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TMI Blog2015 (2) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolidated order for the sake of convenience. 3. The first grounds of appeal of the Revenue for Asstt.Year 1998-99 are as under: "1(i) On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition of Rs. 3,50,00,000/- being provision made and debited to P&L account for the payment to be made on behalf of the Gujarat Narmada Auto Ltd. (as expenses), which was added back in computation of income but claimed as deduction by way of notes forming part of return of income." 1(ii) The CIT(A) failed to appreciate that Gujarat Narmada Auto Ltd. is a subsidiary concerns which is a separate entity and therefore, the expenses cannot be considered for the business of the assessee. Further, the assessee failed to produce he complete details of liquidation and settlement with the official liquidator in respect of its subsidiary concern GNAL. Moreover, the assessee company has made provision for the loss during the year under consideration, which are allowable only on the basis of actual payment. In the assesse's case the loss did not occur in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of total income filed with the return of income. Hence, thus the assessee has not claimed .this expenses in the return of income. However, the assessee Company has again claimed deduction of this amount in the Note made under the computation of income. It is therefore, the addition is not included in the computation of total income hereunder." 5. On appeal, the CIT(A) held as under: "5.4 On a specific query in the course of appellate proceedings, it was explained by the appellant that the Official Liquidator is left with very nominal amount. In other words no funds are available with Official Liquidator out of which the appellant can be paid off in respect of amount paid by it under the Corporate Guarantee given by it to GMDC. These facts clearly indicate that though formal closing of account of the Official Liquidator may be pending; there is effectively no balance left and no potential of augmenting the balance as there is no asset of GNAL left available for realization. The loss is allowable as a deduction in the year in which it can be ascertained that there is loss in the transaction of guarantee. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow claim of the assessee. The addition is therefore deleted. The ground No. 2 is thus allowed." 6. We have heard rival submissions and perused the orders of the lower authorities and material placed on record. In the instant case, the assessee with a view to diversify from its controlled product area and considering great demand and potential for two wheelers, the assessee took over a running concern and made it a wholly owned subsidiary company, namely, Gujarat Narmada Auto Ltd. (GNAL). The assessee, as a holding company of GNAL, had agreed with the financial institutions by way of an undertaking dated 21.3.1988 that if there is any shortfall in the resources of the borrower i.e. GNAL for completing its projects and/or for the working capital, the assessee shall make arrangements for such additional funds. The assessee agreed with the financial institutions that the assessee shall not withdraw funds advanced by it to GNAL so long as monies due by GNAL to the financial institutions remain outstanding. In the Asstt.Year 1994-95, the assessee had made a provision for Rs. 62,84,68,160/- by debiting the amount to profit & loss account as "provision for loan to subsidiary doubtful of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly commercial i.e. earning of income in future. No lumpsum payment was made but funds were furnished in order to augment income in the ordinary course of business. The assessee submitted that nature of advantage expected from investment in GNAL was commercial earning. 9. As regards the objections of the Revenue authorities that loss does not arise directly from carrying out of the business operation, it was submitted that the AO's observation that scooter and fertilizers are two different businesses, and therefore, it is not the same business, is not correct, and there is error in the application of the above test. There is clear interlacing, inter-connection and interdependence, and the fertilizers business and manufacture of scooters were carried by the subsidiary. The loss which arose was incidental to the carrying on of business and should be allowed. The assessee further placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Amalgamations Pvt. Ltd. (supra). The assessee also relied on the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Gillanders Arbuthnot & Co. Ltd., 138 ITR 763. 10. In the alternative and without prejudice to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.50 crores by making provision for loss during the Asstt.Year 1998-99. The AO observed that the loss is not allowable, as it can be allowed only on the basis of actual payment. He observed that as per the submissions of the assessee-company, it had paid amount of Rs. 3.5 crores directly to GMDC by instalment of Rs. 50 lakhs each in May, 1999, August, 1999 and November, 1999, February 1999, May 2000, August 2000 and November 2000. The AO observed that as directed by the Tribunal in ITA No.832 to 834/Ahd/1998 dated 31.3.2000 for the A.Y.1992-93 to 1994-95 and held that the loss did not occur 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. The assessee has simply submitted that the date of payment of Rs. 3.50 crores to GMDC, which also pertain to F.Y.1999-2000 and 2000-01. As per the direction of the Tribunal, the claim is allowable in the year of settlement by the official liquidator. Therefore, as per the direction of the Tribunal, the amount of Rs. 3.50 crores is not allowable in