TMI Blog2015 (1) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... de the investment in share application money for a sum of ₹ 4,25,00,000/- whereas the Share Capital alongwith Reserve & Surplus was amounting to ₹ 5,60,39,195/-(Rs. 2,25,00,000/- + ₹ 3,65,39,195/-) which clearly established that interest-free funds available with the assessee were more than the investments made in share application money. Therefore, the disallowance made by the AO on account of notional interest was not justified and the ld. CIT(A) arbitrarily confirmed the same. We, therefore, delete the disallowance made by the AO and sustained by the ld. CIT(A). - Decided in favour of assessee. - ITA No. 193/Del/2011 - - - Dated:- 16-1-2015 - Sh. N. K. Saini, AM And Sh. I. C. Sudhir, JM,JJ. For the Petitioner : Sh. Salil Kapoor Vikas Jain, Adv. For the Respondent : Sh. Vikram Sahay, Sr. DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 01.11.2010 of ld. CIT(A)-XVII, New Delhi. 2. Following grounds have been raised in this appeal: 1. On the facts and circumstances the CIT(A) has erred on facts and in law in holding that share application money by company is not for the purposes of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of the revealed that it had given loans and advances of ₹ 4,34,54,162/- to various parties which included an amount of ₹ 4,25,00,000/- given to M/s Sarvesh Coal Tech Pvt. Ltd. as share application money. He further observed that the assessee had not explained how this amount, given or invested as share application money related to assessee s business and how interest paid on this amount qualified as deduction under the Act. According to him the assessee had borrowed fund from various parties and had paid huge amount of interest on those loans. However, the money was invested as share application money in M/s Sarvesh Coal Tech Pvt. Ltd. without any business need and without producing any return. The AO reproduced the source of fund and utilization of the funds as under: Source of Fund Amount (Rs.) Utilization of Fund Amount (Rs.) Share Capital 2,25,00,000 Investment in Shares 5,71,00,000 Reserve and surplus 3,65,39,195 Share Application money given 4,25,00,000 Unsecured loan 5,00,00,000 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Energy Pvt. Ltd. (AEPL) and ₹ 15,00,000/- to M/s Aryan Ispat and Power Pvt. Ltd. (AIPPL), which clearly showed that the funds were borrowed and utilized for advancing loans in the shape of Inter Corporate Deposits which was in the nature of finance activities carried on by the assessee. It was also contended that the assessee had given another Inter Corporate Deposits of ₹ 70,00,000/- in January 2006 to M/s ACBPL out of refund of M/s AEPL for ₹ 50,00,000/- and the assessee earned interest income of ₹ 27,92,023/- on Inter Corporate Deposits given during the Financial Year 2005-06 and paid interest of ₹ 15,81,288/- on unsecured loan taken. 9. It was stated that the assessee company was pursuing its finance and investment activities by giving loans and advances/inter corporate deposits and investing in share capital/capital application money. It was further stated that the assessee company received back Inter Corporate Deposits of ₹ 5,90,00,000/- from M/s ACBPL during February and March 2006 and invested ₹ 4,00,00,000/- in share application money of M/s Sarvesh Coal Tech Pvt. Ltd. as per following details: 28.02.2006 - ₹ 1,00,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of Financing, lending investment activities, we find that the Ld. AO has erred in holding that money was invested as Share Application Money in M/s Sarvesh Coal Tech Pvt. Ltd. without any business need . It is not open to the Ld. AO to assess what the business need of the Assessee Company is? It is a decision which is normally entrusted by the shareholders of the Company to its faithful management who take the decisions depending upon the financial needs, aspirations, goals or objects set for the company. Hence, we find that the Ld. AO has erred in holding that money was invested as Share Application Money in M/s Sarvesh Coal Tech Pvt. Ltd. without any business need and without producing any return . It is general practice in the industry that in some cases interest is paid by the receiver of Share Application Money in case there is any specific clause in an agreement (if entered) between payer and receiver of funds in this regard. Hence if any such interest would have accrued to the Assessee Company during the year that would have been chargeable as Business Income and interest expenditure made for borrowed capital in this regard will be allowed as business income. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not form part of total income and accordingly interest expenditure incurred in relation to that would not be allowable to the assessee. The ld. CIT(A) confirmed the disallowance of ₹ 42,50,000/- made by the AO. 12. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee company is a Non-Banking Financial Institute and the interest bearing loans were received in the preceding year which were also used in the earlier year but no disallowance was made while framing the assessment u/s 143(3) of the Act. The ld. Counsel for the assessee drew our attention towards copy of assessment order dated 28.11.2008 for the assessment year 2006-07 wherein the returned income of the assessee was accepted. The reliance was also placed on the judgment of the Hon ble Karnataka High Court in the case of CIT Vs Sridev Enterprises (1991) 192 ITR 165 (KAR). It was further stated that since the assessee was in the business of Financing so giving of loan was its business activity and the ld. CIT(A) had given a wrong finding that the provisions of section 14A of the Act were applicable. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Funds utilization of Funds at para 5 of page no. 2 of the assessment order which read as under: Source of Fund Amount (Rs.) Utilization of Fund Amount (Rs.) Share Capital 2,25,00,000 Investment in Shares 5,71,00,000 Reserve and surplus 3,65,39,195 Share Application money given 4,25,00,000 Unsecured loan 5,00,00,000 Total 10,90,39,195 9,96,00,000 15. From the above chart it is clear that the assessee was having Share Capital and Reserves Surplus amounting to ₹ 5,90,39,195/- and the share application money given was of ₹ 4,25,00,000/- which clearly shows that the interest free funds available with the assessee were more than the amount given for share application money. In the present case it is an admitted fact that the assessee was a Non-Banking Finance Company and was engaged in the business of providing loans and advances and Inter Corporate Deposits. This fact has been admitted by the AO in para 2 of the assessment order dated 30.11.2009. In the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year from its nature and status as on the last 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 years assessments; consistency and definiteness 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 concluded assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the Revenue as a good debt in a particular year cannot subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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