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2016 (11) TMI 1123 - ITAT MUMBAI

2016 (11) TMI 1123 - ITAT MUMBAI - TMI - Disallowance of notional interest - interest free loan given to wholly owned subsidiaries - Held that:- CIT(A) was of the correct view that the Assessing Officer has wrongly declined the interest on the interest free loan to APIC Ltd. for the A.Y.2001-02, 2002-03 and 2005-06 because the said loan was for the business purpose. Similarly the assessee company advanced interest free loan of ₹ 100,02,00,000/- to TIMI Ltd. so as to enable it to liquidate .....

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he CIT(A) has allowed the same in view of the law settled by the Mumbai High Court in case CIT Vs. Reliance Utilities and Power Ltd.[2009 (1) TMI 4 - BOMBAY HIGH COURT ] and Supreme Court in the case of S.A.Builders Ltd. V/s. CIT [2006 (12) TMI 82 - SUPREME COURT ] and Hero Cycles P. Ltd. Vs. Commissioner of Income Tax [2015 (11) TMI 1314 - SUPREME COURT OF INDIA]- Decided in favour of assessee - Disallowance on property tax - non running business - Held that:- It is not in dispute that the .....

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e did not do the business. The receipt lies at page 25 of the paper book also speaks about the purpose in which the purpose has been written for factory. Moreover, the allotted land was in nature of industrial land in MIDC area, Turbhe, Navi Mumbai. It is not a case where new factory has been established by the assessee. The company of the assessee is old and acquired the industrial plot whose money, only property tax has been paid to the tune of ₹ 60,87,581/-. It is not necessary that aft .....

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23-9-2016 - SHRI B.R.BASKARAN, AM AND SHRI AMARJIT SINGH, JM For The Assessee : Shri K. Shivram For The Department : Shri Ganesh Bare ORDER PER AMARJIT SINGH, JM: The revenue as well as assessee filed the above mentioned appeals against the different orders passed by the Commissioner of Income Tax (Appeal) 24 & 21 Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y.2003-04, 2004-05 & 2009-10. These appeals are being taken up together for adjudication being the parties are .....

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ing total income to the tune of ₹ 2,27,72,31,850/- on 28.11.2003. The case was processed u/s.143(1) of the Income Tax Act, 1961 ( in short the Act ). The refund was due and allowed to the assessee, thereafter the notices u/s. 143(2) of the Act were issued on 13.04.2004 and 07.12.2005. Subsequently, notice u/s.142(1) of the Act dated 12.12.2005 was issued and served upon the assessee. The assessee was in the business of manufacturing and trading in paints etc. Thereafter, the assessment was .....

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and disallowed an amount of ₹ 25,94,034/- being unadjusted balance in employees Account written off during the year under prior period expenditure. Therefore, the assessee has filed the present appeal before us. 4. We have heard the arguments advanced by the learned representative of the parties and perused the record. The assessee has raised the sole issue on account of non allowance of deduction on written off unadjusted balance in employees account of ₹ 25,94,034/- but at the tim .....

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interest free loan given to wholly owned subsidiaries. The CIT(A) failed to appreciate that the Hon ble Supreme Court in Addl. CIT Vs. Tulip Star Hotels Ltd. [CC 7138-7140/2012] dated 30.04.2012 has granted special leave to Appeal stating that the decision in S.A.Builders Ltd. Vs. CIT reported in [288 ITR 1] needs reconsideration. 2. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. 7. Since this appeal relates to t .....

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rusal of submissions of the assessee reveals that all the loans were given in earlier years by the assessee to its subsidiary companies for business purposes, assessee had interest free funds in those years and assessee had a substantial business connection with all the three subsidiary companies. Fact of individual loans are discussed in following paragraphs. 3.2.2 Assessee had given loan of ₹ 5,80,30,000/- to its subsidiary Pentasia Investments Ltd. for investing in Pentasia Chemicals Lt .....

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Thus, primary purpose for advancing an interest free loan to Pentasia Investmnets LTd. was for investing in a company manufacturing an important and vital ingredient / chemical used in the manufacture of paints which is the main business of the assessee, and but for the company law requirements assessee would have directly invested in the company. Moreover, if the assessee had not received supply of this vital chemical from Pentasia Chemicals, it would not have been able to manufacture paints a .....

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rest free loan of ₹ 5,89,30,000/- given by the assessee to Pentasia Investments Ltd. was for business purposes. 3.2.3 Assessee had given interest free loan of ₹ 6,00,00,000/- to its subsidiary Asian Paints Industrial Coatings Ltd. which is also engaged in the business of manufacturing power coatings similar to assessee s business and assessee was also doing processing work for APIC Ltd. Assessing Officer has also deleted the disallowance of interest in respect of interest free loans .....

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ssessee charged interest upto 10.09.2001, the date when TIMI Ltd. became its subsidiary to meet with the requirements of RBI regulations and when TIMI Ltd. became its subsidiary it stopped charging interest. TIMI Ltd. owned the office building where corporate office of assessee is located and assessee had taken it on rental basis. TIMI Ltd. was merged with assessee company with effect from 01.04.2009 as per orders of Mumbai High Court. Assessing Officer has also deleted the disallowance of inter .....

