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2015 (2) TMI 996 - HC - Income TaxDisallowance of interest u/s 57(iii) - AO observed the transaction as colourable device / tax planning - Held that:- It is an admitted fact that the Revenue has not disbelieved the loan transaction of ₹ 3 crores with the company, namely, Arvind Mills Ltd. at the rate of 18.5% p.a. and payment of interest at the rate of 12% to the said four companies where, the appellant - Assessee made investment. It is not in dispute that the appellant - Assessee invested the amount equally in the above four companies so as to get interest at the rate of 12% p.a. It is not a case of the Revenue that the estimated book value of the shares of the said company, as reproduced hereinabove, is not true or correct. Thus, the transaction of borrowing of ₹ 3 crores and payment of interest at the rate of 18.5% made by the appellant - Assessee to Arvind Mills Ltd. and, in turn, receipt of 12% interest by the appellant - Assessee from the investment made by it in the above four companies are believed and, therefore, the said transactions are genuine in nature. To disallow the deduction under Section 57(iii) of the Act, the assessing authority considered the transactions as loan and not as OCDs. The investment made by the appellant - Assessee in the said four companies were not loss making concern at the relevant time and, therefore, the decision of the appellant - Assessee to borrow the money at a higher rate of interest and to invest the same in the said four companies at the rate of 12% with a hope to get shares in future was made to earn income. So, it appears that the Revenue splitted the transactions in such a manner that it upheld the genuineness of borrowing, payment and receipt of interest but when question of considering payment of additional interest of 6.5% came into consideration, it termed the said part of transaction as colourable device/tax planning. So, the question is whether the Revenue can split the transaction in the manner it did so. It is true that the Court cannot re-examine/re-appreciate the findings of fact recorded by the Tribunal but as a matter of fact, after splitting transaction, as done in the case on hand, the Tribunal was required to term/treat the entire transaction as a whole colourable device. Had it been so, the matter would stand on different footing. In our opinion, the Tribunal cannot split the transaction into two parts or more. For that purpose, we made searching inquiry from learned advocate Mr.Bhatt to show any provision of law under the Act or precedent which empowers the Revenue to split transaction into two or more parts and then to hold any one particular part of said transaction as legal/permissible/admissible and other part of the same transaction being colourable device. Learned advocate Mr.Bhatt could not lay his finger on any provision/ precedent which empowers the Revenue to do so. So, once the primary transaction of lending, borrowing and passing of payment of interest is found to be genuine, merely because it resulted into equal amount of income, it would not become a colourable device and consequently earning any disqualification. - Decided in favour of Assessee.
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