TaxTMI 
TaxTMI 
2023 (6) TMI 389
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....s.37 of the Act. 3. We have heard rival submissions and perused the material available on record. The assessee is engaged in the business of manufacturing the pharmaceutical products. The return of income for the A.Y.2002-03 was filed by the assessee on 31/10/2002 declaring loss of Rs.4,75,10,750/-. During the course of assessment proceedings, the ld. AO observed that assessee had given interest free loans and advances to various parties as under:- Sr. No. Name of the party Amount (Rs) Interest Received 1 Juzar Khorakiwala / Nishreen Khorakiwala 6,21,80,033 77,72,504 2 Akbarallys Furniture Centre 11,50,000 1,35,283 3 Fabliau Estate Development Private Limited 59,03,45,492 4 Tahseel Hire Purchase Co Private Limited 45,69,72,962 5 Zeigter Investment Private Limited 23,56,26,077 6 Zaahid Holdings & Investment Private Limited 12,61,37,495 7 Jinita Estate Development Private Limited 6,63,71,800 8 Palanpur Holdings & Investment Limited 3,57,53,086 9 Everest Construction 36,35,574 10 PYX Laboratories Limited 25....
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....pany with a request not to charge interest for the financial year under consideration. Pursuant to that request, the assessee has decided in its Board of Directors meeting not to charge interest on the said loans. The assessee placed on record the copy of the Board Resolution and correspondences from the borrowing parties in this regard before the ld. AO. The main crux of the submission of the assessee is that even the principal amount was doubtful of recovery and hence, the assessee was forced to decide not to charge any interest on the said loans during the year under consideration. Accordingly, the assessee defended that the observation of the ld. AO that borrowed funds were diverted for giving interest free advances is incorrect. The assessee also pleaded that there were fresh loans granted during the year to some of the parties to whom loans were given in earlier years, there were also substantial repayments made by those parties during the year. The assessee submitted the movement of loans given and repayment made during the year as under:- No. Party name Op. Bal Loan Given Repayment Cl. Bal 1 Juzar Khorakiwala / Nis....
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.....4. The aforesaid movement goes to prove that only in respect of certain parties as mentioned in the note, no interest was received by the assessee and hence, disallowance of interest was indeed made in A.Y.2001-02. As stated earlier this goes to prove that the other advances made by the assessee were fetching interest income to the assessee in A.Y. 2001-02 and hence that was accepted to be for business purposes by the ld. AO. In respect of some parties, the assessee had chosen not to charge any interest income during the year under consideration only because of bad financial position of the borrowers. Hence, the ld. AO himself accepted up to A.Y.2001-02 that wherever interest income has been earned from the parties, those loans and advances were meant for business purposes of the assessee. The main submission of the assessee is that once the funds are used for business purposes how can there be disallowance u/s.36(1)(iii) of the Act. The assessee pleaded that only real income should be taxed and wherein in respect of loans and advances given to certain parties when recovery of principal itself is doubtful, there is no question of recovering any interest from those parties. Accordi....
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....aforesaid table, and that those loans had started fetching interest income to the assessee from A.Y.2005-06 / 2006-07 onwards, as the case may be. The assessee pleaded for admission of these additional evidences before the ld. CIT(A) as it turned out to be a subsequent development post completion of assessment proceedings. The assessee also furnished further additional evidences before the ld. CIT(A) that these four borrowers listed in Sr.No.3-6 of the aforesaid table had not correspondingly claimed any interest expenditure as deduction in their returns of income for A.Y.2002-03 to A.Y.2004-05. These additional evidences were duly admitted by the ld. CIT(A) and forwarded to the ld. AO for his comments. Since, no remand report was received from the ld. AO despite giving sufficient time, the ld. CIT(A) proceeded to adjudicate the said additional evidences on his own. The assessee submitted that from the financial statements of M/s. Dartmour Holdings Pvt. Ltd.,(merged entity) for A.Y.2006-07, an interest of Rs.3,18,54,320/- was reflected as interest payable to assessee company herein and that the assessee company had offered interest income from the said party from A.Y. 2006-07 onward....
