TaxTMI 
TaxTMI 
2026 (4) TMI 570
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....o orders from AY 1996 - 97 onwards, we have the benefit of the order of assessment for AY 2000-01 only. However, there is no dispute on the position that the subject disallowance had been effected in the earlier years as well. 4. In the financial year relevant to AY 1996 - 97, the assessee had obtained clearance from the Reserve Bank of India (RBI) to make investments in two Companies viz., M/s. Indo Jordam Chemicals Co., Ltd., Jordam and M/s. Spic Fertilizers and Chemicals FZE, Dubai, that were engaged in the manufacture of chemicals. Interest paid on borrowings used for the purpose of investment had been claimed as business expenditure and had been disallowed in the assessment for that year. The disallowance was on several grounds including that the interest, though claimed as revenue, had been capitalized in the accounts. 5. The first appeal filed challenging the disallowance was rejected, as against which an appeal was filed before the ITAT. In a decision dated 20.10.2004 reported in Southern Petro Chemical Industries v Deputy Commissioner of Income Tax [(2005) 93 TTJ (Chennai) 161], the Tribunal notes that the companies in which the investment had been made were engaged ....
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....of commercial expediency, is extracted below:- "18. Now coming to the second contention of the assessee, we find considerable force in the argument of the Learned Counsel for the assessee and the decision of the Hon'ble Madras High Court in the case of Indian Commerce & Industries Co., (P) Ltd v CIT (supra) squarely covers this issue. In that case, as noted by the learned CIT (A), it was held "that the shares were purchased because of coercion by the company and also with a view to increase the assessee's business with the company. Hence, there was a nexus between the business of the assessee and the purchase of shares." In the present case also, we find that since the assessee had made the investment in a company which was to produce the basic raw material required by the assessee, it has to be held to be a case of the assessee's expansion of business and, therefore, the funds were utilized for business purpose. The assessee in its written submissions has pointed out that both the companies were subsidiaries of the assessee. It is pointed out that M/s Indo Jordan Chemical Co., Jordan, with which the assessee had entered into a joint venture, owned phospate mines which was....
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....er for earlier years, had allowed the appeal on 16.12.2008. However, in light of the remand on the additional issue, the matter ultimately stood remanded to the file of the assessing authority. Mr.Vijayaraghavan informs us, that no consequential order has been passed for this year by the assessing officer. 15. While so, the Department filed appeal in TCA No. 921 of 2009 challenging the order of Tribunal dated 16.12.2008 for AY 2001 - 02, raising the following question:- Whether on the facts and circumstances of the case, the Tribunal was right in holding that the interest on investment amounting to Rs. 18,29,04,091/- claimed by the assessee as revenue/business expenditure? 16. While dismissing the appeal on 20.10.2009, the Bench states that the Tribunal ought to have taken note of certain variations in the facts as pointed out by the CIT(A), leaving it left open to the Revenue to approach the Tribunal by filing a Miscellaneous Petition (MP). The operative portion of the order as aforesaid reads thus: 3. When the Commissioner of Income-Tax (Appeals) has given so much of reasoning for differentiating and not following the earlier order of the Tribunal with whi....
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....-01 (Rs. 13.99 crores) and for A.Y. 01-02 ( Rs. 18.29 crores) is only in respect of investment in the SFCL, Mauritius. Thus the issue is only with reference to the investments in SFCL, Mauritius, i.e., whether it is for the purpose of appellant's business or not. The appellant has furnished further details as under:- "PIC Fertilisers and Chemicals FZE, Dubai(SFC) was originally set up as a wholly owned subsidiary of SPIC and subsequently in view of operational necessity, a local party, Emirate Trading Agency (ETA) was inducted as co-promoter. The main objective of the company is to manufacture Ammonia and Urea. Since the regulations of Jebel Ali Free Zone Authority (JAFZA) did not permit more than the one shareholder in the Free Zone Establishment (FZE) separate holding company SPIC Fertilizers & Chemicals Limited (SFCL) was formed in Mauritius with SPIC & ETA as shareholders and SFCL- Mauritius holding the entire equity of SFC, Dubai. The fact is explained m Director's Report Vide Page No.68 of the Annual Report for the financial year 2000 - 2001. SPIC made its investment in SFCL, Mauritius which in turn invested in SFC, Dubai. Hence the purpose of investment....
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.... assuming that borrowed funds are utilised for investments in the said joint venture at SFCL, Dubai, through SFCL, Mauritius, it is for the purpose of business, and hence interest on such borrowed funds for investment is allowable as deduction in. view of the decision of the Madras High Court in the case of M/s Sivakami Mills Ltd. Vs. CIT (120 KR 211), affirmed by the Supreme Court in 227 FTR 465. Since the investment has been made in SFCL, Mauritius / Dubai with an intention to get raw material and finished goods, the investment is for the purpose of the business and hence should allowed as deduction for the purpose of sec.'36(l)(iii) of the Act/. The appellant has also filed copies of correspondence dt. 6.7.94 and 5.03.97 between the appellant company and the RBI for sanctioning permission for investment in US Dollars for setting up of Urea Plant at UAE/Joint Venture abroad. The appellant has also filed the scope and cost of the project, the conditions imposed by the RBI while granting approval. The appellant has also filed copies of correspondence of appellant with the RBI dt. 10.11.97 regarding conversion of wholly owned subsidiary to a Joint Venture company, the current st....
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....ng the price for such imports will be communicated only after the policy regarding joint ventures abroad is finalised." 5.. Thus it is clear that import of urea from joint venture with SFCL, Dubai is not guaranteed and it comes as the last preference after import from other two foreign companies. Hence there is no certainty of import of urea (finished product for trading purpose) from the joint venture company. 6. Thus the investment in SFCL, Dubai through SFCL, Mauritius with uncertain implementation of project and uncertain government policy regarding import of urea cannot said to be even remotely connected with the present business carried on by the appellant during the previous year 2000-01. Investment in SFCL, Dubai through SFCL, Mauritius is an independent investment and there is no evidence to substantiate the claim that either it is beneficial to the appellant or serves its present business purposes. No evidence whatsoever was furnished to show that the investment is for the purpose of appellant's business. It is in no way connected with the business carried on by the appellant during the previous year. 22. The conclusions as above militate with the fin....