TMI Blog2013 (6) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a company incorporated under the provisions of the Companies Act, 1956 and is inter-alia engaged in the business of construction of commercial complex and development of properties. For the assessment year under consideration it filed a return of income declaring total income of ₹ 35,09,962/- under the normal provisions of the Act whereas income for MAT purposes i.e. under Section 115JB was declared at ₹ 1,54,80,621/- and taxes were paid accordingly. 4. In the course of assessment proceedings, Assessing Office noticed that assessee had debited an interest expenditure of ₹ 2,36,80,096/- and had earned bank interest of ₹ 4,65,770/- thereby claiming net interest expenditure of ₹ 2,32,14,326/-. The Assessing Officer noticed that during the year under consideration assessee had made certain interest-free advances to the concerns in which assessee company was a partner and also to the concerns in which the Directors of the company were interested. The advances to the concerns in which assessee was a partner amounted to ₹ 3,33,30,209/- and advances to the concerns in which the Directors of the company were interested amounted to ₹ 5,95,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of Ground nos. 1 and 2 in its appeal has contended that the CIT(A) erred in directing the Assessing Officer to consider the disallowances after examining and verifying the various particulars and details in the light of the directions of the Tribunal and instead the CIT(A) ought to have decided the issue himself. In its cross-appeal, the Revenue is also aggrieved with the direction of the CIT(A) to the Assessing Officer to consider the disallowance after examining and verifying the various particulars and details in the light of the directions of the Tribunal given in the earlier assessment years of 2000-01, 2001-02 and 2003-04. As per the Revenue, CIT(A) ought to have sustained the disallowance made by the Assessing Officer. Since the Cross-Grounds relate to the same issue namely, disallowance of interest under Sections 14A and 36(1)(iii) of the Act made by the Assessing Officer, the same are being taken up together. 7. At the time of hearing, the rival counsels brought out their grievance against the action of the CIT(A). The learned counsel for the assessee also filed a detailed Paper Book and in particular it was asserted that factually the disallowances were untenab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is the share in the profits of the partnership firms earned by the assessee and it is clear that the impugned advances made to the partnership firms are not by way of a capital contribution and therefore do not relate to an the exempt income. Therefore interest corresponding to such advances made to the partnership firm is not within the purview of Section 14A of the Act. However, the learned counsel for the assessee fairly conceded that without prejudice to assessee s plea that the disallowance of ₹ 25,28,804/- was not justified, if at all any disallowance is to be made, the same has to be under Section 36(1)(iii) of the Act and not under Section 14A of the Act. Mere wrong invoking of Section 14A of the Act by the Assessing Officer shall not straightway invalidate the disallowance. Therefore, we proceed further on the basis that the disallowance of ₹ 25,28,804/- as well as ₹ 29,63,659/- made by the Assessing Officer are in terms of Section 36(1)(iii) of the Act. 10. On the aforesaid aspect, the learned counsel for the assessee has made two primary arguments. Firstly, it is contended that the share capital plus reserves plus interest-free advances availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. It is submitted that if assessee was in a position to own sufficient surplus interest-free funds to cover the impugned advances made free of interest to the sister concerns, there would not have any necessity for the assessee to raise interest bearing loans because such surplus interest free funds would have been utilized by the assessee for the purpose of its own business. It is also submitted that the advances made to the sister concerns are not for any business purpose and therefore on this point also the disallowance of interest expenditure made by the Assessing Officer was justified. In this manner, the learned Departmental Representative submitted that the CIT(A) erred in not sustaining the disallowance made by the Assessing Officer. 13. We have carefully considered the rival submissions. In this case, the Assessing Officer noted that assessee advanced loans to the sister concerns amounting to ₹ 9,28,96,036/-, on which no interest was charged. As per the Assessing Officer, on one hand assessee was paying interest on funds borrowed and claiming the same as deduction while on the other hand, it was advancing loans to its sister concerns free of interest. As per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supported by the relevant material on record, and is not controverted by the Revenue, the principle approved by the Hon ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra) clearly militates against the disallowance made by the Assessing Officer. Applying the parity of reasoning laid down by the Hon ble High Court in the case of Reliance Utilities Power Ltd. (supra) it has to be held in the present case that as there are funds available both interest-free and interest bearing, then the presumption is that the impugned interest-free advances made to the sister concerns are out of interest-free funds available with the assessee company as the interest-free funds are sufficient to cover the impugned interest-free advances made to the sister concerns. Therefore, the disallowance of interest expenditure made by the Assessing Officer becomes untenable. 