the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to BIFR, and thereafter, the Hon'ble Gujarat High Court by order on 2.8.1994 directed the said GNAL to be wound up, and Official Liquidator was appointed to take over the assets and liabilities of the said GNAL. Thereafter, GMDC invoked guarantee given by the assessee-company and filed a suit against the assessee-company. Thereafter, the assessee-company and GMDC entered into an amicable settlement in a meeting held on 3.3.1997 wherein it was agreed that the assesseecompany should pay Rs. 3.50 crores in full and final settlement of the amount of liability of GNAL to GMDC. In pursuance to this, the assessee actually paid Rs. 3.50 crores to GMDC as under: Date Amount (Rs. in lakhs) May, 1999 50.00 August, 1999 50.00 November, 1999 50.00 February, 2000 50.00 May, 2000 50.00 August, 2000 50.00 November, 2000 50.00 These payments were made in the financial year 1999-2000 and 2000- 01 relevant to the Asstt.Year 2000-01 and 2001-02. On the above facts, the AO disallowed the claim of deduction made by the assessee in the Asstt.Year 1998-99 on the ground that the Tribunal in the case of the assessee vide its order dated 31.3.2000 passed in ITA No.832 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 ITR 939 (Mad) and CIT vs Motor General Finance Ltd. 254 ITR 449 (Del) which was confirmed in principle by the Supreme Court in the case of Motor General Finance vs CIT 267 ITR 381 (SC)." 20. Brief facts of the case are that during the Asstt.Year 1998-99, the AO observed that closing balance of advance given to three parties are as under: Name of party Asstt. Years 1998-1999 (Amount in lakhs) 1999-2000 (Amount in lakhs) 2000-2001 (Amount in lakhs) Gujarat Narmada Auto Ltd. 4082.08 lakhs 4082.08 4082.08 Narmada Education & Scientific Research Society 264.52 264.70 348.99 Videocon Narmada Electronics Ltd. 510.00 510.00 The AO disallowed the interest expenditure of [Rs. 8,74,18,857/- for A.Y.1998-99, Rs. 8,32,03,857/- for A.Y.1999-2000 and Rs. 7,92,30,945/- for A.Y.2000-2001] and held that the interest bearing funds have been diverted for interest free advances to the above said parties. 21. On appeal, the CIT(A) deleted the disallowance by observing as under: "6.2 Similar issue had arisen for my consideration in the appeal for A.Y. 2007-08. The appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deciding the appeal in ITA No. 1373/AHD/2007 order dated 30.12.2011 for A.Y. 03-04 decided the issue in favour of the Assessee by holding as under:- 39. Now, we take up the Departmental appeal in ITA no,1373/Ahd/2007 for AY 2003-04. In Ground no.l, the brief facts are that the AO disallowed the interest of Rs. 8,00,14,405/-claimed u/s 36(l)(iii) of the Act on the ground that the borrowings were utilized for non-business purpose. 40. The learned CIT(a) vide para 5.3 of his order allowed the claim of the assessee since the assessee had been allowed in earlier years the claim on identical matters and therefore it is a covered matter. 41. We have heard the rival contentions and perused the facts of the case. We concur with the views of the ld CIT(A) and the decision of the Tribunal Ahmedabad Bench in assessee's own case for A.Y. 95-96 as referred to in the order of the ld. CIT(A) vide para 5.2.3 and therefore we find no infirmity in the order of the ld. CIT(A). Thus, Ground no. 1 of the Revenue's appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Limited (GNAL) is allowable in the year of payment, the same may please be directed to be allowed in A.Y.2000-01, which appeal is also fixed for hearing with appeal for A.Y.1998-99 where such payment has been made. It is submitted that it be so held now." 29. Cross Objection filed by the assessee is barred by limitation of 995 days. The assessee has filed condonation petition dated 22.5.2013 which reads as under: "At the outset, we may state that ours is a Joint Sector listed Company with State Government having major stake. We are submitting herewith Cross Objection in Form No.36A, in triplicate, for the above mentioned appeal filed by the department for above mentioned assessment year. The issue relating to deductibility of Rs. 3.50 crores paid to GMDC has been decided in our favour by the CIT [A] in the appellate order for A.Y. 1998-99. The department is in appeal. We, as respondent, can support the order of the C I T (A) and also seek appropriate alternative remedy. Therefore, in very strict sense, we are not required to file cross objection. However, we were recently advised professionally that in case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the assessee is barred by limitation of 995 days. The assessee has filed condonation petition dated 22.5.2013 which reads as under: "At the outset, we may state that ours is a Joint Sector listed Company with State Government having major stake. We are submitting herewith Cross Objection in Form No.36A, in triplicate, for the above mentioned appeal filed by the department for above mentioned assessment year. The issue relating to deductibility of Rs. 3.50 crores paid to GMDC has been decided in our favour by the CIT [A] in the appellate order for A.Y. 1998-99. However, we were recently advised professionally that in case the department submits that the correct year for allowance is A.Y.2000-01 on the ground that the payment is made I that year, prayer may be made in the form of cross objection for direction to allow deduction in the year of payment i.e. A.Y.2000-01." 34. A reading of the above shows that the reasons given for condonation of delay in filing the Cross Objection are not plausible one. Further, we find that this ground of Cross Objection does not arise out of the order of the CIT(A) for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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