Memorandum of Association and if that is so the interest cannot be disallowed because even if borrowed funds were used for making share application monies, the share application monies having been paid for purpose of the assessee's business, there is no diversion of borrowed funds to justify the disallowance of the interest." (iv) VIL had an aggregate shareholding of 64% in Data Com. The foremost purpose of making the share application money to Data Com was with the intention of have controlling interest in the company for the purpose of normal busin....
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.... and commercial expediency, the interest expenditure on loan taken for the said purpose is allowable as per the decision of the Supreme Court in the case of S.A. Builders, 288 ITR 1 (SC). 6.5 In view of the above discussion, I am of the considered view that the share application money advanced by the appellant company to Data Com was for the purpose of business of the appellant company. Therefore, disallowance of interest expenditure claimed by the appellant company u/s. 36(1)(iii) of the Act is unwarranted. The AO is therefore directed to delete the said disallowance. Having held that the share application money advanced to Data Com was for the purpose of business of the appellant company, the "Upfront Fee" paid to Central Bank of India on the loan taken from it is also allowable as deduction from income of the appellant. Thus, this ground of appeal is decided in favour of the appellant." 5.3.3 According to the assessee the amount of Rs. 500 crores advanced as share application money by the assessee to VTL was made in the course of the regular business activities, out of commercial expediency and for the 'purpose of business', which is wide enough to envelop in its gam....