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2015 (6) TMI 760 - ITAT AHMEDABAD

2015 (6) TMI 760 - ITAT AHMEDABAD - TMI - Disallowances of interest expenses - assessee has running account with the sister concern - Held that:- As far as Assessment Year 2007-08 is concerned, assessee has liquidated its investment of ₹ 100 crore, therefore, a sum of ₹ 100 crore was available with the assessee. During the course of hearing, we have confronted the ld. counsel to show that on liquidation of investment, assessee had realized 100 crore. Because, if the value of shares w .....

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investment realized by the assessee out of liquidation of ₹ 100 crore in the shares is added with interest free funds at ₹ 141 crore, then, assessee has the funds of ₹ 241 crore. It has given interest free advances of ₹ 153.52 crore only. It has demonstrated that it has more interest free fund than the one given to the sister concern. There is no dispute on facts between both the Assessment Years. Therefore, considering the discussion in Assessment Year 2006- 07, no disa .....

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are directed at the instance of assessee against separate orders of even date i.e. 18-02-2011, passed by ld. Commissioner of Income Tax(A)-VI, Ahmedabad in Assessment Years 2006-07 and 2007-08 2. The issues involved in both the appeals are common, therefore, we heard them together and deem it appropriate to dispose off them by this common order. 3. In Assessment Year 2006-07, assessee has taken five grounds of appeal, out of which learned counsel for the appellant did not press ground nos. 1, 2 .....

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of interest u/s. 234A, B, C, & D. Learned counsel for the assessee at the very outset submitted that charging of interest is consequential in nature, therefore, this ground also does not require any specific finding, it is rejected. 5. Ground no. 3 is common with solitary substantial ground of appeal in Assessment Year 2006-07. In these grounds of appeal, grievance of the assessee is that ld. Commissioner of Income Tax(A) has erred in confirming the disallowances of interest expenses amounti .....

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upon the assessee in Assessment Year 2006-07 and 2007-08 respectively. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee had taken a loan to the tune of ₹ 39.11 crore in Assessment Year 2006-07 and has paid interest at ₹ 44,65,790/- on such loans. On deeper scrutiny, he found that assessee had advanced loans of ₹ 23.59 crore to the sister concern without charging any interest. Hence, in the opinion of Assessing Officer, assessee has diverted inter .....

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ister concern and therefore no disallowance ought to be made. 7. In Assessment Year 2007-08, it revealed to the Assessing Officer that asessee has debited interest expenditure of ₹ 46,76,972/-. The opening balance of the unsecured loan was ₹ 39.41 crore which was enhanced to ₹ 73,11,37,602/-. Thus, there was an increase in the unsecured loan amounts, simultaneously the amounts in advances given to sister concern without charging interest have also been increased from ₹ 23 .....

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t fulfills the conditions enumerated in the provision namely; (a) the capital must have been borrowed (b) interest should have been payable. (c) borrowing should made for the purpose of business. In other words, if the capital borrowed for the purpose of business and interest was payable in respect of that borrowed capital then interest expenses will be admissible to the assessee. It is not in dispute that assesse had given a loan of ₹ 23.49 crore in Assessment Year 2006-07 and ₹ 153 .....

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ds were used for the purpose of business and not used for gaining interest free advances to the sister concern. 10. In his second fold of submission, he contended that if accounts are being examined minutely then it will reveal that these advances were given for the purpose of business. The commercial expediency to give these advances is involved in these transactions and, therefore, no disallowance ought to have been made. 11. Ld. Departmental Representative on the other hand pointed out that a .....

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t Year 2006-07 which read as under:- Interest free funds As on 31/03/2006 As on 31/03/2005 Share Capital 1,00,00,000 1,00,00,000 Reserve and 90,79,68,256 67,12,66,323 Current Liabilities 4,47,516 55,55,606 Unsecured Loan 29,34,37,311 31,60,75,000 Total 1,21,18,53,083 1,00,28,96,929 Interest free 23,75,00,209 13. The ld. Assessing Officer has observed that the funds referred by the assessee were not available with it, because, it has invested above referred funds in shares of ₹ 100.28 cores .....

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CCOUNT 108605000 108605000 Revaluation Reserve Account 240052770 0 Surplus in Profit & Loss Account 559310486 562661323 Total 907968256 671266323 15. According to the learned counsel for the assessee, if this amount of ₹ 24 crore created by way of revaluation of reserve account is taken out then a balance roughly ₹ 66(907968256-24=667968256) crore will be available to the assessee. The second objection of the Assessing Officer is that assessee had made investment in the shares of .....

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dvances of ₹ 23.59 crores. To this calculation, Ld. Departmental Representative was unable to controvert. Ld. Assessing Officer failed to appreciate the funds available with the assessee in right perspective. 16. Apart from this one aspect, it has been brought to our notice that assessee has running account with the sister concern. It has a debit balance at ₹ 30.60 crore as on 31st March, 2005 in the account of Adani Agro Pvt. Ltd and it has not paid any interest on this debit balanc .....

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Court as well as of the jurisdictional High Court are worth to note. It read as under:- 6. That takes us to the question as to whether the borrowings made by the assessee can be said to have been used for the purposes of its business, or, in other words, whether the interest free advances by the assessee can be presumed to have been made out of the interest bearing funds. On this issue, we find guidance from a judgment of Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities &am .....

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ssee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd.'s case (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd.'s case (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of .....

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t the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraf .....

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om the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R.R.Family Trust and Sagar Texile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R.R.Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the .....

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5.52 crores also were noted by the Tribunal. It found that the interest free fund available with the assessee was far greater than the loan advanced to the sister concerns and as a corollary to that, it concluded that the borrowed money was not utilized for the purpose of advance to the sister concerns, as had been noted by the Assessing Officer. What had weighed with the Tribunal is the fact that the entire interest free funds included owner's own capital and accumulated profits and other .....

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ment for it to hold otherwise. Factually, it found huge funds were available without any interest liability with the assessee and that there was no evidence to hold that the borrowed money was utilized for the purpose of advance to the sister concern. All these aspects cumulatively led the Tribunal to hold that the disallowance made only on the ground that advances were given out of the borrowed funds, holding the assessee ineligible for allowance of interest by the Assessing Officer of the sum .....

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