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the assessee to its subsidiaries for business purpose since it had substantial interest in these companies. Therefore, I am of the opinion that disallowance of interest of ₹ 2,62,74,000/- in respect of three interest free loans is not justified and deleted. In this connection, reliance is also placed on the decisions cited by the assessee in its letter dated 07.11.2012. 1) CIT Vs. Radico Khaitan Ltd. (2004) 274 ITR 354 (Allahabad High Court) 2) ORG Informatics Ltd. Vs. Asstt. CIT (2011- TI .....

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in manufacture of paints. The Pentasia Investments Ltd. and Technical Instruments Mfg. Co. Ltd. and Asian Paints Industrial Coatings Ltd. subsidiary company and assessee company was merged vide Mumbai High Court order dated 27.10.2003. Subsidiary company and assessee company was merged vide Mumbai High Court order dated 27.10.2003. So far as the company of Pentasia Investments Ltd. is concerned the disallowance of interest in respect of loan to Pantasia Investments Ltd. for A.Y.2000-01, 2001-02 .....

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The CIT(A) was of the view that the Assessing Officer has wrongly declined the interest on the interest free loan to APIC Ltd. for the A.Y.2001-02, 2002-03 and 2005-06 because the said loan was for the business purpose. Similarly the assessee company advanced interest free loan of ₹ 100,02,00,000/- to TIMI Ltd. so as to enable it to liquidate loans it had taken from its old shareholders. M/s. TIMI Ltd. was the owner of assessee s corporate office and assessee had taken the office on rent. .....

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and Supreme Court in the case of S.A.Builders Ltd. V/s. CIT-288/ITR/1 and [2015] 379 ITR 347 (SC) in case titled as Hero Cycles P. Ltd. Vs. Commissioner of Income Tax. No distinguishable facts have been placed on record. The assessee company had given loan to its subsidiary company without interest for business purpose. Therefore, the learned CIT(A) has rightly deleted the disallowance on notional interest to the tune of ₹ 2,62,74,000/- in accordance with law by duly relying upon the law s .....

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ned subsidiaries. The CIT(A) failed to appreciate that the Hon ble Supreme Court in Addl. CIT Vs. Tulip Star Hotels Ltd. [CC 7138-7140/2012] dated 30.04.2012 has granted special leave to Appeal stating that the decision in S.A.Builders Ltd. Vs. CIT reported in [288 ITR 1] needs reconsideration. 2. The appellant prays that the order of the ld. CIT(A) on the above ground be set aside and that of the Assessing Officer restored. The facts of the case are the same as mentioned above while deciding th .....

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inst the revenue in view of the terms as decided above while deciding the appeal of the revenue for the A.Y.2003-04. Accordingly this issue is decided in favour of the assessee against the revenue. ITA NO.3825/MUM/2012 (A.Y.2009-10):- 13. The assessee has raised the following grounds:- 1. The learned Commissioner of Income Tax (Appeals)-21 ( CIT (A) ) Mumbai erred in confirming the disallowance of ₹ 60,87,581/- being expenditure incurred on account of property tax paid for the land. As the .....

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imed the expenditure pertaining to the property tax for land at Turbhe. The Assessing Officer was of the view that the business activity was not their therefore the expenses to the tune of ₹ 60,87,581/- is not liable to be allowed hence declined the same. CIT(A) has confirmed the order of the Assessing Officer, therefore the assessee has filed the present appeal before us. 15. We have heard the arguments advanced by the learned representative of the parties and perused the record. The sole .....

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property for the purpose of the company. It is argued that the assessee acquired the lease hold rights of industrial land in MIDC area in Turbhe (Navi Mumbai) in A.Y.2008-09 and the said rights were assigned to Asian Paints Ltd. in A.Y.2009-10. It is argued that the permission letter from MIDC requiring Asian Paints Ltd. to established R & D Centre. No doubt in the relevant assessment year no construction of any kind was shown but the property tax was paid in the relevant assessment year. O .....

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CIT (1954) 26 ITR 151 (Bom.) and CIT Vs. Saurashtra Cement and Chemical Industries Ltd. (1973) 91 ITR 170 (Guj.) 16. On the other hand learned representative of the department has strongly relied upon the finding of the CIT(A) in question. It is not in dispute that the assessee company was incorporated on 29.12.1955 and in this regard the certification of incorporation is on record lies at page 69 of the paper book. The Memorandum of Understanding (MOU) is also on record which lies at page 66 t .....

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ty for the business purpose. The important documents has been filed by the assessee company which lies at page 25 of the paper book in which the lesser MIDC has leased out the land to the lessee M/s. Asian Paints Ltd. and in view of the said receipt the assessee paid an amount of ₹ 60,87,581/- and assessee paid property tax to the tune of ₹ 60,87,581/- during the relevant assessment year which has been declined on the ground of that the assessee did not do the business. The receipt l .....

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