16. The Assessing Officer in para 4.8 of the assessment order has observed that assessee has advanced interest-free fund to the sister concerns out of interest bearing loans taken from various banks. In coming to such conclusion, the Assessing Officer tabulated the total loans from the banks as on 01.04.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remand report furnished. In fact, we find that the assessee has been consistently maintaining that the interest-free advances to the sister concerns have not been advanced out of interest-bearing loan accounts. The assessee had furnished a written submission dated 23.12.2002 to the Assessing Officer which has been reproduced in para 4.6 of the assessment order. In the said written submissions, it has been asserted by the assessee that at no occasion during the year the interest-free advances were made out of interest bearing loan amounts. Further, assessee submitted that the current account maintained with banks were also not funded with interest-bearings funds to facilitate interest-free advances to the sister concerns. The learned counsel at the time of hearing explained the position further and submitted that funds were advanced from the current accounts maintained with the banks, and the same has also been noted by the Assessing Officer in para 4.8 of the assessment order, and in such current accounts interest-free funds were deposited in the form of receipt their customers, interest-free loan advances, etc. and therefore it could not be said that the loan accounts have been ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from windmill. The Assessing Officer denied the claim of the assessee by way of the discussion in para 6 of his order. As per the Assessing Officer, assessee had withdrawn its claim made under Section 80-IA for the assessment year 2004-05 and there being no material change in the situation in the instant year, the said claim was disallowed. Apart from the aforesaid, the Assessing Officer had required the assessee to explain why, in terms of the provisions of Section 80-IA(5) of the Act, the deduction should not be considered only after brought forward depreciation and business loss of the eligible unit has been absorbed against the income derived by the eligible unit, as if it was the only source of income of the assessee. The Assessing Officer has noted that no information was submitted by the assessee with regard to the provisions of Section 80-IA (5) of the Act. For the aforesaid twin reasons, the claim of deduction under Section 80-IA of the Act was denied. 20. The CIT(A) has also affirmed the action of the Assessing Officer. Before the CIT(A), assessee contended that consequent to the amendment in Section 80-IA w.e.f. 01.04.2000, Section 80-IA(5) is applicable only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this aspect is clearly contrary to the decisions of the Pune Bench of the Tribunal in the case of Shri Sangram Patil vs. ITO, ITA Nos. 177 178/PN/2011 dated 12.12.2012 and Serum International Ltd. vs. Addl. CIT, ITA Nos. 290 to 292/PN/2010 dated 28.09.2011. 22. On the other hand, the learned Departmental Representative appearing for the Revenue has defended the stand taken by the CIT(A) by pointing out that the Section 80-IA(5) of the Act requires that profits of the eligible unit i.e. windmill are to be computed for the purposes of determining the quantum of deduction under Section 80-IA of the Act, in a manner as if such eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year thereof. As per the Revenue, initial assessment year in this case is assessment year 2001-02 being the year of set-up of the windmill. Therefore, past losses starting from the assessment year 2001-02 have to be set-off against the profits of this year in order to arrive at the deduction computable under Section 80-IA of the Act for the year under consideration irrespective of the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. vs. ACIT (2010) 38 DTR 57 (Mad.), upholding the proposition canvassed by the assessee. Therefore, we deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to examine the plea of the assessee for deduction under Section 80-IA on the basis of the parity of reasoning laid down in the aforesaid precedents. The Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on this aspect as per law. Thus, on this Ground, assessee succeeds for statistical purposes. 26. In the result, appeal of the assessee in ITA No.568/PN/2010 for the assessment year 2005-06 is partly allowed. 27. In so far as appeal of the Revenue in ITA No.907/PN/2010 for the assessment year 2004-05 is concerned, it was a common point between the parties that the issue involved is similar to that considered in the assessment year 2005-06. Since the issue involved is identical to that considered in assessment year 2005-06 therefore our decision in the appeals for assessment year 2005-06 shall apply mutatis-mutandis in this appeal also. Accordingly, ITA No.907//PN/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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