2019 (1) TMI 1664
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....oans and advances and certain other investments as evidenced from the balance sheet and thus, the assessee was not having any owned/interest free funds to be given as loan to its 3 subsidiaries and to a partnership firm, 'Ramjyoti Travels" to the extent of Rs. 4,78,96,456/- and Rs. 1,78,35,466/- respectively. 3. The appellant craves leave to add, alter or amend any or all the grounds of appeal." 2. The brief facts in this case are that the assessee is a private limited company engaged in the business of Transportation. The company filed its return of income for the year under consideration on 30.09.2012 declaring total income at Rs. Nil. The said return was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). Thereafter, the Assessing Officer passed scrutiny order u/s.143(3) dated 20.03.2015 determining total income at Rs. 1,10,79,163/-. In the assessment completed, the Assessing Officer disallowed interest expenses amounting to Rs. 9,16,470/- u/s.36(1)(iii) and certain expenditure u/s.37 of the Act @2% of the said expenses on ad-hoc basis. 2.1 That the Revenue has raised two grounds and both the grounds relate to the deletion of addit....
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....shown to have served any business purpose of the assessee. Thus when the assessee borrows money for purposes of advancing interest would not be eligible deduction u/s. 36(1)(iii) of the Act. Interest on borrowed capital if given as interest free advances without any justifiable reason is liable for disallowances." 5.11 I find that the AO had neither looked into the appellant's account and also the notes and comments given along with the accounts for advances to group companies, as furnished before him during assessment proceedings and also subsequently before the undersigned vide page No. 83 of the paper book filed on 26.08.2016. It would be worthwhile to reproduce the same for the sake of convenience........... "Notes on Advances to Group Companies Prasanna Purple Mobility Solutions Pvt. Ltd. (PPMSPL) carries on business of operating city bus service under its own legal entity and through its subsidiaries as under: a) Operation of City bus service (under brand name Hop on Hop off) under Delhi Tourism through its subsidiary Purple UMTC Transit Pvt. Ltd. holding 74% equity holding. b) It also has 100% controlling stake in Dayajit Nimay Bus Logistics Pvt. Ltd. and in R....
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....te interest on the interest free loans and advances given to the subsidiaries/ sister concerns. Nonetheless, the appellant could also establish its contention that there "vas commercial expediency. On all the above pointed 3 categories contended by the appellant in its submission apparently have neither been looked into by the AO, least to say examined. 5.13 I find that the AO merely relied on the decision of the Punjab and Haryana High court in the case of S A Builder ltd. (supra) while disallowing proportionate interest simply stating that the appellant could not bring any material on record to indicate the purpose or the commercial expediency for advancing the interest free loans and the benefits accrued out of said advances was apparently not shown to have served any business purpose for the assessee. It appears that the AO himself made the observation as 'advances is apparently not shown to have served business purpose for the assessee', without even calling for any such details from the appellant or without any investigation resulting into such apparent decision on his part, bereft of any factual analysis of the case of the appellant, in fact the Hon'ble Suprem....
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.... other hand the same case has been cited referring to Supreme Court decision contending the commercial expediency of giving such loans to the sister concerns for running of there business for promoting the interest of appellants business for the purpose of hop-on and hop-off tourist buses in Delhi to promote tourism beside business in Indore, Ujjain for the intra-city transport services as per contract entered into various Municipal Corporation of the respective cities. I find the appellants contention of giving interest free advances to sister concerns as based on cogent reasoning. In this connection, it would be pertinent to refer some of the decision wherein the Hon'ble Courts held that provisions of section 36(1)(iii) for disallowances of interest on interest free advances given could not be invoked. The same are given as below - 1) CIT Vs. Neelkanth Synthetics and Chemicals P. Ltd. [2011] 330 ITR 463 (Bom.) In this case the Hon'ble Bombay High Court held that where the loan was taken to repay the liability of the sister concerns, interest of the same is to be allowed on ground of commercial expediency. 2) CIT Vs. GOM Industry Ltd.[2008] 299 ITR 0042 (MP) 3)....