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M/s Trident Infotech Corporation Limited Versus The Commissioner of Income Tax, Ludhiana and another

2016 (5) TMI 399 - PUNJAB AND HARYANA HIGH COURT

Disallowance of interest under section 36(1)(iii) - Held that:- In the light of the judgment of the Apex Court in Hero Cycles (P) Limited vs. CIT, Ludhiana, (2015 (11) TMI 1314 - SUPREME COURT OF INDIA ) and judgment of this Court in Commissioner of Income Tax vs. Kapsons Associates, (2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT ) the matter is remanded to the Tribunal to decide afresh in accordance with law. In Hero Cycles (P) Limited's case (supra), the Apex Court was considering the issu .....

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AHUL GARG, JJ. FOR THE APPELLANT : Ms. Radhika Suri, Sr. Advocate with Ms. Rinku Dahiya, Advocate FOR THE Revenue : Mr. Rajesh Katoch, Advocate Ajay Kumar Mittal,J. 1. The delay in re-filing the appeal is condoned. 2. This appeal has been filed by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 31.10.2008, Annexure A.4 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (in short, the Tribunal ) in ITA No.72 .....

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. The appellant-assessee filed its return for the assessment year 2004-05 declaring a loss of Rs. 38,28,164/-. The return was selected for scrutiny. The Assessing Officer disallowed the amount of Rs. 45,14,373/- on account of interest claimed under section 36(1)(iii) of the Act vide order dated 28.11.2006, Annexure A.1 by holding that the assessee had given interest free advances of an amount of Rs. 6,94,51,894/- to its sister concern. The Assessing Officer without ascertaining the use of these .....

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laiming that the advances made to the sister concern were not out of interest bearing funds and the same could not be disallowed. The CIT(A) rejected the contention of the assessee following the judgment of this Court in CIT vs. Abhishek Industries, (2006) 286 ITR 1 and dismissed the appeal vide order dated 9.6.2008, Annexure A.3. Still not satisfied, the assessee filed appeal before the Tribunal. The Tribunal dismissed the appeal vide order dated 31.10.2008, Annexure A.4. Hence the instant appe .....

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de afresh in accordance with law. In Hero Cycles (P) Limited's case (supra), the Apex Court was considering the issue with regard to interest on borrowed capital (interest free loans). It was held that once it is established that there is nexus between the expenditure and purpose of business, revenue cannot justifiably claim to put itself in arm chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to the circumst .....

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mount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court that the interest on the borrowed fund in such a case could not .....

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. It has been repeatedly held by this court that the expression "for the purpose of business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the Hig .....

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profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 6. Further, in Kapson Associates's case (supra), while considering disallowance of interest under section 36(1)(iii) of the Act, it was recorded by this Court as under:- The Commissioner of Income Tax (Appeals) and the Tribunal found as a matter of fact .....

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