TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1557
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....inding is illegal and unjustified. 2. That the learned CIT(Appeals) has erred in not accepting assessee's contention that no interest was chargeable on the opening balance in respect of debit balance of M/s. Autopal Industries Limited. The said action is illegal and unjustified. 3. That the learned CIT(Appeals) has erred in holding that regarding rate of interest applied by the Assessing Officer @ 15%, in the appeal of earlier years the issue decided and directed to the Assessing Officer to charge interest @ 9%. The said finding is illegal and unjustified. 4. That the learned CIT(Appeals) has erred in holding that interest is to be charged @ 9% in respect of outstanding amount of Autopal Industries Ltd., and partially confirming the disallowance made by the Assessing Officer out of interest paid. The addition sustained is illegal, unjustified and excessive." 2. All the appeals are being heard together and for the sake of convenience, a common order is being passed in all these appeals. 3. The assessee had filed its return of income for the years under consideration on 31/11/2000 declaring total income of Rs. 2,18,250/- for the A.Y. 2000-01 and also filed return for the A....
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....e and consider what a prudent businessman would do. The Hon'ble Allahabad High Court in the case of CIT vs. Prem Heavy Engineering (supra) was pleased to hold that where sufficient share capital, surplus and reserves are available, no interest can be disallowed even if interest free advance is made to sister concern. The contention of the Id. A.R. that where the recovery of principal is doubtful, the assessee is justified in neither charging nor providing for interest on loans and advances and that it is not the hypothetical accrual of income based on mercantile system of accounting followed by the assessee that has to be considered against the fact that income was not really materialized to the assessee have also substance as the same is supported by the decision of Hon'ble Courts as cited by him. The further contention of the Ld. A/R remained that share capital and reserve of the assessee company were Rs. 52.25 crores as on 31.3.1999 and they increased to Rs. 52.95 crores as on 31.3.2000 and against this share capital and reserve and surplus the amount advanced to Autopal Industries Limited were only Rs. 4.08 crores as on 31.3.1999 and Rs. 4.97 crores as on 31.3.2000. We thus in ....
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.... directed to be A.O. to charge interest @ 9%. Hence, during the year under consideration the A.O. is again directed to charge interest @ 9% accordingly. The appellant partly succeeds on this ground." Similar identical finding has also been given by the ld CIT(A) for the appeals of A.Y. 2001-02. 5. Now both i.e. revenue and assessee are in appeals before us. The ld Sr. DR has vehemently supported the order of the ld Assessing Officer. 6. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and further argued that there was no justification on the part of the learned CIT(Appeals) to hold that the Assessing Officer should apply rate of interest @ 9% by relying on the order of earlier year. The learned CIT(Appeals) has also not considered the submission of the assessee justifying that money which has been advanced to M/s. Autopal Industries Limited has been utilized by them solely for the purpose of business and not for any other purpose. During the course of assessment proceedings the assessee has furnished detailed reply before the Assessing Officer as per letter dated 10.10.2008. The assessee had also enclosed a chart with the said le....
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....as High Court in the case of CIT vs. Hotel Savera reported in 239 ITR 795 as well as the decision of Delhi High Court in the case of CIT vs. Tin Box Company reported in 260 ITR 637. The Delhi High Court has held that where the Department could not point out any specific interest bearing borrowed funds having diverted to sister concern, no disallowance can be made out of interest paid. He has further submitted that the assessee company is the promoter of M/s. Autopal Industries Limited and there was labour unrest in Autopal Industries Limited from 17.08.1996 during which the production was hampered and therefore, the assessee company had tried to help the said company by giving funds to them which were out of assessee's own funds generated from receipts from debtors as well as internal accruals. Thus, whatever amount was given to M/s. Autopal Industries Limited was on account of commercial expediency only. He has relied on the decision of Hon'ble Supreme Court in the case of S.A. Builders vs. CIT reported in 288 ITR 1. He has further submitted that from the above mentioned facts it would become very apparent that the money which has been given by the assessee to M/s. Autopal Ind....
