TMI Blog2015 (2) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the issue under consideration and restore back the order of the AO. - Decided in favour of revenue. Disallowance of interest on interest free loans / advances given by the assessee to its subsidiaries and associate concerns - Held that:- AO has disallowed interest expenditure on advances given to the sister concern on the ground that the borrowed funds were utilized for business purpose by the assessee by advancing the interest free advance to the sister concerns. On appeal the CIT(A) had deleted the disallowance by following his order for Asstt.Year 2007-08. We find that the order of the CIT(A) for Asstt.Year 1997-98 was appealed by the Revenue, and the Tribunal confirmed the order of the CIT(A) deleting the disallowance of interest expenditure. No distinguishing features could be pointed out by the DR. It is also observed that in the years under appeal also, advances were given to the same parties. Thus, the facts being identical, respectfully following the precedents, we confirm the order of the CIT(A), and the grounds of the appeal of the Revenue in all the years under appeal are dismissed. - Decided in favour of assessee. - ITA No.1986, 1987 and 1988/Ahd/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes forming part of the return of income. The AO did not allow the deduction in the assessment by observing as under: 3.7 I have carefully considered the facts of the case as well as the submission of the assessee Company. First of all the assessee Company has made provision of the loss during the year under consideration and provisions of loss/expenses are not allowable. The expenses can be allowed only on the basis of actual payment. As per the submission of the assessee Company it had paid the amount of ₹ 3,50,00,000/- directly to the GMDC by installment of ₹ 50 lakhs each in May 1999, August 1999, November 1999, February 1999, May 2000, August 2000 and November 2000. The payment was made in the F.Y. 1999-2000 and 2000-01. As directed by the Hon'ble ITAT, in the order in ITA No. 832 to 834/And/1998 dated 31.03.2000 for the A.Y. 1992-93 to 1994-95 and held that the loss did not occurs in the period of accounts. The assessee itself has claimed in its alternative submission that loss be allowed as a deduction in the year in which the accounts are finally settled with the liquidator and final payment is received. 3.8 In the reply th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before me, it was argued that the assessee had given guarantee and undertaking to the GMDC on behalf of GNAL. GNAL, wholly owned subsidiary of the appellant company, was declared sick and was ordered on 02-08-1995 to be wound by Gujarat High Court. Accordingly, GMDC had filed civil suit against the appellant in the civil court of Ahmedabad being the guarantor for recovery of dues along with interest. It was also submitted that to amicably settle the dues, a joint meeting of GMDC with GNFC was held on 3rd March 1997 under the chairmanship of Principal Secretary, Energy Petrochemical Dep't, Government of Gujarat which was attended by Addl. Chief Secretary, Industries, MD, GMDC and MD, GNFC. It was finally decided in the meeting that GNFC should make payment of ₹ 3.50 crores towards full and final settlement of dues to GMDC and repayment should be made in installments. It was also decided that in view of settlement, the suit filed by the GMDC also to be withdrawn. The Board of Directors of both the companies ratified the decision taken in the aforesaid meeting under the chairmanship of the Principal Secretary and therefore full and final settlement with GMDC can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the amount had not been written off to debtor s account on the basis of provision. The CIT(A) also held that the facts of the judgment relied upon by the assessee in the case of CIT Vs. Amalgamations Pvt. Ltd., (1997) 226 ITR 188 (SC) are different from the facts of the assessee. 8. Assessee, being aggrieved, filed appeal before the Tribunal. The assessee submitted that diversification steps taken in June, 1986 were taken in right direction and it was expected that the assessee would realize substantial profits in the years to come, in view of high profit margin of various private sector companies engaged in manufacturing of two three wheelers. However, on account of various constraints, viz. change in market conditions, resistance in the minds of customers against Girnar scooters, inefficiency of work-force inherited from government owned corporations and other reasons, GNAL suffered heavy losses. The assessee made all efforts to ensure that GNAL comes to the expectation and start making profit. With the above object in view, the assessee contributed funds to see that GNAL survived and revived so that the investment is saved and safeguarded. However, the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 36(2) are not satisfied in this case. The claim could only be allowed as a business loss under Section 28(4) of the I.T.Act. The relevant questions which are required to be considered are whether the loss has arisen in the course of business, and if so, in what year it has arisen. For determining whether the loss, if any, is a deductible loss, Articles and Memorandum of the company must be seen, and more particularly, whether advancement of loan to subsidiaries is one purpose of the company. It is also to be ruled out that loss, if any suffered, is not a capital loss. During the course of hearing, attention was not drawn to all relevant material necessary for the determination of the issue. The other question as to when this loss accrued and is to be allowed is easier to answer. Accounting period of the assessee for the relevant Asstt.Year 1994-95 ended on 31-3-1994. The order of BIFR declaring GNAL fit for winding up and that of the Hon ble Gujarat High Court approving above scheme of winding up and appointment of Official Liquidator taking over the assets of the company in liquidation came much later. In other words, all the above events occurred much after 31st March, 1994. