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2015 (11) TMI 293 - ITAT BANGALORE

2015 (11) TMI 293 - ITAT BANGALORE - TMI - Revision u/s 263 - Disallowance of interest u/s 36(1)(iii) - Held that:- AO asked details of the loan and advance being balance-sheet items (asset) and no question was raised on allowability or disallowability of the interest. Even the AO did not go into the point of interest-free advance in the question asked from the assessee. Thus merely asking the details of loan and advance without questioning the claim of the interest would not by any stretch of i .....

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essment order erroneous so far as it is prejudicial to the interests of the revenue.

Rejection of TDS credit - AO rejected the claim of the credit of the said amount of TDS u/s 194C towards mobilisation advance on the ground as such credit cannot be allowed when the corresponding receipt has not been offered to tax - Held that:- As decided in assessee's own case for the assessment year 2002-03 as held if the amount is a mobilisation advance and not an income at all, the question of pa .....

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made to Shri Manohar Shetty - Held that:- Interest-free loan was given from borrowed fund. In view of our finding on this issue for the assessment year 2006-07, we uphold the impugned order of the CIT(A) qua this issue as the argument that the interest free loan had been given for the purpose of facilitating the procedure of getting the work contract from NHAI does not appeal to reason and therefore fails to fulfill the test of preponderance of probability and also commercial expediency. In sho .....

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M And Jason P Boaz, AM For the Appellant : Shri A Shankar, Adv For the Respondent : Shri G R Reddy, CIT(DR) ORDER Per Vijay Pal Rao, JM This appeal by the assessee is directed against the revision order dated 17/3/2011 of the CIT passed u/s 263 of the Incometax Act,1961 ['the Act' for short] for the assessment year 2006-07. The assessee is an association of persons (AOP) and is assessed to income-tax. The assessee is a joint venture of (1) M/s.Elsamex S.A, Spain, (2) Thanomwongse Service .....

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77; 3,00,50,905/- on borrowed funds whereas an amount of ₹ 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 p .....

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inadequate inquiry in the matter. Further, the assessee submitted on the merits of the issue that the assessee AOP (joint venture) was awarded work by National Highways Authority of India (NHAI) for an amount of ₹ 195,18,58,171/- and as per the terms and conditions contract, the assessee was to provide performance guarantee for 10% of the total amount of the contract along with mobilisation bank guarantee of equivalent amount which works out at ₹ 19.5 crores each. The assessee reques .....

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books of account of the assessee, there was an opening balance of ₹ 11.15 crore interest-free advance in the name of Shri Manohar Shetty. The assessee submitted that the interest-free advance given to Shri Manohar Shetty has not been utilised by him for personal purpose and it was only for the purpose of availing credit facility from donor and for purpose of business of the assessee. Thus, the assessee contended that the interest-free advance was given for commercial expediency and availin .....

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saction in the previous year relevant to the assessment year under consideration. Thus, the assessee submitted that when two views are possible and the view adopted by the AO is not accepted by the CIT, the order cannot be treated as erroneous or prejudicial to the interests of the revenue. The CIT did not agree with the submissions of the assessee and found that the AO did not conduct any inquiry and therefore, no view was formed by the AO. Therefore, the decision relied upon the assessee in th .....

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nd. 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 o .....

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. Thus, the learned AR of the assessee has submitted that in view of the decision of the Hon'ble Supreme Court in the case of S.A.Builders (supra), when the interest free advance was given due to commercial expediency and the AO after conducting inquiry taken a possible view then the CIT is not permitted to invoke the provisions of sec.263. On the other hand, learned departmental representative has strongly supported the impugned revision order. He submitted that the assessment order is comp .....

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rst objection of the learned AR of the assessee is that the AO raised a query and after reply of the assessee, passed the assessment order by due application of mind. A reference was made to question No.12 of the questionnaire dated 21/8/2008 which reads as under: "12. Details substantiating loans and advances(asset)" It is manifest from the above question that the AO asked details of the loan and advance being balance-sheet items (asset) and no question was raised on allowability or d .....

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claim. Rather the AO's query was restricted to the balance sheet item and does not touch the profit and loss account of the assessee. Therefore, 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 ventu .....

