TaxTMI 
TaxTMI 
2022 (1) TMI 283
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....ds Pvt Ltd and others wherein the issue involved was of taxing notional interest, whereas in the instant case the addition is made on account of disallowance of interest u/s36(1)(iii} of the I.T. Act, 1961. 4. The appellant craves leave to amend or alter any grounds or add a new ground, which may be necessary." 2. Briefly the facts of the case are that the assessee a company involved in agricultural activities had e-filed its return of income for the AY 2008-09 on 29/09/2008 declaring a total loss of Rs. 12,97,30,061/-, which was processed u/s 143(1) of the Income Tax Act 1961 by accepting income returned. Subsequently, the regular scrutiny u/s 143(3) of the Act was completed on 30/12/2010 by reducing the loss to Rs. 3,03,34,177/-. 2.1 The AO reopened the above assessment u/s 147/148 of the Act after recording the reasons and notice u/s 148 issued on 31/05/2012 and served on the assessee. In response to the said notice, the assessee had filed the return of income and requested for the reasons for reopening and the same was supplied to the assessee, which are as under: "The assessee availed secured loans of Rs. 136.77 Crore and unsecured loan of Rs. 13.42 Cro....
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....nterest on Borrowed Fund: During the year the assessee has received term loan of Rs. 30 crores from the SICOM Ltd, interest payable @ 13.60 % P/a and Rs. 70 crores from the GE Capital Services India Ltd, interest payable @ 10.20% P/a and the assessee also received an amount of Rs. 13,42,66,872/ - from M/s Vamadeva Greenlands Pvt Ltd as an interest free unsecured loan, it has repaid an amount of Rs. 3,22,88,870/ - to the GE Capital Services India Ltd, hence the balance term loan is Rs. 66,77,11,130/ -. At the end of the year the total loan outstanding including both term loan and unsecured loan is of Rs. 1,10,19,78,002/ -. As seen from the record, during the year the assessee has advanced Rs. 1,03,23,81,864/ -(1858883414 - 826501550) as an unsecured loan to others, while it has paid the interest of Rs. 11,11,15,463/- on term loan, further it is seen from its bank accounts that as and when it has received the amount of term loan from either SICOM or GE immediately the amounts were disbursed as an unsecured loans to the others. As the assessee has not done any business activity during the year and it has not offered any income from business and profession, but it has taken term loan f....
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....ess and until there is a contract between the parties for charging of interest on the funds advanced the notional interest cannot be brought to tax". Vii) On the above finding ITAT directed for the deletion of interest added in all the group companies. The decision has become final as the revenue did not go in further appeal. viii) The order of CIT(A) dated 30-09-2013 which is enclosed at page 4 of the order mentioned the names of all the group companies. The names of the companies highlighted at page.22 ill paper book find their place in the order of CIT(A). ix) In this back drop of such facts on record, the show cause notice issued by the assessing officer was resting on the amount of Rs. 80,78,00,000/- on which the assessing officer proposed to charge interest @ 18% on estimate basis. The amount proposed to be added works out to Rs. 14,54,40,OOO/- ( as recorded in the reasons). However, the assessing officer disallowed Rs. 11,11,15,463/- on the premise that the total term loan of Rs. 96,77,11,130/- was the unsecured loans. This Is totally wrong as it has no bearing at all to the facts as unexplained in details as above. Thus, the very basis or foundati....
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.... the decision of Hon'ble ITAT -'B' Bench, Hyderabad, in the case of swarnadhara IJM, support the cause of the assessee, where in it has been held 'reassessment order passed is not valid in law, if income other than the income which the basis for reopening was considered for assessment'. 6.5 Further on the alternate submissions of the appellant on issue of charging of interest on the amounts given to SCSL, the decision of ITAT in the case of M/s. Aahar Greenfields Farms Pvt ltd and others is very much relevant considering the fact that the facts of above cases are similar to the facts of case under reference, where in the Hon'ble ITAT decided the issue in favour of assessee, where in the considered decision was that one cannot conclude that interest income has definitely accrued and arisen to assessee at the specific rates to the assessee as opined by the AO, more so where there is no contract and it there is an uncertainty. In the said case, it was held that matter was pending before the court and based on the same it may be reasonable to conclude that as and when the court finalise the suit, the interest rate mentioned therein can be reckoned and i....
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.... he referred to page 93 of the paper book, which is a copy of ledger account of M/s SCSL and submitted that these amounts were given in the preceding FY, i.e., FY 2006-07, in the current year, there was no fresh loans and advances given to M/s SCSL. Also, the ld. AR referred to other ledger accounts to submit that most of the advances given in the earlier years also. He also referred to paper book page No. 116 and submitted that the loan taken from GE Capital of Rs. 70 crores were utilized for the payments made to Netravati Greenfields Pvt. Ltd. of Rs. 23.33 crores, Malaprabha Greenfields Pvt. Ltd. of Rs. 23.34 crores and Teepa Agro Pvt. Ltd. of Rs. 22.03 crores. He submitted though the group company M/s SCSL has involved in scandal and the assessee company has not given any loan to M/s SCSL during the impugned AY. He invited the bench attention to paper books submitted in two volumes containing pages 1 to 137, 1 to 184 and 01 to 44 containing orders in case of group company case respectively to submit that arguments advanced by him are support the documents furnished in the paper book. In support of revenue's case, the ld. DR relied on the following case law: 8. We have conside....
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....DSP Merrilynch Capital Ltd. was given to M/s SCSL, to which, the assessee has fully repaid in the current AY out of interest bearing loan funds and the assessee has also taken interest bearing loans during the current AY, which is evident from GE Capital Services India Ltd., and SICOM Ltd. During the impugned AY, the assessee has also given loans and advances to other companies which is outstanding as on 31/03/2008 is Rs. 185.88 crores including advances given to M/s SCSL. During the impugned AY, the assessee has received interest only Rs. 2,80,616/-. It clearly shows that interest bearing funds had been given to the others/group companies/M/s SCSL on interest free. Therefore, the AO has rightly disallowed interest paid on borrowed funds to the above noted companies U/S 36(1)(iii) . The Section 36(1)(iii) is clear that if the interest paid by the assessee is to be allowed only in respect of capital borrowed for the purpose of business or profession only, whereas, in the case on hand, the assessee has utilized the above interest bearing loans for other purposes by giving loans on interest free. The facts in the cases relied on by the assessee are that notional interest which was not....