TaxTMI 
TaxTMI 
2026 (6) TMI 1342
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....ns of law raised in both appeals are identical. 4. Mr. Nishant Thakkar, learned counsel appearing for the Respondent- Assessee, has invited our attention to the order passed by a Co-ordinate Bench of this Court in the Assessee's own case in Income Tax appeal No. 1248 of 2016, Pr. Commissioner of Income Tax-6 v. M/s. Aegis Limited, decided on 28th January 2019. He submits that the Co-ordinate Bench had considered similar questions of law and dismissed the appeal preferred by the Revenue. 5. According to the learned counsel for the Respondent-Assessee, the present appeals also raise substantially identical questions. For convenience, the questions of law raised in appeal No. 1 are reproduced hereunder:- SUBSTANTIAL QUESTIONS OF LAW: A. Whether on the facts and circumstances of the case and in law, the Hon 'ble ITA T erred in not considering the fact that the Respondent has in reality advanced/lent money to its AE in the garb of applying for, and redeeming preference shares which are redeemable only at par, generate no dividend and have no capital appreciation, and hence provisions relating to transfer pricing would be attracted in the case of the Responden....
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....No. 1248 of 2016, which has elaborately considered the Revenue's contentions on substantially similar questions of law and, upon due consideration, dismissed the appeal preferred by the Revenue. The relevant observations of the Court in the order dated 28th January 2019 read thus: "1. The Revenue has filed this appeal challenging the judgment of the Income Tax Appellate Tribunal. The following questions were pressed before us : "1. Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal erred in not considering the fact that the assessee had actually advanced/lent money to its AE in the garb of preference shares leading to attraction of provisions relating to Transfer Pricing in the ease of the assessee in view of Section 92B of the Act, without appreciating the fact that these preferential shares do not carry any dividend and are beyond scope of any capital appreciation? 2. Whether on the facts and circumstances of the case and in law, the Income Tax Appellate Tribunal erred in deleting an adjustment made u/s. 36(1)(iii) towards interest on interest free loans advanced to the companies under the same management, r....
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....on was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis. No question of law arises. 4. Question no. 2 relates to the act of the assessee of making interest free advances to an AE. The Tribunal came to the conclusion that the assessee had sufficient interest free loans out of which subject advances are made. The Tribunal referred to and relied upon the decision of this Court in the case of Commissioner of Income-tax V/s. Reliance Utilities and Power Ltd. reported in [2009] 313 ITR 340 (Bom) and deleted the disallowances. In subject judgments, this Court had held and observed as under: "9. The Revenue being aggrieved by the order preferred an appeal to the Tribunal. Before the Tribunal, it was sought to be contended that the shareholders funds of Rs. 172,10,88,000 were utilised for the purchase of fixed assets shown in schedule D in terms of the balance-sheet as on March 31, 1999. It was submitted that the assessee had not reserve or own funds for making the investments in the sister concern and, therefore, borrowed funds had been utilised and interest on these invest....
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....ted as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substantial question of law and it is dismissed. There will be no order as to costs." 8. It can thus be seen that, the Tribunal applied a lower percentage of commission in the p....
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....er concerns/subsidiaries were out of borrowed funds and that no commercial expediency had been established for making such advances. Accordingly, the Assessing Officer disallowed proportionate interest attributable to the borrowed funds to the extent of Rs. 8,13,71,812/-, by applying the rate of interest of 11.91%, as determined by the Transfer Pricing Officer. The Dispute Resolution Panel (DRP), by its order dated 14th June 2022, affirmed the findings recorded by the Assessing Officer. Consequently, pursuant to the directions issued by the DRP, an assessment order came to be passed under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961. Aggrieved thereby, the Assessee preferred an appeal before the Tribunal, which culminated in the impugned order under challenge in the present appeal. 12. We find from the record that the Assessee has consistently maintained that the loans and advances made to its sister concerns/subsidiaries were out of its own funds and not from borrowed funds. In the facts of the present case, there was no basis for drawing any presumption that such advances had been made out of borrowed funds. In fact, it was specifically demonstrated fr....
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....shok Commercial Enterprises (ITA (L) No 2985 of 2009) (Born HC) 16. We find that, for Assessment Year 2009-10, as noted hereinabove, the Tribunal had deleted a similar disallowance made by the Assessing Officer. The said decision was carried in appeal by the Revenue. The orders passed by the Tribunal came to be affirmed by this Court. The Tribunal has taken note of the said position in paragraph 24 of the impugned order. 17. It further appears from the record that, in the Assessee's own case for Assessment Years 2010-11 and 2014-15, similar disallowances made under Section 36(1)(iii) of the Income-tax Act, 1961 were deleted by the Tribunal. The Tribunal has taken into consideration all these aspects while recording its findings in the present case. The Tribunal has also observed that the Transfer Pricing Officer had accepted the interest charged by the Assessee and, therefore, no disallowance on account of notional interest was warranted under Section 36(1)(iii) of the Act. 18. Further Mr. Thakkar, has drawn our attention to the decision of this Court in Commissioner of Income Tax v. Reliance Utilities and Power Ltd., reported in (2009) 313 ITR 340 (Bombay), wherein, w....
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....the Calcutta High Court in the case of Woolcombers of India Ltd. v. CI T [1982] 134 ITR 219. It was further submitted that the view taken by the Calcutta High Court had found approval by the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT 11997] 224 ITR 627. 8. We have heard learned counsel for both the parties. In our opinion the very basis on which the revenue had sought to. contend or argue their case that the shareholder funds to the tune of over Rs. 172 crores was utilised for the purpose of fixed assets in terms of the balance sheet as on 31st March, 1999, is fallacious Firstly, we are not concerned with the balance sheet as of 31-3-1999. What would be relevant would be balance sheet as on 31-3-2000. Apart from that, the learned counsel has been unable to point out to us from the balance sheet that the balance sheet as on 31-3-1999 showed that the shareholders funds were utilized for the purpose of fixed assets. To our mind the profit and loss account and the balance sheet would not show whether shareholders funds have been utilised for investments. The argument has to be rejected on this count also. 9. Apart from that we have noted earlier that....
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....tion is established considering the finding of fact both by the CI T(Appeals) and ITAT. 11. Considering the above, in our opinion, there is no merit in this appeal which is accordingly dismissed. 19. Mr. Thakkar has also invited our attention to the decision of the Supreme Court in Commissioner of Income Tax v. Reliance Industries Ltd., reported in (2019) 410 ITR 466 (SC), wherein the Supreme Court considered a similar issue arising under Section 36(1)(iii) of the Income-tax Act, 1961 while affirming the principle that where sufficient interest-free funds are available, a presumption arises that the investments or advances have been made out of such funds, the Supreme Court made the following observations: 6. The appeals by the Revenue raise the following questions: 1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(ii) of the Income Tax Act, 1961 (for short the Act) when the interest would not have been payable to banks, if funds were not provided to subsidiaries; ................... 7. Insofar as the first question....