TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 1230
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....s filed by the assessee on 1.11.2004 declaring nil income. The Assessing officer framed the assessment u/s 143(3) of the Income-tax Act, 1961 (in short 'the Act') at Rs. 15,77,97,085/-. The Assessing officer made an addition of Rs. 12,75,360/- on account of disallowance of interest u/s 36(i)(iii) of the Act pertaining to interest free loans given to Sardar Nihar Singh Pahwa Charitable Trust (a sister concern of the assessee). On appeal, the CIT(A) deleted the addition vide his order dated 7.12.2007. The Revenue challenged the order of the CIT(A) in appeal before the Tribunal and the Tribunal vide its order dated 26.6.2008 set aside the order of CIT(A) and remanded the matter to the Assessing officer to decide the issue afresh. During the course of assessment proceedings u/s 143(3) read with section 254 of the Act, the Assessing officer required the assessee to explain as to why proportionate interest on interest free advances given to Sardar Nihal Singh Pahwa Trust should not be disallowed. After considering the assessee's reply dated 21.10.2009, the Assessing officer held that assessee has failed to prove the commercial expediency regarding the interest free loan given to ....
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....ency', the Hon'ble High Court has categorically held that 'commercial expediency' in advancing loans doesn't arise only on account of their being transactions directly between the holding company and the subsidiary company or between group companies inter-se. The two companies may in different lines of business. The Hon'ble High Court observed that it would make no difference. According to Hon'ble High Court it would still be commercial expedient for one group company to advance amounts to another group company, if for instance, as a result thereof, the former benefits. The Hon'ble High Court observed that it is not necessary that the advance results in a positive tangible benefit. Therefore, the Hon'ble High Court concluded that so long as the amount is advanced with that view in mind or with any other commercial expediency in mind i.e. sufficient. In the instant case, share capital reserves and deferred tax as on 1.4.2003 was totaling to Rs. 53.49 crores (share capital Rs. 5.98 crores, reserves Rs. 36.90 crores deferred Rs. 10.61 crores) Besides above, the assessee's income of the year was to the tune of Rs. 22,64,10,652/-. The assessee had admittedly advanced....
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.... of S.A. Builders Ltd. Vs. CIT and Another (2007) 288 ITR 1 (SC), the Hon'ble Supreme Court defined the expression 'commercial expediency' holding that commercial expediency is an expression of vide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The Hon'ble Supreme Court further held that 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 account of commercial expediency. In the instant case, the Revenue authorities have stated that the assessee did not file any agreement between the hospital and the assessee company showing that the hospital had agreed to give free treatment to the employees of the company. In our opinion, in view of the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd and Another (supra), if the expenditure is not incurred under any legal obligation but the same is allowable as business expenditure, if it was incurred on the grounds of commercial expediency 6. Recently, the Hon'ble Supreme Court of India in the case of Hero Cycles (P) Ltd. (2015) 379 ITR 345 (SC) while reversing the d....
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....y. 28. Thus, the ratio of Madhav Prasad Jatia's case [1979 (118) ITR 200 (SC)] is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under section 36(1)(iii) of the Act. 29. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm chair of the businessman or in the po....
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....essee and see how a prudent business man would act. 7. In view of the above discussion, we have no hesitation in holding that no disallowance of interest can be made in this case; particularly when the advances are made out of the own funds of the assessee and the amount advanced to the sister concern / hospital / trust was by way of commercial expediency. Accordingly, we delete the disallowance of Rs. 12,75,360/- made us/ 36(1)(iii) of the Act. 8. In the result, the appeal is allowed. ITA No. 536/Chd/2015 (A.Y. 2005-06) 9. The only ground raised by the assessee in this appeal reads as under:- "That the Ld. CIT(A)-II has erred in confirming the disallowance of interest of Rs. 16,22,569/- on account of alleged interest free advance to Nihal Singh Pahwa Charitable Hospital." 10. The facts of the present case are similar to that of ITA No. 1048/Chd/2013 relating to assessment year 2004-05. During the year under consideration the assessee has advanced interest free loans of Rs. 1,30,51,310/- to its sister concern Sardar Nihal Singh Pahwa Hospital (trust). The Assessing officer disallowed interest u/s 36(1)(iii) of the Act, amounting to Rs. 16,22,569/- on account of interest fre....
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.... main contention of the assessee is that these investments have been made out of companies own funds running to the tune of several crores of rupees in the shape of share capital of Rs. 5.98 crores, reserves at Rs. 88.95 cores and income of the year at Rs. 18,14,58,923/-. Form these figures, it is quite clear that the own funds / reserves of the assessee were more than sufficient to cover the investments made during the year. In this background, it can be safely presumed that all the investments were made out of assessee's own funds. While taking such a view, we are fortified by the decision of the Jurisdictional High Court in the case of Bright Enterprises (P) Ltd Vs. CIT Jalandhar ITA No. 224 of 2013 (O&M) dated 24.7.2015, wherein it has been held as under:- "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment w....
