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TMI Blog2014 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company as 'damages') from the recipient company i.e. M/s SCSL which has merely placed these amounts under 'suspense' without denying having received these monies by it." 3. The only issue which emanates from the ground raised is in respect of deletion of the addition made by the AO on account of accrual of interest on the alleged advances made to M/s Satyam Computers Services Ltd. (in short SCSL). 4. Briefly the facts are, assessee is one of the 37 companies established by Shri Ramalinga Raju, the erstwhile Chairman of M/s SCSL and his family members. For the AY under dispute, assessee filed its return of income on 29/08/2008 declaring total income at Rs. Nil. Though, initially return was processed u/s 143(1) of the Act, subsequently assessee's case was selected for scrutiny assessment. During the scrutiny assessment proceeding, the AO noticed that during FY 2007-08 corresponding to AY 2008-09, assessee had advanced an amount of Rs. 359,900,000/- to M/s SCSL. However, interest accrued/received on such advances was not shown in assessee's books of account. He further noticed that in August, 2009, assessee has raised a claim on M/s SCSL for payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year. 7. The CIT(A) after considering assessee's contention in the light of the ratio laid down in the judicial precedents, held that under the given facts and circumstances, it cannot be said that interest income has accrued to the assessee on the amount advanced by it. The learned CIT(A) held that when the matter is pending in the City Civil Court, and is yet to be decided, the AO was wrong in taxing the interest income at the hands of the assessee in the impugned assessment order. He further held when the Court finally decides the suit, interest rate mentioned therein can be reckoned and income can be taxed in the year in which the court pronounces its order on the civil suit pending before it. He, therefore, directed the AO to initiate proceeding and take action accordingly. 8. Being aggrieved of the said order of the learned CIT(A), the department is before us. 9. The learned AR, at the outset, submitted before us that the issue in dispute is squarely covered by the decision of the coordinate bench in respect of 15 other companies in the same group in ITA No. 62 to 76/hyd/2014 dated 28/05/2014 in case of M/s Manaslu Agro Farms Pvt. Ltd. and others wherein the Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessees. 14. Let us know examine the legal principles governing such issues- 1. The Hon'ble Supreme Court in the case of CIT V/s. Walchand & Co. P. Ltd. (65 ITR 381), while considering the provisions of S.10(2)(xv) and S.33(iv) of the Indian Income-tax Act, 1922, has held that in applying the test of commercial expediency or determining whether an expenditure was wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. 2. The Hon'ble Bombay high Court in the case of CIT V/s. Reliance Utilities and Power Ltd. (313 ITR 340) held that if there were funds available both interest free and overdraft and /or loans taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the assessee, if interest free funds would be sufficient to make the investments. 3. The Hon'ble Gujarat High Court in the case of Highways Constructions P. Ltd. V/s. CIT (199 ITR 702), was dealing with a case of an assessee company which had advanced interest free loans to directors from amounts borrowed on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) that the amounts advanced are from out of the share application monies and temporary advances. It is so stated on the basis of entries in the Balance Sheet and the Profit & Loss Accounts of the respective assessees filed along with their returns of income. In the absence of any contract between the assessee companies and M/s. SCSL for charging of interest on the advances, the assessees are not entitled to receive any interest income on such advances. Therefore, merely because the assessee is following mercantile is system of accounting, it cannot be said that the interest has accrued to the assessees. Further, merely because the assessees have claimed interest at the rate of 18% per annum in the suits filed for recovery of advances, it cannot be said that the said rate of interest is applicable as M/s. SCSL has not admitted the liability of even the amounts of advance. As such, we find that there is no certainty with regard to the said rate of interest. Therefore, it cannot be presumed that the interest accrued to the assessee at the rate of 18% p.a. as claimed by the assessees in the suits filed for recovery of advances. The Civil Courts would consider and decide the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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