TMI Blog2014 (1) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(iii) of the Act, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency - The expression "commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business - The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business, expenditure if it, was incurred on grounds of commercial expediency - the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act set aside - The CIT(A) has made the enhancements without following the requirements of S.251(2) of the Act, as he has not given a show cause notice to the assessee on the enhancements - the enhancements made by the CIT(A) deleted – Decided in favour of Assessee. - ITA No. 6275/Del/2012 - - - Dated:- 12-7-2013 - Smt. Diva Singh, JM And Shri J. Sudhakar Reddy, AM,JJ. For the Appellant : Sh. Ranjan Chopra, C.A. For the Respondent : Ms. Shumana Sen, CIT, D.R ORDER Per J. Sudhakar Reddy, AM This is an appeal filed by the Assessee directed against the order of the Ld.CIT(A)-XIII, Aayaker bhavan, New Delhi dated 09.10.2012 pertaining to the Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concern. He drew the attention of the Bench specifically to Schedule 1.9 at page 15, Schedule 1.3 at page 12 and Schedule 1.5 at page 14 of the paper book to demonstrate his claim that the factual findings recorded by the Ld.Assessing Officer as well as the Ld.Commissioner of Income Tax (Appeals) were wrong. 4.1. He took this Bench to the submissions before the Ld.Commissioner of Income Tax (Appeals) and pointed out that it was brought to his notice that the advances in question to companies under the same management, were running accounts and the maximum balance during the year was only Rs.6,57,225/-. He also submitted that the assessee has not taken any unsecured loan or secured loan during the year ended 31st March, 2009 and that no interest free loan was given during the year. He pointed out that the secured loan taken by the assessee was against pledging of stocks and sundry debtors and was for a specific purpose. He submitted that the advances made to sister concerns were on commercial considerations and that too out of the own funds of the assessee company. He pointed out that the current year profits were also substantially higher till the advance is made. He relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... papers on record and orders of the authorities below, case laws cited, we hold as follows. 8. A perusal of the annual accounts of the company demonstrates that the assessee has made investments in a Subsidiary Company M/s Puriflair India P.Ltd. prior to 1st April, 2004. The quantum investment made was Rs.50,70,856/-. The Ld.Commissioner of Income Tax (Appeals) at para 6.3 of the impugned order has noted this investment and drew an inference that the assessee has diverted interest bearing funds for making investment in group companies for retaining controlling stakes. The Ld.Commissioner of Income Tax (Appeals) has also recorded that the assessee has given interest free advances of Rs.2,62,653/- and Rs.3,94,572/- to M/s Puriflair India P.Ltd. and M/s Desiccant Roters International P.Ltd., which are sister concerns of the assessee. The wording used by the Ld.Commissioner of Income Tax (Appeals) is that these are "interest free advances". The Assessing Officer recorded that these are interest free loans. In fact he also recorded that an amount of Rs.50,70,856/- was an interest free advance, when the fact was that it is an investment in M/s Puriflair P.ltd. At page 3 of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding from Nalanda on the first day of the accounting year is the amount that stood outstanding on the last day of the previous accounting year, and, therefore, its nature and status cannot be different on the first day of the current accounting year from its nature and status as on the 1st day of the previous accounting year. Regarding the past years, the assessee's claims for deduction were allowed in respect of the sums advanced during those years, this could be only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years is the very basis of the deductions permitted during the past years, whether a specific finding was recorded or not. A departure from that finding in respect of the said amounts advanced during the previous year would result in a contradictory finding, it will not be equitable to permit the Revenue to take a different stand now in respect of the amounts which were the subject matter of previous year's assessments, consistency and defniniteness of approach by the Revenue is necessary in the matter of recognizing the nature of an account maintained by the assessee so that the basis of a conclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as ;a deduction u/s 36(1)(iii) of the Act, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression "commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business ;expenditure if it; was incurred on grounds of commercial expediency." 9.1. Applying the above propositions laid down to the facts of the case, we have to delete the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act. 10. Coming to the enhancement made by the Ld.Commissioner of Income Tax (Appeals), the same has to be cancelled both on law as well as on facts. The ld.CIT(A) has made the enhancements without following the requirements of S.251(2) of the Act, as he has not given a show cause notice to the assessee on the enhancements. On facts for the reasons given above we delete the enhancements made by the ld.CIT(A). 11. In the result the appeal of the assessee is allowed. Order pronounced in the Open Court on 12th July, 2013. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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