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2016 (7) TMI 845 - ITAT AMRITSAR

2016 (7) TMI 845 - ITAT AMRITSAR - TMI - Proportionate dis allowance of interest u/s 36(1)(iii) - investment standing as share application money in various related concerns by treating the same as amount used for non- business purpose - Held that:- 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 3 .....

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hiana. The assessee has raised the following grounds of appeal: 1. That the Worthy Commissioner of Income Tax (Appeals) has erred in confirming the action of the A.O. in disallowing proportionate interest amounting to ₹ 3,71,68,025/- u/s 36(1)(iii) of the Income Tax Act in respect of investment standing as share application money in various related concerns amounting to ₹ 1,49,36,11,300/- as on 31.03.2011, by treating the same as amount used for non- business purpose. 2. That the ld. .....

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ivity of publication of children books and as printers at its plants situated at Sahibabad in Uttar Pradesh and Jalandhar. As per audited profit and loss account filed and computation of total income, the assessee had declared gross profit @ 28.17% on the gross turnover of ₹ 124,07,17,249/- against the G.P. rate of 26.70% on the turnover of ₹ 107,75,07,747/-. Therefore, both the sales and gross profit rate were progressive. The AO observed that perusal of the balance sheet and profit .....

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sh credit limit at ₹ 3,71,68,025/-. The AO disallowed the expenditure claimed by the assessee on account of Bank interest to the tune of ₹ 3,71,68,025/- and added back to the income of the assessee u/s 36(1)(iii) of the Act. 3. On appeal, the ld. CIT(A) confirmed the disallowance made by the AO by holding as under: 7. I have considered the facts of the case, the basis of addition made by the Assessing Officer and the arguments of the AR on the issue during assessment as we" as a .....

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ved under both the sources have been used specifically for the said parties. However the investments have been made from separate current account in which the deposits represent the accruals from the business of the assessee company i.e. its sales This to say that if such accrue had been- credited/deposited in the cash credit account, the need to continue with or even raising such interest bearing funds for working capital requirements would not have been there. This prove the point of the Asses .....

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interest bearing funds has been clearly ^established by the analysis of two separate account maintained bv the appellant. In the circumstances the judgment of Hon'ble Jurisdiction 'High Court in the case of Abhishek Industries is squarely applicable. The Assessing Officer has further highlighted that disallowance interest on similar facts in the case of assessee's sister concern M Bright Enterprises Pvt. Ltd. for the assessment year 2005-06 had be upheld by the Hon'ble ITAT, Amr .....

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both the Assessing Officer and CIT (A) have held that since the assessee has debited an amount of ₹ 3,71,68,025/- as interest paid on CC/OD account which is evident from page 21 r.w. page 14 of the paper book and the case of the Assessing Officer is that the assessee had advanced the amount to the sister concerns without any business expediency and no interest has been charged from such advances ignoring the fact that the assessee had disclosed the interest income of ₹ 2,72,42,083/- .....

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orrowings 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 extend 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 judgment of the ITAT, Amritsar Bench in the case of M/s Bright Enterprises in ITA No. 414/Asr/2010 for Asstt. Year 2005-06 and whic .....

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3. Ltd. Alchemie (P) MBD Ltd. 10,00,000/- 10,00,000/- 12 Total 1493611300 848575000 12 ii). Our following contentions in this regard may be considered:- a) Firstly, the assessee had business dealings with the sister concernsto whom the advances have been made, which is evident from Annexure D of Tax Audit report, where the amount of business transactions have been reflected with the concerns and in the case of MBD Alchemie (P) Ltd., particularly, the business transactions are to the tune of  .....

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t that there are common shareholders/directors, is evident from page 17 to 18 of the paper book and also the nature of the business of the sister concerns is also same. d) The investments as made to the sister concerns are out of the assessee s own Sources and it cannot be presumed that the investments were out of the Borrowed funds of the appellant. e) The assessee was having more than sufficient interest free funds available as on 31.03.2012, which is evident from the balance as under:- a. Sha .....

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had been given to the sister concerns, which should be termed for business expediency. f) 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 balance sheet reflected as under and which is evident from page 9 of the paper book:- a. Fixed deposits receipt ₹ 57,022.00 b. FDR with CBI ₹ 3,92,63,272.00 c. FDR with Corporation Bank ₹ 6,42,46,469.00 d. FDR with OB .....

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rprises Pvt. Ltd. has been over ruled by the Punjab Et Haryana High Court as reported in 381 ITR 107 and these observations of the CIT (A) are not proper, because of the following facts:- a. We had much more interest free funds available with us as stated above in para-4(ii)(e) above. b. The advances are to the group concerns as per page 12 of the paper book and there are common directors/shareholders and, as such, the advances were given for strengthening the capital balance of sister concern, .....

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s placed at pages 35 to 41 of the judgment set and which has been reported in 381 ITR 107. After considering the various judgments, the Hon ble Punjab & Haryana High Court 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. Commercial expediency in advancing loans does not arise only on account of there being transactions .....

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o 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. 4.5. He further submitted that the judgment of Abhishek Industries have also been overruled by the Hon ble Supreme Court in the case of Hero Cycles, f .....

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set, wherein the judgment of Bright Enterprises (P) Ltd. and Hero Cycles has been referred and followed. 4.7. Similarly, reliance is being placed on the judgment of Punjab & Haryana High Court, copy placed at pages 71 to 73 of the Judgment Set in the case of CIT Vs Rakesh Gupta and, thus, the whole basis of disallowance u/s 36(1 )(iii) is uncalled for. 4.8. The assessee s counsel has placed reliance on the judgment of Omax Bikes Ltd of Chandigarh ITAT, wherein following the judgment of Brig .....

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is placed at pages 74 to 77 of the Judgment Set. 4.10. In view of the above submissions, the ld. counsel for the assessee submitted that no disallowance u/s 36(1)(iii) in any manner is called for. 5. The ld. DR, on the other hand, relied upon the orders of both the Authorities below. 6. 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 Be .....

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d the subsidiary company or between the group companies inter se. The two companies may even be in a different line of business. It would make no difference. It would still be commercially expedient for one group company to advance amounts to another group company, if, for 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 improve .....

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