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Commissioner of Income Tax – I Versus Amar Ujala Publication Ltd.

2016 (5) TMI 478 - DELHI HIGH COURT

Disallowance on discount and interest on borrowing through commercial papers and Non-Convertible Debentures (NCDs) - Held that:- In the present year, there was no re-structuring and/or purchase of shares. All that had happened in the preceding year. As on 01.04.2007 itself, which was the first day of the year under consideration, A & M Publications Limited stood merged with and into the respondent / assessee. All the funds available at that point of time with the respondent / assessee were, in t .....

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eva, JJ. For the Appellant : Mr Rahul Chaudhary with Mr Raghvendra Singh and Mr Anup Kesari For the Respondent : Mr Ved Jain with Mr Pranjal Srivastava JUDGMENT Badar Durrez Ahmed, J 1. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act ) is directed against the order passed by the Income Tax Appellate Tribunal in ITA 1808/Del/2012 pertaining to the assessment year 2008-09. 2. The substantial question of law, which arises for our consideration in .....

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was not for business purposes. The said figure of ₹ 10,79,75,982/- had two components. The first component was the discount on commercial paper amounting to ₹ 8,45,75,982/-. The second component was the amount of ₹ 2.34 crores which was interest on non-convertible debentures. 4. The Assessing Officer had required the assessee to explain these expenditures. The respondent/assessee submitted that A & M Publications Limited had merged with the respondent/assessee with effect .....

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respective accounting heads in both the companies (i.e., the respondent/assessee company and A & M Publications Limited) in the financial year 2006-07. The discount on commercial paper issued by the respondent/assessee was ₹ 4,22,87,991/- and the discount on commercial paper issued by A & M Publications Limited was ₹ 4,22,87,991/- resulting in a total of ₹ 8,45,75,982/-. Since there was a shortage of funds, the non-convertible debentures had also been issued. The Asses .....

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connected with him would not have any relationship with the said companies in any manner after receiving the full and final consideration. According to the Assessing Officer, the shares of Shri Ajay Aggarwal and others were bought by the respondent/assessee and the transaction was purely one of acquisition of shares and had no bearing on the business being carried out ordinarily by the respondent/assessee. The Assessing Officer also observed that during the year in question, the respondent/asse .....

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e of the respondent/assessee. The interest amount of ₹ 2.34 crores on non-convertible debentures which had been issued to repay the commercial papers, which, in turn, according to the Assessing Officer, had been taken for providing funds for purchase of shares of Shri Ajay Aggarwal and others was also held by the Assessing Officer to be not allowable under Sections 36(l)(iii), 37(1) and 57(iii) of the said Act. 5. Being aggrieved by the said disallowance of the total sum of ₹ 10,79,7 .....

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s Limited. In the preceding year, consequent upon the order passed by the Company Law Board on 07.08.2006, the respondent/assessee bought the shares held by Shri Ajay Aggarwal and others in A & M Publications Limited. Similarly, A & M Publications Limited had bought the shares of the respondent/assessee held by Shri Ajay Aggarwal and others. The Commissioner of Income Tax (Appeals), however, observed that after the acquisition of these shares, A & M Publications Limited merged with a .....

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als) observed that the entire borrowed funds on which the interest had been paid had been utilized for the purpose of business. It was noted that the re-structuring of the respondent/ assessee was affected in the preceding year and that during the year under consideration there was no implication of such re-structuring so far as the allowability of interest on borrowed funds was concerned. Consequently, the Commissioner of Income Tax (Appeals) held that the addition of ₹ 10,79,75,982/- cou .....

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applicable for the year under consideration. The Tribunal observed that it was in the preceding year that the shares were bought by the two companies and that after the acquisition of the shares, the two companies merged. As a result of the merger, the shareholding of both these companies got cancelled also resulting in the cancellation of the shares held by Shri Ajay Aggarwal and others. 7. The Tribunal further observed that after the merger, the entire funds of the company of the respondent/as .....

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