TaxTMI 
TaxTMI 
2018 (4) TMI 1946
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....ering Rs. 80,93,310 as the total income. 4. A search and seizure operation under section 132(1) of the Income Tax Act, 1961 (for short "the Act") was conducted in case of M/s Cineyug Group on 25th November 2009. On the very same day, a survey under section 133A of the Act was also carried out in the office premises of the assessee company. In course of search and survey action, it was found that the assessee received loan of Rs. 177.75 crore from M/s. Dynamix Realty, a firm belonging to D.B. Realty Group of companies and the said sum of Rs. 177.75 crore received as loan by the assessee, in turn, was advanced as loan to Cineyug and out of the said amount Cineyug transferred an amount of Rs. 175 crore to Kalaignar TV (KTV), Chennai in financial year 2009 itself. From the seized documents, the Assessing Officer found that Cineyug has transferred an amount of Rs. 200 crore to KTV, Chennai in financial year 2008-09 and the source of such money originated from D.B. Realty Group companies and routed through Dynamix Realty and the assessee to reach Cineyug. The transfer of money by way of loan between the companies was also recorded in their respective books of account. From the money tra....
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....ransfer of fund through numerous entities to the ultimate destination i.e., KTV, Chennai in a totally pre-planned manner using the subterfuge of the banking system was to result in illegal gratification of KTV, Chennai. The Assessing Officer observed, the money trail starting from Dynamix Realty to KTV, Chennai revealed that it was either for illegal gratification or bribe or for some other irregular purposes or some unspecified purposes having no conceivable business connection or purpose. As far as the treatment to be given to the interest income offered by the assessee is concerned, the Assessing Officer found that the assessee has shown interest income on the loan given to Cineyug at Rs. 12,19,17,808 and in turn claimed to have paid interest of Rs. 11,38,00,114 to Dynamix Realty on the loan availed. Thus, the assessee has offered net interest of Rs. 81,17,694 as income from other sources. The Assessing Officer observed, the entire loan transaction between Dynamix Realty, assessee and Cineyug is not in any way connected with the regular business activity either of the assessee or any of them. Therefore, the so called interest income and interest expenditure shown by the assessee....
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....opined, the issue whether it is a real loan transaction or the transactions are trail of illegal gratification to KTV by D.B. Group, since, is under the scrutiny of Special Court no finding on the nature of transactions can be given. However, he observed that there is no dispute that the interest income earned by the assessee was from the loan advanced to Cineyug the source of which is originated from the loan availed by the assessee from Dynamix Realty. He found that while the assessee has received interest from Cineyug, in turn, it has paid interest to Dynamix Realty. The assessee has also deducted TDS on the interest paid to Dynamix Realty and Dynamix Realty has also offered the interest received from assessee as income in the return of income filed. The learned Commissioner (Appeals) observed, if accepting the Assessing Officer's view it is held that the transaction are the money trail of illegal gratification from D.B. Group to KTV, Chennai, neither there can be any real interest income nor real interest expenditure. Whereas, While the Assessing Officer has taxed the interest income he has refused to allow interest expenditure. The learned Commissioner (Appeals) held, that, si....
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....ication to KTV. The learned Departmental Representative submitted, the interest expenditure having no connection with earning of interest income was not allowable. In support of such contention, he relied upon the decision of the Hon'ble Supreme Court in case of Durga prasad More, 82 ITR 640. 7. Learned Departmental Representative referring to observations of the first appellate authority while deciding assessee's appeal for assessment year 2011-12 submitted that in the said year learned Commissioner (Appeals) has taken a correct view by holding that the transaction entered into by the assessee with Cineyug is an adventure in the nature of trade, hence, the income derived there from is assessable as business income. He submitted, as the transaction relating to advancement of loan by the assessee to Cineyug has resulted in illegal gratification to KTV, Chennai and A. Raja involved in 2-G scam, the interest expenditure relating to such unlawful transaction is neither allowable as deduction under section 36(1)(iii) of the Act as it is not related to assessee's business nor it is allowable under section 37(1). He, therefore submitted, learned Commissioner (Appeals)'s order for ass....
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....orised Representative submitted, the observations of the Assessing Officer in the impugned assessment orders and that of the learned Commissioner (Appeals) in the appeal order for assessment year 2011-12 regarding assessee's involvement in illegal gratification to KTV have lost their relevance as the Special Court conducting the trial against the assessee and other accused persons in cases filed under the Prevention of Corruption Act and Prevention of Money Laundering Act has acquitted the assessee and other accused persons from all charges. In this context, he drew our attention to the orders dated 21st December 2017, passed by the learned Special Judge, CBI (04), New Delhi, and read out the relevant observations of the Trial Court in this regard. Therefore, he submitted, no reliance can be placed on the allegations made in the charge sheet/complaint filed by the CBI before the Trial Court. The learned Authorised Representative submitted, even in the statement recorded from the director of the assessee he has categorically stated that the investment made is in the nature of strategic investment. He submitted, if the assessee for the purpose of its business has decided to make inve....
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....cide the issues raised in these appeals, it is necessary to put certain facts on record. The hearing of these appeals was concluded earlier on 26.09.2017. While drafting the order it was felt that clarification on certain issues are still required. Hence, the Bench thought it appropriate to refix the appeals for fresh hearing. Subsequently, the assessee vide letter dated 22.12.2017 requested rehearing of the appeals as it wanted to bring on record the orders of ld. Special Judge, CBI, New Delhi in the trials conducted against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act, which according to the assessee will have crucial bearing on the present appeals. Thus, the appeals were refixed for hearing and finally heard on 19.01.2018. Though, the disputed issue concerning allowability of interest expenditure claimed by the assessee on the surface appears to be a simple issue, however, on deeper scrutiny of facts and materials it is not so. Through a maze of bank transactions funds worth Rs. 200 crore have been transferred between number of entities including the assessee. As could be seen from facts on record, while filing the original return of....
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....aim in Assessment Year 2010-11 has not at all dealt with a number of factual issues raised by the assessing officer. In as much as, while deciding assessee's appeal for Assessment Year 2011-12 the Commissioner(Appeals) has upheld the disallowance of interest expenditure claimed by the assessee on a altogether different reasoning by changing the head of interest income shown by the assessee under the head 'income from other sources' to 'business income'. Thus, there is inconsistency even in the stand of the department with regard to the head of income. 12. Moreover, the most important factor which will have crucial bearing on the disputed issue is the fate of the cases filed by the CBI against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act. A reading of the impugned assessment orders as well as the first appellate order for assessment year 2011-12 would leave no room for doubt that the disallowance of interest expenditure stands on the fulcrum of the allegations made by the CBI against the assessee and other persons in the charge sheet/complaint filed under the Prevention of Money Laundering Act, 2002 and Prevention of Corruption Act, 198....