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.... (A.Y. 2008-09) 22. This appeal by the assessee is directed against the order of CIT(A) -II, Ludhiana dated 24.6.20102 relating to assessment year 2008-09. In this appeal, the assessee has raised the following grounds:- 1. That the Ld. CIT(A)-II has erred in confirming the disallowance of interest u/s 36(1)(iii) amounting to Rs. 1,54,46,774/- on account of alleged debit balance in the accounts of various parties. 2. That Ld. CIT(A) has erred in law in confirming the disallowance of Rs. 15,82,729/- made by the Assessing officer u/s 14A r.w. Rule 8D of the Income Tax Rules. 23. While framing the assessment the Assessing officer disallowed a sum of Rs. 1,55,43,985 u/s 36(1)(iii) on account of alleged interest free advance given to various parties. The details of the parties are as under;- Name Amount of loan No. of days Interest disallowed. Pahwa Investment Pvt. Ltd 18,945 153 953/- Roopa Pahwa 9,441/- 248 770/- Kulbir Pahwa 1,05,000/- 365 12,600/- Pahwa Investments Pvt. Ltd. 4,200/- 365 5 04/- Consultancy SS A/c (FS) 2,76,060 365 33,127/- Consultancy SS A/c (FS) 86,46,196/- 365 10,37,543/- Avery Raleigh Cycle Ltd 8,09,62,614/- 365 97....
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....e disallowance of Rs. 1,54,46,774/-. 26. As regards ground No.2 of the appeal, it is observed that the Assessing officer disallowed Rs. 15,82,729/- u/s 14A read with Rule 8D of the Income tax Rules. The assessee had shown investment of Rs. 1,98,88,122/- and Rs. 2,18,12,014/- as on 31.3.2007 and 31.3.2008 respectively. According to Assessing officer, the assessee had claimed interest of Rs. 16,57,83,834/-. The Assessing officer while invoking the provisions of section 14A read with Rule 8D of the I.T. Rules disallowed a sum of Rs. 15,82,729/- and the said disallowance was confirmed by the CIT(A). 27. While deciding ground No.1 of the appeal, we have observed that the assessee had own funds and reserves and also the income earned during the year out of which investment were made. Therefore, no disallowance u/s 14A / Rule 8D of the I.T. Rules can be made if the investment is out of own capital and reserves. Accordingly, we allow this ground of appeal. 28. Ground No.3 of the appeal is general in nature and, hence, no comments are being given. 29. Ground No. 4 of the appeal relates to charging of interest u/s 234B and 234D of the Act. 30. At the time of hearing of the appeal, it wa....
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....ion given in ITA No. 753/Chd/2012 relating to assessment year 2008-09, shall also apply to this ground of appeal with equal force. Accordingly, we allow ground No.1 of the appeal. 36. As regards ground No.2 of the appeal, the facts are that the assessee had shown investments of Rs. 2,18,12,014/- and Rs. 2,23,86,033/- as on 31.3.2008 and 31.3.2009 respectively. The assessee claimed interest expenditure of Rs. 18,93,94,225/-. The Assessing officer invoked the provisions of section 14A of the Act and disallowed Rs. 19,49,303/- by invoking the provisions of Rule 8D of I.T. Rules, 1962. 37. On appeal, the CIT(A) following his own order passed in assessee's case for assessment year 2008-09 confirmed the disallowance and, hence, the assessee is in appeal before the Tribunal. 38. In view of the decision on similar issue passed in assessee's case for assessment year 2008-09, and also keeping in view the facts narrated in relation 20 to ground No.1 of this appeal, we hold that there was no justification in making the disallowance u/s 14A read with Rule 8D of the I.T. Rules. Accordingly, we allow this ground of appeal. 39. Ground No. 4 of the appeal relates to charging of interest u/s 234....
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....ming disallowance of interest u/s 36(1)(iii) amounting to Rs. 37,84,532/- on account of alleged debit balance in accounts of various parties. 48. During the year under consideration, the assessee had shown loans and advances given to the following parties:- Name Amt Roop Pahwa 46,444/- Kulbir Pahwa 1,05,000/- Consultancy SS A/c (FS) 2,76,060/- Consultancy SS A/c (FS) 86,46,196/- Pahwa Charitable Hospital 2,,33,89,392/- The Assessing officer noted that the assessee also received secured loans of Rs. 67,49,19,233/- and unsecured loans of Rs. 3,83,74,539/-. The total interest expenditure claimed by assessee was Rs. 14,25,95,629/-. The Assessing officer disallowed a sum of Rs. 37,84,532/- u/s 36(1)(iii) of the Act. 49. On appeal, the CIT(A) confirmed the addition following his order passed in assessee's case for assessment years 2008-09 and 2009-10. 50. We have heard the rival submissions. While deciding the assessee's case in ITA No. 753/Chd/2012 (assessment year 2008-09) and ITA No.62/Chd/2013 (A.Y. 2009-10), we have allowed a similar ground in favour of the assessee. It is claimed that the facts of the present year are similar to that those in assessment....
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.... the assessee accordingly. 56. In the result, the ITA No. 928/Chd/2013 is allowed. ITA No.778/Chd/2014 (A.Y. 2011-12) 57. This appeal filed by the assessee is directed against the order of CIT(A) dated 4.7.2014 relating to assessment year 2011-12. 58. The first issue raised by the assessee in this appeal relates to disallowance of Rs. 77,57,820/- u/s 36(i)(iii) of the Act. During the year under consideration, the assessee had advanced interest free advances to the following persons: Name Amoutn Peariod Roopa Pahwa 46,444/- Squared up Kulbir Pahwa 1,05,000 365 days Avery Raleigh Cycles Ltd 4,42,45,402/- 365 days S. Nihal Singh Pahwa Charitable Hospital 1,91,18,333/- 365 days The assessee claimed expenditure of Rs. 14,27,42,632/-. After affording an opportunity of being heard to the assessee and also considering the reply of the assessee the Assessing officer disallowed a sum of Rs. 77,57,820/- u/s 36(i)(iii) of the Act. 59. On appeal , the CIT(A) confirmed the addition following his own order passed in assessee's case for assessment years 2008-09, 2009-10 and 2010-11 and hence the assessee is in appeal before the Tribunal. 60. We have heard the rival submissi....