Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (6) TMI 559 - ITAT AMRITSAR

2016 (6) TMI 559 - ITAT AMRITSAR - TMI - Disallowance of interest u/s 36(1)(iii) - assessee had advanced the amount to its sister concerns - Held that:- The impugned advance has been made out of interest free funds available with the assessee and there was no question of whatsoever for disallowing interest 36(1)(iii) of the Act. Accordingly, we hold that the disallowance of interest u/s 36(1)(iii) pertaining to the sister concerns upheld by the ld. CIT(A) is not justified, hence, the same is del .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rs 2005-06 to 2009-10 wherein held that no discrepancy in the books of account has been pointed out by the authorities below and each and every purchase has been backed by the vouchers and there is evidence in the shape of GRs and delivery challans for finished products of Gagret which is duly authenticated on the border of Punjab & Himachal Pradesh and this documentary evidence has been admitted by the AO and simply copies were placed. Regarding electricity charges, which have been proved by th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- one of the assessee and the other by the Revenue for the assessment year 2010-11, against the order dated 08.07.2014, passed by the ld. CIT(A), Jalandhar. 2. The assessee has raised the following grounds of appeal: 1. That the ld. CIT(A) has erred in confirming disallowance of interest expenditure (made by the AO as per para 3.8 of the order) as debited to profit and loss account to the tune of ₹ 1,22,51,865/- as per para 8 of his order. 2. That the disallowance of interest expenditure o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ld. CIT(A) was correct in law and facts in allowing deduction of profit u/s 80IC of the Act, ignoring the facts that the assessee didn t have sufficient infrastructure and main power to manufacture the entire products on its own in its exempt unit and got it done as job work from units outside specified areas, as is evident from the order of the A.O. as also from the seized material. 2. Whether the ld. CIT(A) was correct in law and facts in not treating the income from sale of paper as trading i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iting paper by opening a new venture namely Paper Mill . Similarly, another unit namely Copier Unit was also established by the assessee during the year under consideration for manufacturing of copier paper. For the new units, the assessee had incurred losses and hence had not claimed deduction u/s 80IC of the Act. The balance sheet and profit & loss account, filed by the assessee showed that during the year, the assessee has an amount of ₹ 22,23,31,000/- standing as investments in var .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the appellant had not even attempted to show that the investments in sister concerns serve any business purpose. The entire emphasis has been to support the claim that the impugned investment had been made from self owned funds and not from interest bearing sources. The appellant in order to prove its point highlighted that two separate accounts have been maintained for borrowed funds i.e. SBI term loan account and SBI cash credit account. The funds so received under both the sources have been .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

terest for working capital requirements had to be raised in order to make up for the short fall caused by interest free investments in the sister concerns which did not serve any business purpose for the appellant company. The Judicial pronouncement relied upon by the AR during the appellate proceedings do not address this basic salient feature of funds position sage thereof. The direct link between the non business interest investment and raising of interest bearing funds has been clearly estab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

12. In the circumstances the disallowance made by the Assessing Officer is therefore confirmed. 6. The ld. counsel for the assessee, Sh. Sudhir Sehgal submitted that the only ground in the assessee s appeal is against the disallowance of interest u/s 36(1)( iii) made by the Assessing Officer and which has been confirmed by the Ld.CIT (A), following the judgment in the case of Abhishek Industries reported in 286 ITR 1. 6.1. He further submitted that both the Assessing Officer and CIT (A) have hel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the entire amount in business entity comes in a common kitty and the only thing sufficient to disallow the interest paid on the borrowings to the extent of amount is lent to the sister concern without carrying any interest would be for non-business purpose and has held that the funds to the extent diverted to the sister concern are for non-business purposes and the CIT (A) and Assessing Officer has totally relied upon on the judgment of Abhishek Industries as reported in 286 ITR 1 and on the j .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

