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TMI Blog2015 (11) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... the record found that the AO has allowed the claim of interest expenditure amounting to Rs. 3,00,50,905/- on borrowed funds whereas an amount of Rs. 11.5 crores has been advanced as interest-free loan to Shri Manohar Shetty who was a partner in SCC which was a member of the assessee joint venture. The CIT observed that interest payable on borrowed funds utilised for making interestfree advance was required to be disallowed u/s 36(1)(iii) of the Act but was wrongly allowed by the AO. The CIT further noted that the AO has allowed expenditure claim on account of interest without proper application of mind to the matter with reference to the facts of the case. Accordingly, the CIT proposed to revise the order of the AO by issuing show-cause notice u/s 263 dated 25/2/2011 requiring the assessee to file objections. In response, the assessee submitted before the CIT that the AO, after verifying various details furnished during the assessment proceedings and after applying his mind, passed the order u/s 143(3). Therefore, it was contended that there was no lack of inquiry or inadequate inquiry in the matter. Further, the assessee submitted on the merits of the issue that the assessee AOP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the case. Accordingly, the CIT held that the order of the AO is erroneous and prejudicial to the interest of the revenue and the same was set aside with a direction to make fresh assessment in the light of the revision order. 4. Before us, learned AR of the assessee of the assessee has reiterated the contentions as raised before the CIT and submitted that the AO passed the order u/s 143(3) after conducting an inquiry and due application of mind. Therefore, the CIT cannot invoke jurisdiction u/s 263 merely because he did not agree with the view of the AO which is a possible view. He referred to the questionnaire dated 21/8/2008 issued by the AO and submitted that under question No.12, the AO asked the assessee to furnish details of the loan and advance (asset). In reply, the assessee vide letter dated 14/10/2008 explained the advance to SCC as well as Shri Manohar Shetty. Further no new advance was given in this year and the amount of Rs. 11.5 crore is only a brought forward balance from earlier year. The AO raised a query and after reply of the assessee, did not make any disallowance. Therefore, the AO applied his mind. The learned AR of the assessee has relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are in complete agreement with the CIT that there is a lack of inquiry on the part of the AO which renders the assessment order erroneous so far as it is prejudicial to the interests of the revenue. 6. Now, we will discuss the merits of the issue. The assessee is a joint venture consisting of three partners. One of the partners of the joint venture is SCC. The assessee submitted that interest-free advance to Shri Manohar Shetty was given on commercial expediency that the assessee was required to furnish bank guarantee to NHAI which was given by SCC and Shri Manohar Shetty is partner in said partnership firm. There is no dispute that SCC got the bank guarantee as required by NHAI and furnished the same on behalf of the assessee-joint venture. But at the same time, one shall not forget that it was otherwise obligation of the partners of the joint venture to arrange the bank guarantee required by NHAI as per terms and conditions of the contract awarded to the assessee. Further, each of the partners of the joint venture was required to contribute the requisite capital in the joint venture but SCC contributed only Rs. 9.5 crore and that amount was nothing but interest-free advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee furnished by the appellant on the facts and circumstances of the case. 5. The authorities below failed to appreciate that TDS was made on an amount not chargeable to tax and the same is liable to be refunded under the provision of section 237 of the IT Act 1961 and the disallowance with respect to the refunded amount was not warranted on the facts and circumstances of the case. 6. The authorities below was not justified in disallowing interest expenditure of Rs. 1,38,60,000/- on the facts and circumstances of the case. 7. The appellant denies himself liable to be charged to interest under section 244A and 234D of the Income Tax Act, f961 under the facts arid circumstances of the case. 8. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 9. In view of the above and other grounds that may be urged at the time of hearing of the appeal, your appellant prays that the appeal may be allowed in the interest of equity and justice". 9. Grounds No.1 and 2 are general in nature and the assessee has not addressed any argument in respect of these grounds. Accordingly no specific adjudication is required for ground Nos.1 and 2. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor who has been paid a sum of Rs. 29,28,59,937/- as mobilization advance which is not an income. But by virtue of Section 194C, TDS of Rs. 59,12,958/- was deducted and credited to the account of the assessee in part. For the assessment year 2002-2003, the assessee has suffered loss. Consequently, there was no income. In the return-- filed, the assessee sought for refund of the entire amount. The Assessing Authority treated the receipt of Rs. 7,32,14,128/- as income and granted a refund of Rs. 14,93,568/- out of the TDS amount. He declined to pay the balance amount on the ground that it is adjustable in the future years as and when the assessee offers to tax. If the amount of Rs. 29,98,50,937/- is a mobilisation advance and not an income at all, the question of paying income tax would net arise. When the gross receipts of Rs. 7,32,14,128/- is offered and in that assessment year he has suffered loss, the question of paying any tax on the said amount also does not arise. He has passed an order for refund of Rs. 14,93,568/accepting the loss returns of the assessee. But he was in error in not refunding the balance amount on account on the ground that it is liable to be adjusted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore it decided to utilize the financial facilities of SNC which was having bank guarantee limit of Rs. 30 crores and FIC limit of Rs. 10 crores. The NHAI had asked for two types of guarantees viz., performance guarantee and bank guarantee for advance ibilifl5iieach amounting Rs. 19.52 crores thus in total Rs. 39.04 crores. SNC in total was enjoying limits of Rs. 40 crores which could have been sufficient to get the contract work from NHAI. Therefore the argument that the existing facilities of SNC was not found equal to the situation lacks merit. However, for arguments sake it is accepted that the Bank could have asked for further collateral securities to increase the facility and SNC needed to increase its financial capacity in the eye of the Bank to get the increased bank facilities so that it can provide the same to the appellant AOP for onward transfer to NHAI to get the desired work contract. The appellant therefore devised a circuitous route Mr.Manohar Shetty (MS) is one of the partners of SNC. The appellant gave interest free loans to MS. MS deposited the same in SNC as capital contribution. SNC deposited the same in the Bank. Bank increased the guarantee of SNC to 80 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X
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