TaxTMI 
TaxTMI 
2017 (10) TMI 994
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....dvance, lend or loan money on interest or without interest. It has filed its return of Income declaring an income of Rs. 13,01,580/-. Return filed by the assessee was picked up for scrutiny and assessment under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' has been framed. 4. During the course of assessment proceedings the AO disallowed the amount of Rs. 33,64,918/- which is the figure of interest paid by assessee to M/s Conquer Investment and Finance Pvt Ltd. The relevant observation of the AO as borne out from Page No 1 para-2 and 2.1 of the assessment order are as under:- "2 It is seen from the profit and loss account that an amount of Rs. 33,64,918/- has been debited on account of interest paid on share application money to M/S Conqure Investments and Finance Pvt Ltd. The AR vide Note sheet entry dated 09/03/2015 was specifically asked to furnish the complete details of the interest paid on share application to the above company and also show cause why same should not be disallowed as the same is not allowable on share application money. In response to the show cause, the assessee company vide reply dated 12/03/2015 stated ....
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....have gone through the facts of the case and the submissions made by the AR. It is noticed that the appellant company had received share application money from M/S Conquer Investment & Finance Pvt. Ltd. Since 2008-09 and as per the investment agreement dated 25.05.2010, the appellant company was liable to allot securities by the end of FY 2010-11 and as per Clause-4 of the agreement, it was agreed that in case the appellant company could not allot the shares by the end of FY 2010-11, it will refund the principal amount along with interest @ 12%. During the FY 2011-12, the appellant company has returned the share application money of Rs. 5.55 crores along with net interest of Rs. 30, 28,426/- after deduction of TDS. It is contended by the appellant that it is engaged in the business of buying & selling of securities and the share application money has been received as part of normal business activity and therefore, the interest paid on the same must be allowed u/s 36 (1) (iii) of the Act. It is further contended that the interest cannot be said to be a capital in nature as the same have not been incurred to acquire any long term asset. In addition, the AR has argued that the money wa....
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....rsuing his cases and revenue is not doing anything for protecting the interest of nation. It is submitted that if the Ld CIT(A) has done anything wrong then the duty of revenue is to produce the entire record before the court and to take action against the CIT(A) under vigilance law Without prejudice to the above it is submitted that powers of the CIT(A) are coterminous as held by Hon'ble Apex Court in Kanpur Coal case 50 ITR, so what AO can do the CIT(A) can also do and if the CIT(A) is exercising his powers under section 250(4) then it is not necessary for him to call for any report from the AO. It is next submitted that the tax effect in this case is marginally high. Be that as it may be it is next submitted that the Ld DR has also alleged that the assessee has violated the provisions of Companies Act and hence strict action should be taken against the assessee as if the assessee has acted like a terrorist. However one thing Ld DR has not disputed at all that is the applicability of section 36(1) (iii). Ld DR has filed only one page of the judgment in the case of Dignity 96 ITD 296(Bom) upon which revenue wants to rely that is Dignity. It is submitted ....
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....would show that assessee was having huge reserve and surplus amounting to Rs. 9,97,70,323/- was there as opening balance with the assessee and out of which an amount of Rs. 5,50,00,000/- had been returned to the investor company and interest of Rs. 33, 64, 918 has been paid as interest. It is submitted that it is not the case of the revenue that assessee has diverted interest bearing funds as interest free advances, in as much as the assessee has earned sufficient interest income from these funds. Therefore no disallowance is permissible in such cases, when assessee has his own funds, reliance can be placed on the following judgments Reliance Utility -313 ITR 340 (Del) G.S.Developer.- ITA No- CIT Vs Bharati Televenture - 331 ITR 502(Del) In view of the above it is submitted that heavy cost should be imposed on revenue for filing this frivolous appeal. It is submitted that department has very intelligent audit wing, who often recommend the reopening and revisionary action in the cases of the assessees. Therefore, the wing or the AO ought to have ascertained the position of own funds from the financials of the assessee before the filing of the pres....
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....estor company and making investment and receiving interest is the main business of the assessee Company. From Page No-19 and 20 of the PB, it is observed that the assessee has received total interest of Rs. 1.58 Crore during the year under consideration and the same has been taxed under the head business income. And an amount of Rs. 73,95,209/- is attributed to the investment received from M/s Conquer. Therefore, the purpose of receiving share application money and payment of interest is apparent from the financial and audited account of the assessee, which was very much before the AO. CIT(A) has categorically recorded that the interest has been paid on the basis of clause 4 of the agreement dated 25.05.2010, which fact is not refuted by the ld. DR. d) It is further observed that in the case of Core health reported in 298 ITR 194(SC) Hon'ble Supreme Court has categorically held that interest paid on borrowed capital is allowable under section 36(1)(iii) of the Act and it does not make any difference as to whether the expenses has been incurred in capital filed or revenue filed. It is also a settled position of law that it is prerogative of a businessman to conduct his busi....
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....nies if the shares are not allotted would also have been agreed to by the parties to bear interest at the same rate. The assessee has actually credited the interest of Rs. 38,79,452 in its books of account. We are, therefore of the view that all the three conditions prescribed in s. 36(1)(iii) have been satisfied in the present case and, therefore, the interest paid by the assessee has to be allowed in full without any disallowance. We are unable to uphold the view taken by the Departmental authorities that the assessee and Strong had entered into a tax avoidance agreement to facilitate the assessee to reduce or avoid its tax liability by booking a notional loss. We, therefore, delete the disallowance of Rs. 3,26,027 and allow the ground. f) When the facts of the assessee's case are read in juxtaposition with the facts of Global (Supra) then it is implicit that the issue involved in the case of the assessee squarely covered by the judgment of Global and hence no different view is permissible. Ld DR has relied on the judgment of Dignity reported in 96 ITD 296, it is observed that in that case the Mumbai Bench of the ITAT has observed that there was no agreement between the ....