0 1. MBD Enterprises (P) Ltd. 1,000/-(Share allotted in earlier Year) 2. M.Gulab Singh & Sons Pvt. Ltd. 3,50,000/- (Old amount outstanding in group concern having common directors) 3. AKM Enterprises Pvt. Ltd. 23,19,80,000/- Total Rs.23,23,31,000/- (ii) The investments as made to the sister concerns are out of the assessee s own Sources and it cannot be resumed that the investments were out of the Borrowed funds of the appellant. iii) The total amount advanced to sister concern mainly to AKM .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es of ₹ 23,23,31,000/- , there are own funds to the tune of ₹ 99,85,30,907.99 and thus, the disallowance of interest was not called for, specially when the amount to AKM was for purchase of shares. iii) Beside, that as per balance sheet at page 9 read with page 13 of the paper book, the various limits enjoyed by the company have been given, including term loan and cash credits and, whereas, the term loan have been utilized only and exclusively for acquiring fixed assets and, whereas, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and circumstances in Asstt.Year 2011-12 £t 2012-13, the term loan interest has not been disallowed u/s 36(1)(iii) and for which, the copies of the assessment orders u/s 143(3) are being filed herewith. Thus, the disallowance, if any, to be considered should be limited to only to the tune of ₹ 47,07,263/-. vi. Besides, the assessee having huge surplus funds as stated above. Your goodself attention is invited to the fact that the assessee has fixed deposits on the assets side of the ba .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of interest was required to be made, since the total interest disclosed is to the tune of ₹ 1,00,05,252/- (Rs. 85,57,462 + 14,47,789/-) is much more than the interest on cash credit limit to the tune of ₹ 47,07,263/-. 6.4. The ld. counsel submitted that all such facts had been addressed to the Assessing Officer and CIT (A) and the AO has discussed this issue in para 3.8 of the order at pages 2 to 5 and the CIT (A) has discussed our submissions and remand report of the Assessing Off .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e interest free funds available with us as stated above in para-5(iii) above. ii. The advances are to the group concerns as per page 36 & 37 of the paper book and these common directors and to strength the capital balance of sister concern, which is for commercial expediency. iii. The disallowance of interest on term loan is wholly uncalled for, since as per source and application chart at page 39, it is very clear that no presumption could be drawn that the borrowed funds had been, utilized .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Jurisdictional, Punjab & Haryana High Court, copy of the judgment is placed at pages 100 to 111 of the paper book and which has been reported in 381 ITR 107. After considering the various judgments, the Hon ble Punjab & Haryana High Court at pages 109 to 111 has revered the judgment of Hon ble ITAT and has held as under:- 17. The Assessing Officer s view that the advance was not for business purposes as the appellant had no business dealings with the sister company is erroneous. Commer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

monstrated, there would be a direct benefit on account of the advance made by the appellant to its sister company if the same improves the financial health of the sister company and makes it a viable enterprise. We hasten to add that it is not necessary that the advance results in a positive tangible benefit. So long, as the amount is advanced with that view in mind or with any other commercially expedient view in mind that is sufficient. 6.7 He submitted that the judgment of Abhishek Industries .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

