TaxTMI 
TaxTMI 
2025 (6) TMI 1831
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....indings to prove that the assessee has advanced interest bearing funds for non business purposes and for no commercial expediency. ii. Whether on the facts and in law, the Ld.CIT(A) is correct in deleting the addition by stating that the case does not indicate any tax evasion plan as both the companies are taxpaying entities at the same rate of tax, ignoring the fact that the rate of taxation of both the companies were found to be different and the assessee had mentioned the tax paid figure without incorporating surcharge and cess payable on the tax. iii. Whether on the facts and in law, the Ld. CIT(A) is correct in ignoring the facts that the assessee has not provided any documentary evidence to prove the services received by the assessee company from its sister concern such as trade name for marketing its products, technical knowhow, office space and infrastructure, skilled staff and bank guarantors etc from its sister concern in lieu of interest free funds. iv. Whether on the facts and in law, the Ld. CIT(A) is correct in ignoring the facts that the AO had given opportunity to the assessee for submitting its reply regarding disallowance u/s 36(1)(iii) ....
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....ivities -WIP Rs 4,47,377,126/- Amount utilized for advance in other group companies Rs. 2,33,420,294/- Interest calculated @ 12 % PA Rs. 2,80,10,435/- 4. Aggrieved the order of the A.O the assessee has preferred the appeal before the Ld. CIT(A) who vide his order dated 28-07-2022 allowed the appeal of the assessee. Being aggrieved the order of the Ld. CIT(A) the revenue is in appeal before the Tribunal. 5. Ld. CIT DR has submitted that the assessee case is clearly hit the provisions of the section of the 36(1) (iii) of the Act. The assessee company has diverted the borrowed funds providing the advances to other parties without any business or commercial expediency. He relied the order of the Assessing officer. 6. We have heard the Ld. CIT DR and gone through the materials available on the record. 7. Ld. CIT(A) has observed in his order as under: 5. Ground No.2 of Appeal: This Ground challenges the legality of jurisdiction as assumed by the AO u/s 153A of the Income Tax Act. The appellant has submitted that it was categorically informed to the A.O. during the course of assessment proceedings that in the absence of any incrementing material being f....
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....tes to the disallowance of Rs. 2,80,10,435/- u/s 36(1)(iii) of the Act. The appellant submitted that this addition U/s 36(1)(iii) of the Act is arbitrary, illegal and uncalled for as the appellant has utilized interest bearing funds for the purpose of its business. The appellant further submitted that, it was explained to the A.O. that the appellant company is a construction company engaged in construction of flats and selling the same to the proposed buyers. Likewise, the sister concern to whom advances has been given is also engaged in the identical business. The funds so given to the sister concern were out of own funds owned by the appellant whereas the borrowed funds have been utilized for the business purpose of the appellant. It was also explained to the A.O. that the advances so given to sister concern was part of overall business plan of the appellant company and it has no connection with the interest-bearing funds and those has been utilized for the business of the appellant. 6.1 The AO in his remand report has submitted that: "An addition amounting to Rs. 2,80,10,435/- was made by this office u/s 36(1)(iii) of the Income Tax Act, 1961 in the ca....
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....time. However, in the present case both the payee and payer company has paid advance tax periodically meaning there by the department has got revenue periodically as against getting TDS at the end of financial year." In the assessment order the AO has relied on the judgement of Hon'ble Karnataka High Court in the case of Embassy Development Corporations Assistant Commissioner of Income-tax, Central Circle- 2(3), Bangalore[2015] 378 ITR 677 where it has been held that "Assessee sought for deduction of interest paid on loan availed by assessee - Assessing Officer disallowed assessee's claim of interest on ground that though assessee availed loan from KSIIDC, same was diverted to its sister concern and amount received was not utilized for business of assessee - Assessee submitted that borrowed amount advanced to its sister concern was in nature of sale consideration for purpose of acquiring a portion of property in project proposed to be developed by sister concern - It was found that even after three years, loan amount advanced to sister concern had not been used for construction of proposed project but it was used for some other project. "So, the deduction ....
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....44,73,77,126/- in work in progress as against secured loan of Rs 68,07,97,420/- and accordingly, the AO has calculated impugned amount of Rs. 2,80,10,435/- @ 12% on Rs. 23,34,20,294/- (being difference between secured loan amount at Rs 68,07,97,420/- and loan amount invested in WIP Rs. 44,73,77,126/-) presuming that the same has been advances to sister concern as interest free loan out of secured loan and has made addition u/s 36(1)(iii) of the Act to the taxable income of the appellant. As against above observation the appellant has submitted that the impugned amount of Rs. 2,80,10,435/- is allowable as deduction u/s 36(1)(iii) of the Act as firstly the impugned advance of Rs. 87,00,00,000/- given to investee company is out of interest free own funds available with it in the shape of share capital, Reserve and surplus and Advance from customers and secondly the same has been advanced as business advance out of commercial expediency. The appellant in support of his contention has also filed copy of agreement dated 01.07.2014 between the assessee company and its sister concern. The AO has not disputed the contents of the agreement which is primarily agreement for business s....
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....laxo Smithkline Asia Pvt. Ltd. (SLP Civil No.18121/2007) the Hon'ble Supreme Court has held that in the case of related party transactions the authorities must examine whether there is any loss of revenue. And if exercise is revenue neutral, than the matter may be decided accordingly. So long as the arrangement is genuine and payments have actually been made and there is no tax evasion planning involved, when both the entities are paying tax at the maximum marginal rate, there cannot be any justification is disallowing any amount on estimated basis. Such revenue neutral addition made by AO unnecessarily increases avoidable academic exercise. In the case CIT v/s M/s. Excel Industries Ltd. (itatonline.org) in appeal No. 125 of 2013 vide order dated 08.10.2013 the Hon'ble Supreme Court held that the AO is required to be pragmatic and not pedantic. The Apex Court also observed that Revenue cannot be allowed to flip flop on the issue and if ought let the matter raised rather than spend the tax payers money in pursuing litigation for the sake of it. In the similar facts and circumstances of the case, the Apex Court observed that, it is not as if the revenue has been deprived of a....