TMI Blog2013 (3) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... in our opinion, whether the assessee has to deduct the tax in view of section 196 or not has to be examined. Therefore, neither the AO nor CIT(A) examined the issue in proper perspective. Thus, we restore issue to the AO with a direction to decide the issue afresh in the light of section 196 of the Act. Appeal of the assessee is partly allowed - ITA No. 4195/Mum/2010 - - - Dated:- 31-1-2012 - SHRI P.M. JAGTAP AND SHRI V. DURGA RAO, JJ. Appellant by : Mr. F.V. Irani D.B. Shah Respondent by : Mr. A.K. Nayak ORDER PER V. DURGA RAO, J.M.: This appeal filed by the Assessee is directed against the order of CIT(A)-22, Mumbai, passed on 12/03/2010 for the assessment year 2007-08. 2. Ground No. 1 and 2 read as under:- 1. The CIT(A) erred in upholding the disallowance of interest cost of Rs. 16,91,958/- on the alleged ground that interest cost was incurred for the purpose of making an investment in the shares of Sameera Electronics Pvt. Ltd. (Sameera) and not incurred for the purpose of the business of the appellant, hereas the investment in Sameera was integral to the core business of the appellant. The CIT(A) has passed a cryptic order without discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery and to build a suitable infrastructure which can be used for the purpose of business of the assessee. The assessee also submitted that its intention for acquisition of 100% shareholding in Sameera Electronics Pvt. Ltd., was only for the purpose of the effective and efficient utilisation of premises/infrastructure of the Sameera Electronics Pvt. Ltd. and thereby increase in the manufacturing/assembling capacity of the assessee to meet the surge in the orders. The assessee further submitted that it had partly financed the said acquisition of shares by taking a term loan from SIDBI and incurred an interest expenditure on the said loan amounting to Rs. 16,91,958/-. The assesee relied upon various case laws, which were mentioned by the CIT(A) in his order at page 2. In view of the said submissions the assessee prayed that the disallowance made on account of cost of interest amounting to Rs. 16,91,958/-. may be deleted. The learned CIT(A) after considering the submissions of the assessee, held as under:- 3.4 I have gone through the assessment order, perused the submissions made by the appellant and also discussed the case with the AIR of the appellant. A.O. during the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in A.Y. 2008-2009 which supports A.O s view. The appellant further submitted that interest on capital borrowed which is used for the purpose of business has to be allowed. However, in the case of H.T.Conville Vs. CIT 4 ITR 137, it was held that where borrowed money is utilized for earning the non-assessable income, no deduction shall be allowed for interest paid on such borrowings. Ratio of this judgement is squarely applicable since the dividend income receivable out of the investment in shares of Sameera is Exempt from tax. 5. The learned CIT(A) confirmed the order of the AO by observing as above. 6. Still aggrieved, the assessee is in appeal before the Tribunal. 7. The learned counsel for the assessee submitted that the assessee had acquired the shares in Sameera for the purpose of business, for which he relied on the paper book at pages 31 32. The assessee had shown the shares acquired for the purpose of business in the books of account as an investment which is as per companies Act and also according to the accounting standards issued by the ICAI. It is submitted that mere classification in the books of account does not to be a determinative factor for the true cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich it had paid Rs. 16,91,958/- to the SIDBI from whom the assessee borrowed the money and to this effect the assessee referred pages 58 59 where the schedules of the Project, finance plan, and amortization schedule and letter of intent from SDBI for financial assistance. The main contention of the assessee is that the above stated shares acquired by the assessee for the effective control in the Sameera Electronics and thereby using the premises of the Sameera for the purpose of immediate necessity of assessee s business. The assessee has explained the same before the AO and CIT(A) and ultimately they have rejected the explanation offered by the assessee. To this effect, the assessee referred pages 31 32 of the paper book to establish that the said submissions made before the revenue authorities. The assessee had acquired shares in Sameera Electronics Pvt. Ltd., which is a loss making company is the sister concern of the assessee company in which the assessee is having interest. The assessee had also given interest free loans to its sister concern Sameera Electronics Pvt. Ltd. The assessee in one of its submissions before us stated that nobody is interested in acquiring share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case and case law available on this point. There is no dispute between the parties that deduction is allowable if money is borrowed for the purpose of business. The expression for the purpose of business is much wider than the expression for the purpose of earning prof its as held by Hon ble Supreme Court in the case of India Cements Ltd., 60 ITR 52. Thus, for the purpose of allowing deduction u/s 36(1)( iii) it would be irrelevant to consider whether borrowed money was utilized for meeting day to day expenses or for acquiring capital assets to be used in business. Therefore, interest for borrowing would be allowed even if borrowed fund is util ized for acquiring plant and machinery or land and building for use in business. Reference can be made to jurisdictional high Court judgment in the case of Calico Dyeing Printing Works Vs. CIT, 34 ITR 265. 12. In view of the above legal background, the question which survives for our consideration is whether on facts it can be said that money was borrowed for the purpose of business. Admittedly Trumac was a joint venture of assessee and Maf tlal Group of companies. In its reply to show cause notice, the assessee had stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is dismissed. 14. In so far as ground No. 4 is concerned, the AO observed that the assessee had paid Rs. 2,56,684/- as consultancy charges and Rs. 8,15,000/- as loan syndication charges in connection with the acquisition of shares of Sameera Electronics Pvt. Ltd. for the purpose of the business of the assessee. Since the said expenditure was not in connection with the business of the assessee, the AO disallowed the said amounts. On appeal, the CIT(A) confirmed the action of the AO. 15. Since, this issue is inter-connected with ground No. 1, the conclusions drawn in Ground No. 1 are applicable to this ground also and, therefore, in view of the discussion in ground No.1, this ground is also dismissed. 16. As regards Ground No. 2, during the course of assessment proceedings, the AO had observed that the assessee had advanced Rs. 15,60,865/- as interest-free loan to M/s Sameera Electronics Pvt. Ltd. The assessee has paid interest on borrowed funds from the Directors as well as other loans borrowed. Accordingly, the AO disallowed proportionate interest of Rs. 1,40,477/-. On appeal, the CIT(A) confirmed the action of the AO. Aggrieved the assessee carried the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the assessee has furnished written submission wherein it had been stated that the assessee paid testing charges to Electronic Regional Testing Laboratory and ECIL aggregating to Rs. 3,78,428/-. It was further stated that it had not deducted tax at sources at ERTL and ECIL are government agency and hence the same is covered by the provisions of section 196 of the Act and disallowance of Rs. 3,78,248/- u/s 40(a)(ia) of the Act is not justified and same may be deleted. The CIT(A) rejected the submissions of the assessee on the ground that since the AO had mentioned with proof that ERTL and ECIL are liable for service tax and hence their income cannot be exempt from tax. He, therefore, upheld the addition. Aggrieved, the assessee is in appeal before us. 22. Before us, the learned counsel for the assessee submitted that the AO had disallowed testing charges paid to ERTL and ECIL u/s 40(a)(ia) ignoring the fact that payments made to Statutory Corporation are not subject to deduction of tax at source u/s 196 of the Act. The learned counsel for the assessee invited our attention to sample invoices, which have been placed at 131 132 of assesee s paper book to establish that ERTL and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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