9911796707
TMI Blog2015 (6) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... given to sister concern Neora Hydro Ltd. (in short NHL). For this Revenue has raised identically worded grounds and lead year being the assessment year 2006-07 in I.T.A. No. 607/KOL/ 2012, we will take facts from the same adjudicate the same. The relevant ground as raised reads as under : "1. That on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in law in deleting the disallowance of interest of Rs. 86,87,054 being the interest calculated and taxed on advances given to Neora Hydro Ltd." 3. The brief facts relating to this issue are that NHL is a concern where the assessee held 50 per cent. shares from the beginning and by March 31, 2005, balance 50 per cent. shares were also transferred to the associated concerns of the assessee. NHL ultimately amalgamated with the assessee with effect from August 1, 2007 and it advanced money to NHL from time to time from its cash credit account. The said cash credit account was a composite account. All the sale proceeds, were deposited in the said cash credit account which included profits earned. The details of loans given to NHL which were submitted before the Assessing Officer and the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cash credit account but depositing the profits there was debit balance in the cash credit account. The judgment of the Supreme Court refers to the commercial expediency. The commercial expediency cannot over ride the specific provisions of the statute, whether such interest paid till a company goes into production has to be capitalised. (f) The business of Neora has not at all started up to March 31, 2006." 5. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who deleted the disallowance by observing as under : "10. I have duly considered the case law cited by the assessee. The hon'ble jurisdictional High Court in the case of CIT v. Britannia Industries Ltd. [2006] 280 ITR 525 (Cal) and in the case of J. K. Indus tries Ltd. v. CIT [1999] 238 ITR 820 (Cal) has held that the assessee may give interest-free advances to its sister concern wherever the expenditure was made from the mixed account and the assessee had sufficient funds of its own to advance money out of that to the sister concern. In the present case the assessee had 50 per cent. shares in the sister concern which amalgamated with the group company later on. There was a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at balance 50 per cent. shares were also acquired by the sister concern and individual directors of the assessee-company. The four companies, as mentioned in the assessment order and three individuals are closely connected with the assessee. Thus the entire share capital of NHL was held by the assessee and its close associates. There was an agreement dated March 12, 1999 (at pages 101 to 124 of the paper book) between NHL and the assessee for sharing the energy produced. Under the said agreement, bulk of the energy produced was to be supplied to the assessee. There was an agreement dated April 22, 2002 (at pages 125 to 140 of the assessee's paper book) between Hanuman Tea Co. Ltd. and the assessee to have joint-venture of NHL. Thus out of five directors, three directors were closely associated with the assessee. Even in the directors report of NHL (at page 68 of the assessee's paper book) there is an acknowledgment as under : "It would bear special mention that the promoters M/s. Texmaco Ltd. extended extraordinary support and made significant contribu tion to the completion and commissioning of the project." 9. According to the assessee all these factors conclusively pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be answered is : 'Whether, on the facts and circumstances of the case, the Income- tax Appellate Tribunal was justified in law in holding that the inter est-free advances were given for the purpose of business ignoring the fact that the condition as laid down under the provision of section 36(1)(iii) of the Income-tax Act were not fulfilled ? Conclusion : 22. From the above discussion, we find in relation to each assess ment years involved in this appeal that the recipient of interest-free loan was not a firm of relatives ; the advance was made for the purpose of business within the meaning of section 36(1)(iii) ; that there was regular course of business between the assessee and the firm ; and that the advances were made to MCAP in the regular course of business ; such advances were made in the course of busi ness for commercial expedience and for the purpose of business ; the findings arrived at by the learned Tribunal were not perverse ; the entire expenditure was made from the mixed account ; therefore, there would be a presumption that the amount was made out of the own fund of the assessee and not from, the borrowed capital ; that there were sufficient funds an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such interest-free loans to the subsidiaries for the previous year ending on March 31, 1996 amounted to Rs. 1 crore. During the previous year ended on March 31, 1996, the appellant advanced a further sum aggregating to Rs. 7.30 crores to its subsidiaries and during the previous year ended on March 31, 1996, the appellant's cash profit after providing for taxation and dividend amounted to Rs. 30.37 crores and the said interest-free loans of Rs. 7.30 crores were given out of the said inter nal accruals of the appellant. Thus, it should be presumed that the subsidiaries were paid out of the profit of the assessee which is far in excess of the amount of subsidiaries and there was no justification of adding a sum of Rs. 27,200 as approved by the Tribunal. We, therefore, set aside the order of the Tribunal and direct the Assessing Officer not to deduct any amount from expenditure on the ground that interest-free loan was given to its sister concerns from the borrowed fund when the profit was far in excess and entire deposits were made in the said account and at the same time disal lowance of foreign travel expenditure of the spouse of the appellant's managing director who acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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