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....ven for non-business purposes of the assessee warranting proportionate interest disallowance u/s.36(1)(iii) of the Act. 3.11. No specific findings were given by the ld. CIT(A) in respect of other parties for confirming the disallowance of interest. 3.12. However, the ld. CIT(A) agreed to the fact that interest on term loans paid by the assessee in the sum of Rs.1.93 Crores could not be utilized for advancing interest free loans to these parties. Similarly, the ld. CIT(A) agreed to the fact that the interest income earned by the assessee of Rs. 1.38 Crores should be given credit while disallowing the proportionate interest expenditure. However, the ld. CIT(A) finally directed the ld. AO to restrict the disallowance of interest to Rs.3.21 Crores as against Rs.6.52 Crores made in the assessment. Aggrieved, both the assessee as well as the Revenue is in appeal before us for their respective portion of the grievances. 3.13. We find that in respect of interest income earned by the assessee in the sum of Rs.1.38 Crores to be given credit while disallowing the interest as directed by the ld. CIT(A), the Revenue has not preferred any appeal before us. Hence, that aspect had attaine....
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....that assessee had recovered substantial sums from the said four parties during the year totaling to Rs.64.17 Crores as is evident from the movement of loans given and repaid during the year which is reflected in the table mentioned hereinabove. Further, in respect of these four parties i.e. parties listed in Sr. No.3-6 of the table, we find that assessee had placed on record the certified copy of the Board Resolution dated 07/03/2002 wherein it had decided to waive the charging of interest for the year under consideration pursuant to the request made by these four parties vide their written request made by these parties to the assessee expressing their bad financial condition and accordingly expressing their inability to service the interest. These documents are enclosed in pages 44-46 of the paper book filed before us. Further, we find that these four companies had been subsequently merged with M/s. Dartmour Holdings Pvt. Ltd., It is a fact that M/s. Dartmour Holdings Pvt. Ltd., had started paying interest to the assessee from A.Y.2005-06 / A.Y.2006-07 onwards and assessee had duly offered the said interest income in subsequent years. We find that assessee had placed due evidences....
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....ution dated 30-6-1978, accepted proposal of 'E Ltd.' - For relevant assessment year, assessee did not include amount of interest accrued on deferred sale consideration in view of its resolution dated 30-6-1978 - Assessing Officer, however, included amount of interest accrued on deferred sale consideration in assessee's total income - On appeal, Tribunal held that amount of interest could not be included in income of assessee since resolution dated 30-6-1978 had been passed prior to commencement of relevant accounting year which was from 1-7-1978 to 30-6-1979 and, therefore, it could not be said that interest had accrued to assessee - Whether on facts, findings of Tribunal were correct in law - Held, yes HELD The genuine nature of the resolution was not and could not be disputed. It was found that the letter dated 15-6-1978 had been complied with by 'E Ltd.' in providing an adequate security of the payable amounts. There was nothing to dispute or suspect the genuineness of the transaction. The whole transaction would have to be viewed in that backdrop. In the commercial world, the parties are always free to vary the terms of the contract. Merely becau....
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.... assessee and the vendee had no legal impediment in modifying the terms of their contract, was correct, in law; the further finding of the High Court, that the resolution could not be given any retrospective effect so as to facilitate evasion of tax liability that had already arisen for the assessment year 1979-80, was also correct. The High Court's finding that it being a valid stipulation, changed the mode of payment from the date of the resolution and, therefore, under the changed mode of payment adopted under the resolution dated 30-6-1978, no interest was to accrue during the accounting period from 1-7-1978 up to 30-6-1979 and, therefore, the reasoning of the Tribunal on that count appeared to be correct, as regards the assessment year 1980-81 was concerned was correct. Since no interest had accrued in the accounting year 1-7-1978 to 30-6-1979, there could arise no question of relinquishment of interest for any commercial expediency. There was no such question because a party could not relinquish income that had not accrued at all. The High Court had correctly found that in view of the categorical stipulation that interest would be payable on the deferred consideration amo....