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Civil Court of Ahmedabad being the guarantor for recovery of dues along with interest. It was submitted that to amicably settle the dues, a joint meeting of GMDC with GNFC was held on 3.3.1997 wherein it was finally decided that GNFC should make payment of ₹ 3.50 crores towards full and final settlement of dues to GMDC and repayment should be made in instalments. It was also decided that in view of settlement, the suit filed by the GMDC also to be withdrawn. The Board of Directors of both the companies ratified the decision taken in the aforesaid meeting under the Chairmanship of the Principal Secretary, Govt. of Gujarat and therefore, full and final settlement with GMDC can be said to have taken place during the year. In order to reduce the interest burden, the assessee being the sole guarantor had paid the principal liability of ₹ 3.5 crores. The CIT(A) held that assessee has finally arrived at the settlement during the year under consideration, and considering the facts of the case and following the direction of the Tribunal and the decision of the CIT Vs. Amalgamations Pvt. Ltd. (supra) directed the AO to allow all the claims of the assessee. 14. Being aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and for want of complete details of liquidation and settlement from the Official Liquidator. 17. On appeal, the CIT(A) allowed the claim of the assessee purportedly following the said decision of the Tribunal and of the Hon ble Gujarat High Court in the case of CIT Vs. Amalgamations Pvt. Ltd., (1997) 226 ITR 188 (SC). According to the CIT(A), the loss was crystallized on 3.3.1997 when meeting between the assessee-company and GMDC took place. 18. We find that even if the version of the CIT(A) taken as correct, then also, the loss being crystallized on 3.3.1997, the same was in the Asstt.Year 1997-98 and not during the assessment year under consideration i.e. Asstt.Year 1998-99. Therefore, the CIT(A) was not justified in deleting the disallowance on the above count. Further, no material was brought on before us to show that the assessee s liability to make payment of ₹ 3.50 crores was crystallized during the under consideration and that no part of the payments were also made during the year under consideration. Therefore, in our considered view, the CIT(A) was not justified in deleting the disallowance made by the AO. We, therefore, set aside the order of the CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the appeal for A.Y. 2007-08. The appellant has proved the commercial expediency during the course-of proceedings as directed by ITAT after considering the Supreme Court decision in case of S.A. Builders. The facts, basis of disallowance by the AO and the contention of the appellant are identical as in A.Y. 2007-08. Therefore following my own decision in appellate order for A.Y. 2007-08 in appeal No. CAB-VI-56-09-10 this ground of appeal is allowed. The Assessing Officer is directed to delete the disallowance of interest of ₹ 8,74,18,857/-. The ground No. 3 and 4 are therefore allowed. 22. The AR of the assessee has filed before us order of Tribunal in the case of the assessee itself dated 30.12.2011 in ITA Nos.1463, 1464, 4007/Ahd/07 2400/Ahd/2008 and submitted that the Tribunal has deleted the disallowance from out of interest expenditure by observing as under: 39. Now, we take up the Departmental appeal in ITA no.1373/Ahd/2007 for AY 2003-04. In Ground no.1, the brief facts are that the AO disallowed the interest of ₹ 8,00,14,405/- claimed u/s 36(1)(iii) of the Act on the ground that the borrowings were utilized for non-business purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore respectfully following the decision of the co-ordinate Bench and for similar reasons, find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. 24. The AR of the assessee submitted that as the facts and issue involved are similar, following the order of the Tribunal for earlier years, in this year also, the appeal filed by the Revenue may be dismissed. 25. The DR could not controvert the submissions of the AR of the assessee. 26. We have considered rival submissions and perused the orders of the lower authorities and material placed on record. We find that the AO has disallowed interest expenditure on advances given to the sister concern on the ground that the borrowed funds were utilized for business purpose by the assessee by advancing the interest free advance to the sister concerns. On appeal the CIT(A) had deleted the disallowance by following his order for Asstt.Year 2007-08. We find that the order of the CIT(A) for Asstt.Year 1997-98 was appealed by the Revenue, and the Tribunal confirmed the order of the CIT(A) deleting the disallowance of interest expenditure. No distinguishing features could be pointed out by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for condonation of delay in filing the Cross Objection are not plausible one, therefore, Cross Objection filed by the assessee is dismissed. 31. Even otherwise, on merits, we find that the AR of the assessee argued that if in the case of appeal of the Revenue, the Tribunal comes to the conclusion that deduction in respect of payment made by the assessee-company to GMDC is allowable in the year of payment, then direction may be given for allowing deduction in Asstt.Year 2000-01. We find that the assessee company paid ₹ 2 crores to GMDC in the previous year relevant to the Asstt.Year 2000-01. Further, the system of accounting followed by the assessee-company is mercantile, and therefore, the deduction is allowable in respect of business liability expenses or loss in the year in which such liability accrues. As the Tribunal has not come to conclusion that deduction in respect of payment made by the assessee-company to GMDC is allowable as deduction to the assessee-company in the year of payment, we do not find any force in the Cross Objection of the assessee. Therefore, the Cross Objection filed by the assessee is dismissed. Cross Objection No.126/Ahd/2013 in ITA No.1988/Ahd ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