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he 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 ₹ 9.5 crore and that amount was nothing but interest-free advance given by the assessee to Shri Manohar Shetty which was received back routing through SCC. Therefore, the transaction of advancing of ₹ 11.5 cro .....

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advance to Shri Manohar Shetty. In the facts of the case, we do not find any error or illegality in the impugned revision order of the CIT passed u/s 263. The decisions relied upon by the assessee were not applicable to the facts of the present case. The provisions of sec.263 are only a check and balance measure in respect of assessment and any illegality committed by the AO cannot be allowed in perpetuity on the ground that the same is continued from the earlier year. Thus there is no bar on th .....

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der of the authorities below in so far as it is against the Appellant are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case. 2. The authorities below are not justified in determining the loss at ₹ 11,73,66,587/- as against the loss of ₹ 13,14,39,324/- returned by the appellant. 3. The authorities below are not justified in holding that the provision of Section 199 are applicable for TDS made on advance amount recei .....

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ection 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 ₹ 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 a .....

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f TDS credit. NHAI inter alia, paid a sum of ₹ 10 crores to the assessee towards mobilisation advance and deducted therefrom TDS of ₹ 22,44,000/- u/s 194C of the Act and deposited the same to the credit of the Central Government of India. The assessee has not offered the advance received from NHAI holding the same as not assessable to tax. The AO rejected the claim of the credit of the said amount of TDS of ₹ 22,44,000/- on the ground that as per the provisions of sec.199(2) of .....

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of the Hon'ble jurisdictional High Court in the assessee's own case for the assessment year 2002-03 and submitted that the issue is now covered in favour of the assessee by the decision of this Tribunal which has been confirmed by the Hon'ble jurisdictional High Court. On the other hand, learned departmental representative has relied upon the orders of the authorities below. 13. Having considered the rival submissions as well as the relevant material on record, at the outset we note .....

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Authority of India (NHAI) could be treated as part of release of bank 9uarartee and the amount so received by the assessee should be treated an advance and can it be an exception to the provisions of Section 199 of the Income Tax Act by availing all the benefits under Section 237 of the Act?" 7. From the material on record, it is clear that the assessee is a contractor who has been paid a sum of ₹ 29,28,59,937/- as mobilization advance which is not an income. But by virtue of Section .....

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he future years as and when the assessee offers to tax. If the amount of ₹ 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 ₹ 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 ₹ 14,93,568/accepting the loss returns of the assessee. But he was in error i .....

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d amount is also refundable. A conjoint reading of Sections 194C, 199 & 237 of the Act makes it clear that if there was no liability to pay tax, the TDS paid is liable to be refunded and that is absolutely what the Tribunal has stared. Therefore, we do not see any justification to interfere with the orders passed. Hence, the appeal filed by the revenue is liable to be dismissed". This issue is now covered by the decision of the Hon'ble jurisdictional High Court in the assessee's .....

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paras.16 & 17 as under: "16. Admittedly, in this case ,loan has been given to Sri. Manohar Shetty in F.Y. 2001-02 and 2002-03 amounting ₹ 16.30 crores and also on F.Y. 2004-05 of ₹ 6.75 crores. In other words loan has not been given in relevant A.Y. 2007-08. On this background of financial transactions the moot question to be answered is whether the loan was from own funds and also for the purpose of business. Admittedly the loans are given out of borrowed funds on which in .....

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ity in any bank. Therefore it decided to utilize the financial facilities of SNC which was having bank guarantee limit of ₹ 30 crores and FIC limit of ₹ 10 crores. The NHAI had asked for two types of guarantees viz., performance guarantee and bank guarantee for advance ibilifl5iieach amounting ₹ 19.52 crores thus in total ₹ 39.04 crores. SNC in total was enjoying limits of ₹ 40 crores which could have been sufficient to get the contract work from NHAI. Therefore the .....

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oute 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. The appellant utilized the same and got the contract. Thus it is pleaded that the funds borrowed from Bank on Mortgage of property was given as loan to MS for utilization of the same to increase the bank guarantee of SNC to 80 crore to obtain the work con .....

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