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2016 (11) TMI 950 - ITAT AMRITSAR

2016 (11) TMI 950 - ITAT AMRITSAR - [2016] 51 ITR (Trib) 484 - Addition u/s 36 - Held that:- The assessee had sufficient interest-free funds to make investment in the group companies. - Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. v. CIT [2015 (11) TMI 1314 - SUPREME COURT OF INDIA ] has held that where the investments has been made out of own funds/non-interest bearing funds, the disallowance under section 36(1)(iii) is not allowed. - Decided in favour of assessee - I. T. A. .....

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spectively. Since the common issue is involved in both the appeals and these were heard together, therefore, for the sake of convenience a common and consolidated order is being passed. 2. In I. T. A. No. 125(Asr)/2015 for the assessment year 2012-13, the assessee has raised the following grounds of appeal : "1. That the worthy Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of proportionate interest amounting to ₹ 91,30,928 under section 36(1)(iii) on ac .....

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ishek Industries, which is not applicable to the facts and circumstances of the case and has ignored the various other judgments as relied upon before him by the appellant. 4. That the confirmation of addition is against the facts and circumstances of the case." 3. The assessee has raised the following grounds of appeal in I. T. A. No. 196 (Asr)/2015 for the assessment year 2010-11 : "1. That the worthy Commissioner of Income-tax (Appeals) has erred in confirming the order of the Asses .....

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ase are that the assessee-company is engaged in the business activity of publication and trading of educational books with sale depots/branches scattered all over India. The cases of the assessee were selected for scrutiny. During the assessment proceedings, the Assessing Officer observed that the assessee had made substantial investment as share application money/advances and had not recovered any interest on such investments. The Assessing Officer held that such investments were for non-busine .....

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roduced below. "3.2 I have considered the facts of the case, the basis of addition made by the Assessing Officer and the arguments of the authorised representative on the issue during assessment as well as the appellate proceedings. It is seen that 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 inter .....

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interest bearing loans. It has not been pointed out that interest bearing funds have been exclusively used for the purpose of business. Further, the advancing of interest-free funds in the garb of share application money by the appellant has been the basic reason for the appellant-company to continue to raise interest bearing funds. The advancing of interest- free amounts to sister concern have to be justified to be business necessity which has not been done by the appellant. In the circumstance .....

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ed." 5. Aggrieved the assessee is in appeal before us. 6. The learned counsel for the assessee contended that the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of interest amounting to ₹ 91,30,928 and ₹ 54,10,255 under section 36(1)(iii) of the Act on account of investments made in various sister concerns as advances or as share application money. The learned authorised representative submitted that the learned Commissioner of Income-tax ( .....

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udgments of the hon'ble Punjab and Haryana High Court in the case of CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1 (P&H) and has also relied upon the judgments of the Income-tax Appellate Tribunal, Amritsar Bench in the case of Deputy CIT v. Bright Enterprises Pvt. Ltd. The learned authorised representative submitted that the judgment of Bright Enterprises has already been overruled by the hon'ble Punjab and Haryana High Court and similarly the judgment in the case of Abhishek Ind .....

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n March 31, 2012, as on March 31, 2010, were placed. The learned authorised representative further argued that since the sister concerns whom the assessee had advanced loans are in the same line of business activity, the Revenue could not disallow interest on borrowed capital on the ground that loan was advanced for non-business purposes, and reliance in this respect was placed on the case law of Industrial Feeders v. Asst. CIT, Chennai as reported in [2016] 68 taxmann.com 92 (Mad). The learned .....

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come-tax (Appeals). 8. The learned Departmental representative, on the other hand, heavily relied upon the order of the authorities below. 9. We have heard the rival parties and have gone the material placed on record. We find that for the assessment year 2010-11 the capital of the assessee-company was ₹ 31,71,64,888 which is apparent from the copy of the balance-sheet as placed in (paper book page 2). As against this the investments in the sister concern in the shape of share application .....

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amounting to ₹ 49,43,04,638, the assessee had advanced to ₹ 20,32,60,000, therefore, one fact is clear that in I. T. A. No. 196(ASR)/2015, there was sufficient non-interest borrowing funds out of which the assessee had advanced/ invested in the sister concerns. 10. Similarly, we find that for the assessment year 2012-13 the capital of the firm as per the balance-sheet placed at (paper book-page 3) was ₹ 13,21,61,500 and the interest-free current liabilities were to the tune of .....

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Haryana High Court in the case of Abhishek Industries Ltd. and has further relied upon the decision of Bright Enterprises Pvt. Ltd., decided by the Amritsar Bench, we find that the decision of Bright Enterprises Pvt. Ltd. has been overruled by the Punjab and Haryana High Court ( [2016] 381 ITR 107 (P&H)). The findings of the hon'ble Punjab and Haryana High Court are reproduced below (headnote) : "Held, allowing the appeal, that whether the amount was debited to the account of the s .....

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f commercial expediency for the purpose of business. This assertion was never denied. The assessee owned about 89 per cent. of the equity capital. When a holding company invested money for the purpose of the business of its subsidiary, it must necessarily be held to be an expense on account of commercial expediency. A financial benefit of any nature derived by the subsidiary on account of the amounts advanced to it by the holding company would not merely indirectly but directly benefit its holdi .....

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