relevant pages are 124 to 128 of the paper book, wherein the judgment of Bright Enterprises (P) Ltd. and Hero Cycles has been referred and followed. 6.9. Similarly, reliance is being placed in the judgment of Punjab & Haryana High Court, copy placed at pages 139 to 144 in the case of CIT Vs Rakesh Gupta and, thus, the whole basis of disallowance u/s 36(1 )(iii) is uncalled for. 6.10. Reliance is being placed on the judgment of Omax Bikes Ltd of Chandigarh ITAT, wherein following the judgmen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ies below. 8. We have heard the rival contentions and have perused the material available on record. It is seen that the reliance placed by the ld. CIT(A) on the judgment of Bright Enterprises (P) Ltd. of the ITAT, Amritsar Bench, is not proper, since that judgment has been reversed by the Hon ble Jurisdictional High Court vide order dated 26.07.2015, reported in 381 ITR 107 (copy placed at APB 100 to 106), holding as under: 17. The Assessing Officer s view that the advance was not for business .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r instance, as a result thereof the former benefits. In the present case, as we have already demonstrated, there would be a direct benefit on account of the advance made by the appellant to its sister company if the same improves the financial health of the sister company and makes it a viable enterprise. We hasten to add that it is not necessary that the advance results in a positive tangible benefit. So long, as the amount is advanced with that view in mind or with any other commercially exped .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ectors - Order of the High Court set aside and order of the ITAT was restored -Appeal allowed. Assessee had a credit balance in the bank account when the said advance of ₹ 34 lakhs was given. Company had reserve/surplus to the tune of ₹ 15 crores and, therefore, the assessee company could in any case, utilize those funds for giving dvance to its directors. 8.2. Further, the reliance on the following judgments also supports the case of the assessee overruling the judgment of Abhishekh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n have been overruled by the Hon ble Courts, the addition does not survive. 10. In view of the above discussion, we hold that the impugned advance has been made out of interest free funds available with the assessee and there was no question of whatsoever for disallowing interest 36(1)(iii) of the Act. Accordingly, we hold that the disallowance of interest u/s 36(1)(iii) pertaining to the sister concerns upheld by the ld. CIT(A) is not justified, hence, the same is deleted. Thus, the appeal of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ome of ₹ 21,49,069/- on account of sale of paper which was in the nature of trading income and therefore, not eligible for deduction u/s 80IC. 13. The ld. CIT(A) deleted the disallowance by holding as under: 12. I have considered the facts of the case, the basis of addition made by the AO and the arguments of the AR on the issue during assessment as well as appellate proceedings. It is seen that the issue is squarely covered by the judgment of the Hon ble ITAT Bench in the case of the asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

na High Court. The second stand taken by the Income-tax Department is that the AO has allowed 20% deduction u/s 80IC of the Act for the assessment years 2005-06 to 2008-09 and under section 153A of the Act for the assessment year 2009-10. The ld. CIT(A) allowed 100% of the profit and gain in all the appeals for which the Revenue is in appeal before us. 15. Having heard the rival contentions in the light of the material placed on record, we are of the considered view that the issue in dispute is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

8377; 4,12,42,381/- as on 31.03.2005 had risen to ₹ 8,33,04,711/- as on 31.03.2009 which is based as per audited books of account filed before Income Tax Department and which fact is not disputed. No discrepancy in the books of account has been pointed out by the authorities below and each and every purchase has been backed by the vouchers and there is evidence in the shape of GRs and delivery challans for finished products of Gagret which is duly authenticated on the border of Punjab & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ced from pages 18 to 21 has not been able to make detailed submissions on the factual aspect of the case and rather at page 19 asked the ld. CIT(A) to verify the claim made by the assessee. Regarding electricity charges, which have been proved by the assessee beyond any doubt and how it can be assumed that electricity charges in H.P. are far less than electricity charges in Punjab and that finding has not been rebutted by the ld. CIT(A). 18.1. He invited our attention to the printing double colo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssessee, the Ld. DR has not rebutted the same. Therefore, the appeal in ITA No.27(Asr)/2010 and additional ground of appeal which has been prayed to be allowed is dismissed. 19. In other appeals of the Revenue in ITA Nos. 506 to 508(Asr)/2011 and ITA Nos. 533 & 534(Asr)/2011 though the ld. CIT(A) has discussed the facts in ITA No.27(Asr)/2010 and followed the findings of the ld. CIT(A), but it has been argued by the ld. DR that there was a search on the assessee s premises on 22.01.2009 and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

material found during assessment proceedings viz A-12, A-15, A-19 & A-21 and argued at length which has been reproduced hereinabove. The arguments have been advanced by the ld. counsel for the assessee in shape of brief synopsis has not been rebutted by the ld. DR as mentioned above and we find no infirmity in the order of the ld. CIT(A) in para 11 to 14 of his order. 20. Regarding job work of printing material , the ld. counsel for the assessee placed reliance on the judgment of the Hon ble .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version