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....Officer could not establish nexus between interest free advance and interest bearing loans for purpose of making disallowance out of interest payment. It was also held by the learned CIT Appeals that Assessing Officer could not disprove the purpose of giving loans keeping in view the commercial expediency. The learned CIT Appeals also observed that after going through the final accounts of sister concern it is seen that they have also not utilized said loan received interest free from the appellant for the purpose of earning interest but it was used by them for business purpose. It was finally held by the Learned CIT Appeals that the appellant company's own funds, share capital and reserves and surplus were much more as compared with interest free advances which were considered by the AO for the purpose of making disallowance of interest claim and under these circumstance when Assessing Officer could not establish the revenue's case for disallowance of interest as per specific direction of ITAT. the Assessing Officer was not justified in making any disallowance of such interest claim. Thus the learned CIT Appeals deleted the disallowance out of interest for assessment year 1997-98 ....
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....rned Assessing Officer had applied the rate of 9%. Looking to the above mentioned facts and circumstances there was no justification on part of the Assessing Officer to consider the opening debit balance for working out disallowance. Although the assessee had taken this plea before the learned CIT(Appeals) and the same has also been reproduced by the learned CIT(Appeals) in his order ( page 4 and pages 9-11 of the order of CIT(Appeals) no finding has been given by him with regard to the said contention of the assessee. It is submitted that in view of various decisions as mentioned above as well as the action of the Assessing Officer in assessment years 1997-98 and 1998-99 there was no ustification on the part of the Assessing Officer to consider the opening debit balance for working out the disallowance. Thus, in view of the facts and circumstances narrated above and appellate orders for assessment years 1997-98 and 1998-99 there was no justification on the part of the CIT(Appeals) to sustain any disallowance out of interest paid and the disallowance deserves to be deleted. 7. We have heard the rival contentions of both the parties and perused the material available on the record....
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....2.75. Similarly, the fixed assets have increased from Rs. 49,51,33,030/- to Rs. 53,34,74,451.57. The current liability, as per page 67 had also increased from Rs. 11,88,75,084/- to Rs. 13,17,58,131.87. On the basis of this, the ld DR has submitted that the assessee has failed to prove the nexus between the funds given to the sister concern with that of the surplus money as was allegedly available with the assessee. 7.1 In our view, U/s 36, the interest paid in respect of capital borrowed for the purposes of business or profession is allowed to be deducted. As per Section 36(1)(iii) of the Act, a) there must be borrowing of capita by the assessee b) The assessee must have paid the interest in the the capital borrowed and c) The borrowed capital borrowed was by the assessee for the purposes of business or profession, then only the assessee is entitled to the deduction. From perusal of the balance sheet, it is clear that though there is increase in share capital but simultaneously, there is also increase in the loan and the fixed assets of the assessee company, therefore, in our view, the assessee was required to prove whether on the date of making investment or giving the i....
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.... court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. 28. Thus, the ratio of Madhav Prasad'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 sco. pe 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." 13. 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 (Delhi) 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....
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....ssee is required to be dismissed. Lastly, the ld AR of the assessee in alternatively has submitted that for the assessment year 1997-98 and 1998-99, the Tribunal has remanded the matter and thereafter the ld Assessing Officer has decided the issue. Against the order of AO, the ld CIT(A) has deleted the entire addition made by the ld Assessing Officer restricting to the net amount borrowed during the year under consideration. On the same analogy, the ld AR has submitted that even in the present case, the deduction should be allowed at least on the amount borrowed in the year under consideration. On the other hand, the ld DR has vehemently opposed the same and has submitted that the assessment made by the ld Assessing Officer for the previous year is not binding on the AO while deciding the present appeal. Every assessment is a separate assessment and principal of res-judicata is not applicable to the Assessment proceeding, even though the order Cit has not been challenged. 7.4 We have gone through the contention, in our view, the order passed by the ld CIT(A) even if not challenged by the revenue is not binding on the Tribunal. The Tribunal is duty bound to decide the issu....