TMI Blog2014 (6) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... p.a. as claimed by the assessees in the suits filed for recovery of advances - unless and until the liability to pay the advances and the rate of interest at which the temporary advances are to be repaid is determined by the Civil Court, it cannot be said that the same has accrued or arisen to the assessees - if the assessees had advanced interest bearing funds as interest free advances, the interest paid by the assessees towards such borrowed funds would have to be disallowed and treated as the income of the respective assessees – the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. - 62/Hyd/2014 To 76/Hyd/2014 - - - Dated:- 28-5-2014 - Chandra Poojari And Asha Vijayaraghavan, JJ. For the Appellant : Sri Solgy Jose T Kottaram For the Respondent : Sri K C Devdas ORDER:- PER : Bench All the above appeals are by the Revenue directed against different orders of CIT(A)-VII, Hyderabad dated 30.10.2013 in respect of different assessees for A.Ys. 2008-09 and 2010-11. Since the issues involved in all these appeals are identical, they are clubbed together, heard together and dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n) received by various companies from M/s SCSL, net amount given to M/s SCSL was quantified at Rs. 1230.40 crores. A summary of the amounts given by various companies is as hereunder: Table showing net amount of Rs. 1230 crores given to Satyam as summarized from the statement of Sri B. Ramalinga Raju. S. No. Company Amount given to SCSL (in crores) Amount recd. From SCSL (in crores) Net amount given to SCSL (in crores) Up to FY 2007-08 FY 2008-09 Total FY 2008- 09 1 Amaravati Greenlands Pvt Ltd 104.22 0.00 104.22 0.00 104.22 2 Bangar Agro Farms Pvt Ltd 10.00 0.00 10.00 0.00 10.00 3 Pavitravati Green Fields Pvt Ltd 80.78 0.00 80.78 0.00 80.78 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balaghat Green Fields Pvt Ltd 36.25 0.00 36.25 0.00 36.25 19 Kolar Green Fields Pvt Ltd 36.23 0.00 36.23 0.00 36.23 20 Atreyee Agro Farms Pvt Ltd 30.00 5.00 35.00 0.00 35.00 21 Dhatu Agro Farms Pvt Ltd 30.00 5.00 35.00 0.00 35.00 22 Hakra Agro Farms Pvt Ltd 30.00 10.00 40.00 0.00 40.00 23 Bahudhanya Agro Farms Pvt Ltd 30.00 10.00 40.00 0.00 40.00 24 Manaslu Agro Farms Pvt Ltd 32.00 8.00 40.00 0.00 40.00 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. As can be seen from the above table, the assessee, gave an amount of Rs. 32.00 crores to M/s SCSL during the year 2008-09. The source for giving this amount was on account of share application money received. The assessee, gave the amount of Rs. 32.00 crores to M/s SCSL as a temporary advance on various dates. The balance sheet and P L A/c filed along with the return shows the amounts as share application money and temporary advance. No income is shown during the year. In the assessment order, The AO calculated interest on these advances given for the year on the number of days for which the temporary advance was given and brought such amounts to tax on accrual basis as per Table below and as mentioned in para 3 of the assessment order. The AO computed interest on these advances @ 18% because the company made a claim on M/s SCSL for repayment of these advances along with damages claimed at 18% per annum from the date of advance. Date of advance Bank Advance amount (Rs.) No. of days up to 31.3.08 Interest 31/01/2008 HDFC Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the M/s.SCSL has not acknowledged any of its liability to any of the 37 companies and has replied to the legal notices stating that the claims are legally untenable and that the Enforcement Directorate is investigating the matter under the Prevention of Money Laundering Act of 2002 and directed the companies to furnish details with regard to the alleged advances and has further directed the companies not to return the alleged advances until further instructions from the Enforcement Directorate. It was further submitted that the assessees herein have filed suits for recovery of advances before the City Civil Court, Secunderabad on November 11, 2009 and have also claimed interest at the rate of 18% per annum towards damages. It was also reiterated that the company M/s. SCSL have denied liability to repay the alleged advances and also interest thereon and therefore, there is no admission of liability and accrual of interest thereon. 9. After considering the assessee s submissions, the Assessing Officer held that since the assessee companies are following mercantile system of accounting, they ought to have accounted for the interest on accrual basis, as the assessees have inherent r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. He submitted that the income or liability cannot be preponed or postponed to another assessment year. Thus, according to him, the order of the CIT(A) in the case of the assessees is erroneous and has to be set aside and the assessment orders on this issue have to be restored. 12. The learned counsel for the assessee, Shri Devdas, on the other hand, supported the orders of the CIT(A) and submitted that the important factor to be considered is that the company, M/s.SCSL, has denied its liability to pay any amounts to the assessee companies, and therefore, there is no certainty of recovery of the temporary advances itself given by the assessee companies. He therefore, submitted that due to the uncertainty of the recovery of the temporary advances itself, there is no certainty of receipt of interest income on such temporary advances. It is further submitted that there was no contract between the assessee companies and M/s. SCSL to receive interest on these temporary advances and in the absence of such contract, the interest income cannot be deemed to have arisen or accrued to the assessees. He further submitted that the advances have been made out of share application monies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure has to be judged from the point of view of the businessman and not of the Revenue. 2. The Hon ble Bombay high Court in the case of CIT V/s. Reliance Utilities and Power Ltd. (313 ITR 340) held that if there were funds available both interest free and overdraft and /or loans taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the assessee, if interest free funds would be sufficient to make the investments. 3. The Hon'ble Gujarat High Court in the case of Highways Constructions P. Ltd. V/s. CIT (199 ITR 702), was dealing with a case of an assessee company which had advanced interest free loans to directors from amounts borrowed on interest. The Hon ble High Court held that there was no finding of fact to the effect that actually loan had been granted to the Managing Director or any other person on interest or any interest had actually been collected, but the collection of the interest was not reflected in the accounts. The Hon ble high Court after observing that the finding of the ITO was that the assessee should have collected interest, held that if the assessee had not bargained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me on such advances. Therefore, merely because the assessee is following mercantile is system of accounting, it cannot be said that the interest has accrued to the assessees. Further, merely because the assessees have claimed interest at the rate of 18% per annum in the suits filed for recovery of advances, it cannot be said that the said rate of interest is applicable as M/s. SCSL has not admitted the liability of even the amounts of advance. As such, we find that there is no certainty with regard to the said rate of interest. Therefore, it cannot be presumed that the interest accrued to the assessee at the rate of 18% p.a. as claimed by the assessees in the suits filed for recovery of advances. The Civil Courts would consider and decide the liability of M/s. SCSL to repay the amounts of advances and would also consider the liability of M/s. SCSL to pay interest thereon and the rate of interest at which the advances should be repaid. Therefore, unless and until the liability to pay the advances and the rate of interest at which the temporary advances are to be repaid is determined by the Civil Court, it cannot be said that the same has accrued or arisen to the assessees. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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