TMI Blog2015 (6) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals)-VI, Kolkata in Appeal No. R-27/CIT(A)-VI/2010-11/Cir-6/Kol dated January 2, 2012. Assessments were framed by the Deputy Commissioner of Income-tax, Circle-6, Kolkata under section 143(3)/115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for the assessment years 2006-07 and 2007-08 vide his orders of December 16, 2008 and December 31, 2009. 2. The sole issue in these appeals of the Revenue is against the orders of the Commissioner of Income-tax (Appeals) in deleting the disallowance of interest calculated on advances 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and paid interest on such borrowings. (c) Even if the project was 100 per cent. owned by the assessee (not 50 per cent.), any interest paid on borrowings up to the date when said plant and machinery is due use has to be capitalised as per the proviso to section 36(1)(iii) of the Income-tax Act. (d) The assessee's contention that such capitalisation has to be done in the assessment of Neora is not acceptable as the assessee has not been able to prove that the amount was borrowed and used from its own business. (e) Admittedly the amount was borrowed and interest was paid. The amount utilised for giving interest-free to another legal entity, i.e., Neora. It is quite immaterial that the assessee had deposited the profits in the 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 prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 140 crores for finance to its sister concern. Even the cash flow statements for these two years indicate that the assessee is left with negative cash flow. According to him, the primary burden of establishing that on the date when each interest-free loans is given by the assessee, there was sufficient non-interest bearing/own funds available with the assessee to advance the money to its sister concern. And he cited the case law of the hon'ble Supreme Court in the case of S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC). 8. On the other hand, learned counsel for the assessee stated the reasons for commercial expediency that the assessee is the promoter of NHL holding 50 per cent. equity capital. As mentioned by the Assessing Officer in the assessment order that 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) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. shares in NHL and later on it amalgamated with the assessee. The assessee has submitted during the appellate proceedings that there was deficiency of electricity and it has entered into an agreement on March 22, 1999 to use the electricity to be produced by NHL electric project. Therefore, there was commercial interest of the assessee in Neora Hydro Electric Ltd., for advance in the money. The assessee had 50 per cent. shares in NHL while balance 50 per cent. was also transferred to the associated concerns of the assessee by March 31, 2005. We find that the assessee has relied on the case of CIT v. Britannia Industries Ltd. [2006] 280 ITR 525 (Cal). The hon'ble Calcutta High Court has held in this case as follows (pages 527 and 534) : 1. In this case, the question that 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 discussio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .30 crores were given out of the said internal accruals of the appellant. The Assessing Officer, however, by order dated March 26, 1999 disallowed the interest expenditure of ₹ 59,32,575 on the assumption that the interest-free loans to the subsidiaries were made by the appellant out of the borrowed funds. (g) Being dissatisfied, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals) and in course of hearing of the appeal, the Commissioner of Income-tax (Appeals) required the appellant to work out the interest for the period from the date of clearance of the cheques given to the subsidiaries up to the date when sufficient sale proceeds were deposited in the cash credit accounts to cover the amount of the interest-free loans . . . In the case before us, we find that the opening balance of such interest-free loans to the subsidiaries for the previous year ending on March 31, 1996 amounted to ₹ 1 crore. During the previous year ended on March 31, 1996, the appellant advanced a further sum aggregating to ₹ 7.30 crores to its subsidiaries and during the previous year ended on March 31, 1996, the appellant's cash profit after providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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