TMI Blog2012 (5) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the benefit of the discharge of the EPCG obligations by the assessee – the findings of Tribunal are consistent with the judgment of the Supreme Court in S.A. Builders v. Commissioner of Income Tax (Appeals) (2006 -TMI - 2870 - SUPREME COURT OF INDIA)that if the business purpose is there while advancing money to the sister concern the dis allowance of interest cannot be sustained - against revenue. - IT Appeal No. 3155 of 2009 - - - Dated:- 28-3-2012 - Dr. D.Y. Chandrachud and M.S. Sanklecha, JJ. Abhay Ahuja for the Appellant. Soli Dastur, Niraj Sheth, Rajesh Shah and B.G. Yewle for the Respondent. JUDGMENT Dr. D.Y. Chandrachud, J. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961, arises from a decision of the Income Tax Appellate Tribunal, dated 12 January 2009. The Assessment Year to which the appeal relates is 2003-04. We have permitted Counsel appearing on behalf of the Revenue, on his request, to reframe the questions of law as originally framed and allow the Revenue to amend the questions of law as follows : "(A) Whether in the facts and the circumstances of the case and in law, the Tribunal was justified in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i ) Share capital and reserve and surplus. Rs. 46,82,26,21,552/- ( ii ) Secured loan Rs. 24,00,00,00,000/- II. Application of funds ( i ) Fixed assets and capital work in-progress. Rs. 34,22,50,95,364/- ( ii ) Investments Rs. 20,22,39,08,966/- ( iii ) Loans and advances Rs. 25,92,94,96,582/-" According to the Assessing Officer, the difference between the share capital and reserve and surplus (I(i) above : Rs. 4,682 crores) and the application of funds in fixed assets and capital work-in-process and investments (II(i) and (ii) above : Rs. 5,444 crores) works out to Rs. 762 crores. If this amount of Rs. 762 crores is reduced from the secured loan of Rs.2,400 crores (I (ii) above), the balance available for application of funds would be Rs. 1638 crores. According to the Assessing Officer, this balance of Rs. 1638 crores had been advanced by the assessee to a subsidiary company and the assessee had made other advances and deposits without charging interest. The Assessing Officer held that the explanation submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest free funds available to assessee were more than the amount invested in Reliance Infocomm Ltd. and advances given to Reliance Industries Ltd. The Tribunal further observed that the departmental representative had failed to point out any infirmity in the working which was extracted in the order passed by the CIT(A). Secondly, the Tribunal held that the investment in Reliance Infocomm Ltd. was for the purpose of business as it ensured utilization of the infrastructure of the assessee and helped in furthering the business prospects. Moreover, the amount which was advanced to Reliance Industries Ltd. was towards a guarantee which that Company had to execute at the behest of the assessee in favour of certain financial institutions who had extended credit facilities to third parties. The Tribunal has relied upon the judgment of the Supreme Court in S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74, observing also that the judgment of this Court in Phaltan Sugar Works Ltd. ( supra ) which was relied upon by the Assessing Officer has been overruled by the Supreme Court. 7. Counsel appearing on behalf of the Revenue has submitted that (i) Under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n S.A. Builders Ltd. ( supra). Consequently, it would be necessary to turn to the judgment in S.A. Builders Ltd. ( supra ) which now reflects the governing position in law. 10. In S.A. Builders Ltd. ( supra ), the Assessing Officer had observed that the assessee had transferred a certain amount to its subsidiary out of a cash credit account in which there was a debit balance. The Assessing Officer found that the assessee had diverted its borrowed funds to a sister concern without charging any interest and that consequently, a proportionate part of the interest relating to that amount, out of the total interest paid by the assessee to the Bank, had to be disallowed. The CIT(A) had observed that out of the total amount advanced by the assessee to its subsidiary, only an amount of Rs. 18 lakhs had a nexus with borrowed funds and he had directed the Assessing Officer accordingly to calculate the disallowance. The Tribunal allowed the appeal by the Revenue and dismissed the appeal of the assessee. The order was confirmed by the High Court. The Supreme Court observed that the Income Tax authorities, the Tribunal as well as the High Court had approached the matter from an erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and claimed that this was with a view to provide integrated telecommunication services. The case of the assessee was that those investments were to ensure the utilization of the telecommunications infrastructure of the subsidiary and was a strategic investment for furthering business prospects in the area of providing telecommunication services. As regards the advance which was made by the assessee to Reliance Industries Ltd. (RIL) the assessee pointed out to the CIT(A) that it was required to import equipment under the EPCG Scheme. The obligations under the EPCG Scheme were required to be backed by bank guarantees which in turn demanded security for the issuance of guarantees. The assessee entered into an arrangement with RIL to which it advanced a sum of Rs.476 crores against which RIL provided counter guarantees to financial institutions equivalent to three times the amount of the margin kept by the assessee with RIL 12. Now, having regard to this factual background, both the CIT(A) and the Tribunal held that the investments made in the wholly owned subsidiary and the money advanced to RIL were for furthering the business of the assessee. The findings of both the CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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