TaxTMI 
TaxTMI 
2017 (8) TMI 950
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....s of interest Rs. 1,48,96,056/- by assessing officer in assessment order. A. Disallowance of interest u/s 36(1)(iii) of Rs.l,48,96,056/- 2. The learned CIT (appeal) has not considered submission of appellant (a) That these advances were not for extension of business where 36(1)(iii) applicable. (b) That notional interest of Rs.l,48,96,056/- is calculated without considering actual rate of interest and date of advance given. (c) That there was a cash profit of Rs. 5,75,27,704/- earned by the appellant during the year. (d) That in practical market how it is difficult to cancel the order and recover the money. 3. The appellant pray that the Assessing officer may be directed to delete the disallowances of interest of Rs.l,48,96,056/- 3. The brief facts of the case are that the assessee is engaged in the business of setting up, running and maintaining data centers, IT enabled and maintenance services, IT consultancy services, dealing in networking items. 4. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act, the assessee was asked by the AO to provide the details of loans and advances given by the assessee company during the year....
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....s of purchase order for purchase of fixed assets, wherein the AO observed that it has following discrepancies:- "i. In all the cases of purchase order, the assessee company has merely referred to the telephonic discussion and there is no mention of any quotation or any other details of the product being ordered being supplied to the assesse before placing the order. ii. In many of the cases, no specific details such as configuration, model, technological specifications are mentioned and instead vague & general details such as "Desktop PC-100 nos, high end server" are mentioned in the purchase orders. However, in the nature of the business activities of the assessee, it is highly important to specify in detail the exact configuration of the product being ordered so as to avoid any miscommunication as the products used in the business of the assessee are required to be of exact specifications. iii. In none of the purchase order, the date of delivery is mentioned and it is simply stated that delivery date will be informed by letter. iv. It is highly improbable on the test of human probabilities that such huge amounts of borrowed money would be advanced by the assessee compa....
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....sion (whether capitalized in the books or not) shall not be allowed as deduction for any period beginning from the date on which capital was borrowed for acquisition of the asset till the date on which such asset was first put to use. v. In view of the above discussion, the case of the assessee is clearly covered by the proviso to section 36(1)(iii) of the Act as in the instant case, no asset has ever come into existence and hence, the question of it being ever put to use does not arise at all. Hence, the interest expenses in respect of the borrowed capital employed for making these advances are to liable to be disallowed as deduction for the entire period from the time of making advances to the end of the year i.e. 31.3.2011." Thus, the A.O. worked out interest on advances amounting to Rs. 1,48,96,056/- which is relatable to the advances paid for acquisition of the said fixed assets and disallowed the same by adding to the income of the assessee, vide assessment order dated 23-1-2014 passed by the AO u/s 143(3) of the 1961 Act, as detailed hereunder: Loans taken during the year (secured and unsecured) 789740208 Interest paid 111303728 Rate of interest paid 14% Interest....
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....t is held interest paid for capital borrowed for purpose of extending the existing business is to be disallowed till it was to be used for the first time. The appellant's main contention is during the year, this equipment required is not for the extension of business. The replacements of equipment in the existing data without creating any additional capacity. The appellant contends that during the year under consideration on opening balance as on 1.04.2010 the loans of appellant in the balance sheet are 76.10 crores. At the end of the year 31.03.2011 the loans as per balance sheet are Rs. 78.97 crores and contends that this increase is also mainly on interest on these loans were credited to these accounts. These extra amounts which are shown in the accounts for Rs. 2.87 crores is an outstanding loan as per the appellant. However, when we examined various loans, the appellant had given below the factual position of loan account which is as under: S No. Name of the loan account Opening balance as on 01.04.2010 (Rs in crores) Closing balance as on 31.3.2011 (Rs in crores) 1 Trimax IT Infrastructure nd Services Limited 29.20 44.31 2 State Bank of Hyderabad 23.24 17.2....
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....ed paper book before the tribunal running into 117 pages.The ld. counsel for the assessee drew our attention to paper book / page 29 to 35 wherein confirmation from various parties were placed. Our attention was also drawn to paper book / page 41 to 75 wherein the copy of commercial agreement for purchase of equipments with suppliers are placed. Our attention was also drawn to paper book page 76 to 85 wherein various submissions made by the assessee before learned CIT(A) and the A.O. is placed. Our attention was also drawn to paper book page 86 wherein the summary of accounts of these suppliers were placed on record and learned counsel for the assessee had contended that these amounts have been received back. It is submitted that these details were given before the authorities below whereas the A.O. erred in contending that information was not given. It is submitted that the matter can be set aside to the file of the A.O. for proper verification/ examination and de-novo determination of the issue on merits. 9. The ld. D.R. relied on the orders of authorities below and fairly submitted that the matter can be set aside to the file of the A.O. for verification/ examination and de-nov....
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....pment suppliers were genuine or were these colorable devices adopted by the assessee to evade taxes and were part of sham transactions. Since the assessee has a JV with ITI Limited, Government of India Undertaking, all the expansion, enhancement of quality services scheme etc. as claimed by the assessee has to be in tandem, concurrence and consent with said JV partner who is a Government of India undertaking which is subject to strict rules and regulations as are applicable to PSU and the assessee cannot unilaterally undertake or cancel any such scheme of modernization or expansion . The assessee is directed to file all relevant communications, approvals,, copy of JV agreement and also any other agreement with ITI Limited including copies of project reports approved by ITI Limited for such enhancement of services, modernization etc,, tender documents etc with respect to the plan of upgradation/modernization/ enhancement of quality of services scheme w.r.t. data center which was approved/accepted by the said ITI Limited and the assessee being JV partners, for due consideration, examination and verification by the A.O.. The onus is on the assessee to prove the genuineness of the said....