TaxTMI 
TaxTMI 
2020 (3) TMI 935
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....f notice of hearing on the appellant and without any report from the A.O. is highly arbitrary, illegal, void and uncalled for. 3. That in the facts and circumstance of the case of the appellant the order of the learned Commissioner of Income Tax (Appeals) is confirming disallowance of Rs. 56450224/- u/s 14A Read with Rule 6D in respect of investment made by the appellant company as partner in M/s Abhitex International, Panipat where investment was made for the business consideration only is altogether arbitrary, against the provisions laid under law illegal and uncalled for." ITA No. 1292/Del/2015 "1. That the order of the leaned Income Tax Officer is against law and facts. 2. That in the facts and circumstance of the case of the appellant the order of the income Commissioner of Income Tax (Appeals) in confirming disallowance of Rs. 4,28,65,241/- u/s 36(1)(iii) in respect of investment made by the appellant company as partner in M/s Abhitex International, Panipat where investment was made for the business consideration only is altogether arbitrary, against the provisions laid under law illegal and uncalled for." (B) First we take up ITA No.- 3....
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....er: "That in the facts and circumstances of the case of the appellant, the order of the learned Commissioner of Income Tax (Appeals) in confirming disallowance of Interest of Rs. 3,63,74,505/- in respect of investment made by the appellant in M/s Abhitex International, Panipat, which was made for business consideration only, hence is altogether arbitrary, against the provisions laid under law, illegal and uncalled for." 4. Facts of the case in brief are that the assessee was engaged in the business of operation and maintenance of Industrial Park which had been built by M/s RMZ Corp Holdings Pvt. Ltd. and was acquired by the assessee in the year 2005. The assessee had been deriving income from the units located in the Industrial Park. During the year under consideration the assessee had received gross receipt of Rs. 28,59,81,773/- after including other incomes, the assessee arrived at gross total income of Rs. 6,81,02,483/- on which deduction u/s 80IA(4)(iii) of the Act amounting to Rs. 4,49,07,385/- was claimed and taxable income of Rs. 2,31,95,098/- was arrived. The assessee had filed return of income on 10.06.2008 by declaring taxable income of Rs. 2,31,95,100/-....
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....crores and Rs. 11.60 crores during the periods relevant to the assessment years 2006-07 and 2007-08 respectively. The relevant portion of the submissions of the assessee has been reproduced by the ld. CIT(A) in para 7 at page nos. 17 to 20 of the impugned order which read as under: "7. Before me, the Ld. AR for the appellant has submitted that the action of the AO was not justified as the same was not based on proper appreciation of facts and was in violation of legal position on the issue. It was submitted that the borrowing from the bank got reduced from Rs. 136 crores as on 31.03.2006 to 124 crores as on 31.03.2007. It was further submitted that the appellant had non interest bearing funds of Rs. 34,67,15,557/- during the F. Y. 2005-06 and non interest bearing funds of Rs. 31,68,35,3577/- during F. Y. 2006-07 as under: S.No. Particulars F.Y. 2005-06 F.Y. 2006-07 1. Share Capital 45,00,000 45,00,000 2. Reserve & Surplus 6,33,13,861 6,47,722 3. Current Liabilities 27,89,01,966 31,16,87,635 TOTAL 64,67,15,557 31,68,35,357 It was submitted that besides the above non interest bearing funds, the appel....
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.... all three were partners. (iii) That the total investment in acquiring the shares was to the tune of Rs. 86,99,85,000/-. Details w.r.t. the said investment and respective withdrawals are contained in the copies of accounts produced. The Paidup capital of M/s. RMZ Futura(now present name as M/s. Paliwal Infrastructure) was Rs. 45 lakhs only as against which the above mentioned five persons of Paliwal Group including two companies invested the amount as stated above i.e. Rs. 86,99.85,000/- which finds place in the respective balance sheets of all the five assessees. Your honour, the paid up share value remained the same as per the balance sheet of the appellant company. (iv) That the amount was made available by M/s Paliwal Infrastructure, the appellant company to M/s. Abhitex international, Panipat was in lieu of commercial expediency only i.e. the management of the company & firm belong to same group of family members only and the investment was withdrawn at one stage from said firm only as mentioned in Para(i) above by three partners. (B) Commercial Expediency Your honour, having stated the relevant facts in brief as above and from the statement....
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.... with the view taken by the Delhi High Court in CIT Vs. Dalmia Cement(Bharat) Ltd. (2002) 174 CTR (Del) 188: (2002) 254 ITR 377(Del) that once it is established that there was nexus between the expenditure and the purpose of the business(which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advan....
