TMI Blog2013 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... h not referring to any material in this regard. There is no finding that in the previous years, the assessee has ever made investments in shares of any company, or had earned profit or loss therefrom. Tribunal had totally glossed over the main controversy between the parties & failed to notice the reasoning given by the AO and CIT(A) in holding that the investment by the assessee in the shares of M/s. Agmo Tex Ltd. is not in connection with its own business but to extend financial support to it in which the assessee himself is the Managing Director. Order of the tribunal deleting the addition cannot be sustained - question of law answered in favour of the revenue. - Income Tax Appeal No.-357 of 2005 - - - Dated:- 30-5-2013 - Prakash Krishna And Manoj Kumar Gupta,JJ. For the Appellant : R. K. Upadhyaya, A. Kumar, A. N. Mahajan, B. J. Agarwal, D. Awasthi,G. Krishna, S. Chopra For the Respondent : S. D. Singh JUDGMENT (Delivered by Manoj Kumar Gupta, J.) 1. The present appeal under section 260A of the Income Tax Act has been filed against order dated 14-6-2005 passed by the Income Tax Appellate Tribunal (Bench Lucknow) in ITA No. 118/Luc/2005 for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the asssessee himself was controlling the company M/s. Agmo Tex Ltd. or that the investment in shares had not yielded any dividends. It further held that the department has not disputed the fact that the assessee has used the borrowed fund for the purpose of its business and on which interest is payable. Consequently, the tribunal allowed the appeal filed by the assessee. Aggrieved, department has come up in appeal. 5. We have heard Sri R.K. Upadhyay, advocate for the department and Sri S.D. Singh, advocate for the assessee. 6. Sri R.K. Upadhyay, counsel for the department vehemently contended that the order of Income Tax Appellate Tribunal is wholly cryptic and has been rendered in a slipshod manner. The tribunal has not taken into consideration the relevant factors and on the basis of which the Assessing Officer has recorded a finding of fact that an amount of Rs.2 crore was diverted for purposes not connected with the business of the assessee by giving the shape and colour of investment in shares of M/s. Agmo Tex Ltd. It was not an investment made for business purposes but to save M/s. Agmo Tex Ltd. from recurring losses and also in order to increase the equity of promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 36 (1)(iii) of the Act." 9. The aforesaid proposition of law also emerges out from various decisions cited both on behalf of the department and the assessee. In (1978) 115 ITR 519, CIT vs. Rajendra Prasad Moody, the Apex Court was considering the scope of section 57(iii) of the Income Tax Act, 1961 which uses the phrase "any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." In that case, there was no dispute that the assessees have borrowed moneys for making investment in the shares of certain companies. The Apex Court repelled the contention of the department that since the investment in the shares had not yielded any dividend and therefore the expenditure is not allowable. This case is not of any help to the assessee as there was no dispute therein that the borrowed funds were utilised for business purposes. In (1993) 201 ITR 464 Sarabhai Sons (P) Ltd. v. Commissioner of Income Tax, the assessee was a company which was deriving income from investments, profits from systronics division, and from its marketing division dealing in purchasing and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), and Sarabhai Sons Pvt. Ltd vs. CIT (supra), has also placed reliance upon the judgement reported in (1991) 187 ITR 363. In that case, H.R. Sugar Factory Pvt. Ltd was the asssessee company engaged in manufacture of sugar. The company had borrowed a huge amount from various banks and other financial institutions and it lend the same to its directors on a meagre rate of interest of 5% p.a. Subsequently, under a compromise decree passed by the civil court, the amount of interest was reduced to 2.5% . The assessing officer disallowed the proportionate interest paid by the company on the borrowed sum holding that the said lending was not for the purpose of its business. Aggrieved by the order of the assessing officer, the company preferred an appeal and remained unsuccessful and thereafter it took the matter in further appeal before the tribunal which allowed the appeal filed by the asssessee. A division bench of this court, after considering the entire facts found the order of the Tribunal to be not sustainable in law. It was held that the assessee is not a finance company and it is engaged in manufacture of sugar and no business purposes is served by lending the borrowed money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t loans and finances from banks and other institutions. (d) The aforesaid amount of Rs. 2 crore was earlier advanced to the same company on interest of 24%. The said amount was diverted in purchasing shares of Agmo Tex Ltd., so that the said company is saved from interest liability. It was a deliberate exercise of colouring the funds which were already available with the company into different shape viz, shares, knowing fully well that the company is running in losses and there is no likelihood of getting any dividend in near future. (e) The assessee had borrowed the money by paying a huge amount of interest upto 21% and it was required to be consciously and prudently managed to offset atleast the interest liability. In such scenario, investment in the shares of M/s Agmo Tex Ltd. was not for purposes of the business of the assessee. 14. However, the order of the Tribunal proceeds on wrong assumption of fact viz. that there is no dispute that the investment in shares has been made by the assessee for the purpose of its business. In this regard, the tribunal has observed as under :- "Thus, the amount of interest disallowed by the authorities below on account of investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) in holding that in the circumstances of the instant case, the investment by the assessee in the shares of M/s. Agmo Tex Ltd. is not in connection with its own business but to extend financial support to another company, namely, M/s. Agmo Tex Ltd. in which the assessee himself is the Managing Director. 17. Thus, the tribunal had completely lost sight of the main controversy i.e. whether the borrowings on which interest was paid was utilised for the purpose of the business of the assessee. It has already been noticed that the primary condition for allowing deduction of interest while computing business income is that interest was paid on capital borrowed for the purposes of business or profession. If the borrowed capital is utilised not in the business which was subject matter of assessment but for some non-assessable income (in the instant case that of M/s. Agmo Tex Ltd.), interest paid thereon, is not allowable deduction under this provision. 18. Since the tribunal has proceeded to decide the controversy on wrong assumption of facts and has glossed over the findings recorded by the assessing officer and CIT(A) and had brushed aside the relevant factors and therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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