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2015 (9) TMI 1232 - ITAT HYDERABAD

2015 (9) TMI 1232 - ITAT HYDERABAD - TMI - Disallowance of interest - whether the amounts advanced by assessee to its sister-concerns was for commercial expediency? - Held that:- In order to reduce the litigation, assessee has charged interest on Natco Organics Ltd., in AY. 2008-09 and accounted for an amount of ₹ 5,96,29,676/-, by way of Board resolution in that year. Since Board resolution was passed subsequently and at the time of advance no interest was provided, the amount cannot be c .....

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sistent with orders of ITAT in earlier years and later year, we are of the opinion that the amounts cannot be disallowed in this year, when assessee has offered amounts in a later year considering all the years for calculation of interest. The fact that assessee has business interest in various concerns which helps in its own business by way of supply of raw-material for critical products and also for transportation of goods for export, we are of the opinion that the advances are for the purpose .....

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AR For the Respondent : Shri S. Moharana, CIT-DR ORDER Per B. Ramakotaiah, A. M. These two are assessee s appeals against the separate orders of the Commissioner of Income Tax (Appeals)-4, Hyderabad dated 30-01-2005. Since common issue is involved in both the appeals, Assessing Officer (AO) and CIT(A) s order being common except the amounts involved, we have considered the appeals together and disposed of by this common order. 2. We have heard the Ld. Counsel for assessee and Ld.CIT-DR in detail .....

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tions. In AY. 2005-06, it has filed return of income declaring profit of ₹ 7,42,85,132/- before set-off of brought forward depreciation losses in AY. 2005-06 and about ₹ 7,77,59,170/- in AY. 2006-07. AO made various additions one being the amounts in dispute- interest paid attributable to interest free advances given to sister-concerns, on the reason that assessee has advanced funds interest free to its sister-concerns. AO as in earlier years made disallowance of interest of ₹ .....

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arise. AO did not agree and CIT(A) also confirmed the disallowance so made by the AO. The matter went in further appeal before the ITAT and Tribunal vide its order in ITA No. 377/Hyd/2009 (wrongly shown as 337 in CIT(A) s order) ITA No. 487/Hyd/2010 and ITA No. 686/Hyd/2010 dt. 31-10-2012 has restored the issue to the file of AO to examine whether there is mutual transactions between assessee and its sister-concerns and if so, the AO has to consider whether advances were made for commercial exp .....

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ounted for and assessed, there is no need for disallowance of the interest claim on borrowed funds during the assessment years. AO did not agree with the contentions and disallowed the interest attributable to the amounts advanced to the sister-concerns as above, as in the original order. 6. Ld. CIT(A) has summarized assessee submissions in para 7 of the order as under: 1. The advances were made out of own funds and not borrowed funds in respect of which a clear finding has been given by the App .....

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terest on the loan. This has been confirmed by the ITAT in assessment year 2007-08 para 21 (copy of the order dated 29.022012 enclosed). 5. The Departmental appeal against the above order of ITAT has been dismissed by the Hon'ble High Court of AP vide its order dated 18.09.2013 (copy enclosed). Therefore there is no justification for the present order of the assessing officer. 6. In any case the interest pertaining to all the earlier years has been accounted as income when the Board of the C .....

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e AO did not agree with assessee and upheld the additions made by the AO by stating as under: 8. The factual position as emanating from the Assessment order, the order of ITAT and its directions and the submissions of the assessee are considered. It is seen that the findings of the ITAT for the earlier years, the details regarding the sources of funds for interest free advances to M/s. Natco Organics Ltd., the assessee s contention regarding offering interest to tax in A.Y. 2008-09 were all befo .....

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s sister concerns, i.e., buying and selling or rendering of services between the assessee and the sister concerns in this assessment year also. If it is so, the Assessing Officer has to consider that the advances were made on account of commercial expediency. On this issue the AO has given a clear finding that: The assessee s AR vide letter dated 26-08-2013 for A.Yrs. 2005-06 and 2006-07 has submitted that the assessee had no transactions of purchase or sale of materials between Natco Pharma Ltd .....

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nt also, the claim of the assessee that as the relief was allowed on the basis of commercial expediency in earlier years by the Hon'ble ITAT and the same should be considered for the year under consideration, is not acceptable . 9. The above finding has not been controverted by the assessee nor any submission made in this regard. In view of the above, I uphold the addition made by the AO and the above grounds of appeal are dismissed . 8. Ld. Counsel submitted that ITAT in earlier years accep .....

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and assessee was sourcing raw-material from them after the units have become operational and therefore, the advances were to be considered as for the purpose of business and relied on the Hon ble Supreme Court decision in the case of S.A. Builders Ltd. Vs. CIT [288 ITR 1] (SC) In reply, DR relied on the orders of ITAT in these years and submitted that assessee failed to prove the commercial expediency and nexus of the amounts borrowed and utilization and relied on the same decision to submit tha .....

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ed to deduction of interest as claimed by it. While analyzing the issue, it relied on the decision of ITAT in earlier years and also the principles laid down by Hon ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT [288 ITR 1] (SC) (supra). Thus, on all the advances made upto AY. 2004-05, the issue is in favour of assessee. As seen from the amounts advanced to sister-concerns, an amount of ₹ 18,72,63,000/- was advances given up to 31-03-2004. Therefore, to that extent, it was alr .....

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77; 18.72 Crores advanced up to 31-03-2004 that was already established to be for the purpose of business. As far as AY 2006-07 is concerned the outstanding advance being less that advance of RS 18.72 crores it can not be stated that assessee advanced funds for non business purposes. There was repayment of advances, so AO erred in coming to a conclusion and disallowing the amount. AO considered that entire amount was for nonbusiness purposes. We are unable to understand how an amount which was a .....

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urt in the case of CIT Vs. Reliance Utilities & Power Ltd., [313 ITR 340] (Bom) has held that wherever there is mixed funds and the borrowals advanced to sister-concerns are less than it own funds, it is to be considered that the advances given are out of own funds. Following the principles on the issue, it cannot be considered that the amounts advanced during the year were out of the borrowed funds. 11. It is also on record that assessee s borrowals are for the purpose of specific objects a .....

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the facts and establishing any nexus of advanced funds with borrowed funds. It can be understood that AO has mechanically invoked the provisions so as to disallow the amount, when in fact in AY. 2006-07, the advances given to sister-concerns have come down to the tune from ₹ 23.05 Crores to ₹ 10.45 Crores. As already stated, funds to the extent of ₹ 18.79upto 31-03-200 were already held to be for commercial expediency. Therefore, logically speaking, there cannot be any disallo .....

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