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....ions of the assessee confirmed the disallowance made by the AO by observing in para 8 of the impugned order as under: "8. I have carefully considered the submissions of the appellant and perused the assessment order. My observations on this issue are as under: (i) I find that the appellant company became partner in Abhitex International during the year to the extent of 12% share in profit. It contributed Rs. 45,81,77,955/- as share capital in the said firm, out of which Rs. 5,34,00,000/- were withdrawn during the year. The said contribution was made out of borrowed funds from the ABN Amro Bank. The AO disallowed the proportionate interest of Rs. 3,63,73,505/-payable to the said bank against the aforesaid borrowed funds. The AO further observed that it was a diversion of funds to the group concern without having any business purpose. (ii) The Ld. AR emphasized that it was not a case of diversion of borrowed funds but it was investment as capital in the firm M/s Abhitex International in which the appellant company was partner of share profit to the extent of 12%. He further emphasized that the said investment was made for business purpose and in the light o....
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....nt some of it to its associate concern as capital contribution for becoming the business partner. Therefore, the test was to be applied whether this was done as a measure of commercial expediency and if it was so, the interest should have been allowed. It was further stated that the assessee alongwith its shareholders held 88% share in M/s Abhitex International and the balance 12% had been held by the daughters of the Promoters of the assessee company, hence, the assessee company and the firm are under the same management. It was contended that the intention of the assessee was not to reduce incidence of Income Tax by doing so, because the profits of the Industrial Park are eligible for 100% deduction under clause (iii) of sub-section (4) of Section 80IA of the Act, whereas its associate concern's profits are fully taxable. It was further contended that even if the addition has been made it will not attract any tax incidence because the claim of deduction u/s 80IA(4)(iii) is allowable. It was stated that the assessee made the investment in M/s Abhitex International, as partner's capital for exclusively for business consideration and there was no loss of revenue from this investment....
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....lowance made by the AO and sustained by the ld. CIT(A) on account of notional interest was not justified. The reliance was placed on the following case laws: • CIT (Central), Ludhiana Vs Rockman Cycle Industries (P.) Ltd. 238 CTR 363 • Commissioner of Income-tax vs. Excel Industries Ltd. 358 ITR 295 13. In her rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observations made by the ld. CIT(A) in the impugned order. She further submitted that the assessee earned share profits of Rs. 31,24,346/- from M/s Abhitex International being partner and such profit was exempt from tax in the hands of the assessee, therefore, the AO was justified in disallowing the proportionate interest amounting to Rs. 3,63,73,505/- which was an expenditure for the earning of exempted income and that the AO did not mention the provisions of Section 14A of the Act yet, the provisions of said Section were clearly applicable as has been held by the ld. CIT(A). 14. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the asse....
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....even the investment in partnership firm M/s Abhitex International was made for business exigency. Therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified as the interest paid by the assessee, if any, on the funds raised for business purpose was allowable u/s 36(1)(iii) of the Act. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs Dalmia Cement (B.) Ltd. (supra) held as under: "Under Section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colourable device. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of direct....
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....ediency 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 position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstanc....
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....ing in view the ratio laid down of the Hon'ble Jurisdictional High Court and the Hon'ble Apex Court in the aforesaid referred to cases, we are of the view that the disallowance of interest made by the AO and sustained by the ld. CIT(A) was not justified. In that view of the matter the impugned disallowance is deleted. 17. In ITA No. 1979/Del/2011 for the assessment year 2008-09, the facts are identical as were involved in ITA No. 1978/Del/2011 for the assessment year 2007-08, the only difference is in the figure of the disallowance made by the AO and sustained by the ld. CIT(A). Therefore, our findings given in former part of this order shall apply Mutatis Mutandis for the assessment year 2008- 09. 18. In the result, appeals of the assessee are allowed." (D.1) The Ld. Counsel for assessee further submitted that during Assessment Years 2009-10 and 2010-11, with which we are concerned in the present appeals before us, no tax- free income has been earned by the assessee, and also, there are no fresh advances. The Ld. Counsel for assessee relied on the orders of Hon'ble Delhi High Court in the cases of Principal Commissioner Vs. DLF Home Developers Ltd. (2019) 411 ....
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....le on record and also; both as sides have submitted that the issues in dispute in both the appeals should be remanded to the file of the Assessing Officer for fresh order in accordance with law, having regard to the relevant facts and circumstance; after taking into consideration the aforesaid precedents. In view of the foregoing, and as both sides have agreed at the time of hearing before us, we set aside the impugned appellate orders dated 01.04.2014 and 20.01.2015 of the Ld. CIT(A) and restore the issues in both the appeals to the file of the Assessing Officer for passing fresh order as per law after considering the aforesaid precedents namely order dated 08.02.2016 of Co-ordinate Bench of ITAT, Delhi in assessee's own case for Assessment Years 2007-08 & 2008-09 vide ITA Nos.- 1978 & 1979/Del/2011; Principal Commissioner Vs. DLF Home Developers Ltd. (supra), Principal Commissioner Vs. IL & FS Energy Development Company Ltd. (supra) and Maxopp Investment Ltd. vs. Commissioner of Income Tax (supra). (F) In the result, both appeals are partly allowed for statistical purposes. Order is pronounced in the Open Court on 11/12/19. ============= Document 1 IVO. 2. ABN Am....