TMI Blog2017 (1) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved only requires factual verification from the bank statement and the loan account of the assessee as to whether out of total settlement of dues made by the assessee, whether the interest component had been duly paid or not. Based on this factual verification, the ld AO is directed to decide the issue in accordance with law. Disallowance of interest - Held that:- It is not in dispute that the entire details of amount of interest free funds paid to three companies were duly filed before the ld AO by the assessee. The ld CITA had given a categorical finding that no part of the borrowed funds were utilized for advancing interest free funds by the assessee. This fact has not been controverted by the revenue before us. Hence the primary test for disallowance of interest that borrowed funds have been diverted for non business purposes fails.It is well settled that when there are mixed funds (i.e both borrowed as well as own funds) and when the own funds are several times more than the borrowed funds and interest free advances, then it should be presumed that the interest free funds were advanced by the assessee from its own funds. Reliance in this regard placed by the ld AR on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is a delay of 430 days in filing the appeal before us by the revenue which is supported with condonation petition along with an affidavit. In view of the concession given by the ld AR for condonation of delay, we hereby condone the delay and admit the appeal of the revenue for adjudication. 3. The first issue to be decided in the appeal of the revenue is as to whether the ld CITA is justified in treating the loss of ₹ 85,84,968/- as business loss as against the speculation loss treated by the ld AO in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assessee is a Public Limited Company having income from Satellite TV Channel and Investment Banking. The ld AO observed that assessee company had declared gross loss from trading in shares amounting to ₹ 85,84,968/- which was sought to be treated as deemed speculation loss due to the fact that the income of the assessee mainly consists of the following:- Share trading loss - ₹ 85,84,968/- (Business Loss) Advertisement Receipt - ₹ 26,73,408/- (Business Income) All Time Charges - ₹ 31,14,037/- (Business Income) FTD Receipt - ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the assessee, sought to treat the loss from trading of shares of ₹ 85,84,968/- as speculation loss in the assessment. 3.2. The ld CITA deleted the disallowance by stating that the provisions of Explanation to Section 73 of the Act were brought in the statute book only to curb the devices resorted by the assessees to reduce the taxable income by manipulating with the shares of companies under their control. He observed that this was fully explained in the CBDT Circular No.204 dated 24.7.1976 which is binding on the tax authorities. Aggrieved, the revenue is in appeal before us on the following ground:- 1. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in directing to treat the speculation loss of ₹ 85,84,968/- as business loss on the basis of CBDT s Circular No.204 dated 24.07.1976 when the said Circular is not squarely applicable in the present case. 3.3. The ld AR at the outset argued that this appeal of the revenue is to be dismissed due to low tax effect as according to him, the ld AO had merely shifted the loss from trading in shares from business loss to speculation loss without disturbing the figures thereon. He al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Investments held as Stock in Trade were to the extent of ₹ 21.58 crores. Hence on fund deployment criteria, it could be concluded that the assessee is engaged in the Principal Business of Trading in Shares as more than 50% of the capital is invested in shares. He argued that the amendment brought to this effect in Explanation to Section 73 of the Act w.e.f. 1.4.2015 has been held to be retrospective in operation by the following decisions of the co-ordinate benches of various tribunals :- (a) Kolkata Tribunal in the case of DCIT vs Raima Equities Pvt Ltd in ITA No. 1994/Kol/2013 dated 11.8.2016 (b) Ahmedabad Tribunal in the case of ITO vs Union India Ltd in ITA No. 1240/Ahd/2012 dated 22.6.2016 (c) Mumbai Tribunal in the case of Fiduciary Shares Stock P Ltd vs ACIT in ITA No. 321/Mum/2013 dated 13.5.2016 By placing reliance on the aforesaid decisions, he pleaded that the loss from trading in shares would fall under the exception provided in Explanation to Section 73 of the Act and hence the same need not be treated as Speculation Loss. 3.7. We have heard the rival submissions. We hold that it is not in dispute that the principal business of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that though this amendment is made effective only from Asst Year 2015-16 onwards, the real intention behind introduction of this amendment, in our opinion, is curative in nature. In our considered opinion, the amendment, if not held retrospective, would result in hardship to the assessee in the following manner:- (a) The assessee engaged in trading of shares would be treated as speculation business upto Asst Year 2014-15. That assessee might be having losses eligible to be carried forward under the head speculation business . (b) The provisions of section 73 of the Act provides that the brought forward speculation loss could be set off only against speculation profits. (c) Pursuant to the amendment by Finance Act 2014 supra, the loss derived from the principal business of trading in shares would not be construed as speculative in nature. The logical corollary is profit derived thereon also would be treated only as normal business profits and not speculative profits. (d) In this situation, the brought forward speculation loss could never be eligible to set off against the profits when there is absolutely no change in the business activities of the assessee (i.e tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee furnished documentary evidences such as copies of proposal dated 13.9.2003, ledger account of the bank together with the bank statement thereon. The ld AO however was not satisfied with the explanation given and disallowed the sum of ₹ 7,25,444/- u/s 43B of the Act for want of relevant interest certificate from the bank to justify the payment made by the assessee. Before the ld CITA, the assessee reiterated the submissions and furnished the same evidences and argued that if the ld AO had any apprehension or doubt about the documents submitted before him, he ought to have made necessary enquiries directly from the bank u/s 133(6) or 131 of the Act and assessee cannot be denied the benefit of deduction when the interest component has been duly paid to the bank. The ld CITA convinced with the arguments of the assessee deleted the disallowance made thereon u/s 43B of the Act. Aggrieved, the revenue is in appeal before us on the following ground:- 2. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in deleting the addition of ₹ 7,25,444/- u/s. 43B when assessee failed to prove that the amount was actually paid within the time allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng fund was utilized for providing interest free loans or advances and accordingly the interest paid on borrowed capital amounting to ₹ 14,05,745/- need not be disallowed. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in deleting the addition of ₹ 14,05,745/- being interest on borrowed capital which was utilized for interest free loans and advances to different parties including relatable parties when assessee did not discharge its onus to show that interest bearing loans were utilized for purposes other than giving interest free loans and advances. 5.2. The ld DR argued that the assessee did not prove the business expediency of advancing interest free funds to three companies and hence vehemently relied on the order of the ld AO. In response to this, the ld AR argued that the advances made to three companies were purely related to the business of the assessee as they were also involved in the same line of business in which assessee was engaged and hence the business nexus / expediency has been proved beyond doubt. From the perusal of the balance sheet, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of delay, we hereby condone the delay and admit the appeal of the revenue for adjudication. 8. The only issue to be decided in this appeal of the revenue is as to whether the ld CITA is justified in deleting the disallowance of depreciation of ₹ 15,05,244/- related to transferred assets and addition of ₹ 1,28,23,581/- on account of business profit in the facts and circumstances of the case. 8.1. The brief facts of this issue is that the ld AO observed that during the previous year relevant to assessment year 2004-05 the assessee had transferred the tangible and intangible assets and liabilities of the business in the name of Ahimsaa Channel to its subsidiary company in the name of M/s. Ahimsaa Global Media Ltd. in terms of the agreement dated 20.03.2004 at a consideration of ₹ 195 lakh and the consideration was received by the assessee in the form of 39,00,000/- fully paid shares of the said subsidiary company @ ₹ 5/- per share. The Ahimsaa Channel had been launched by the assessee in the FY. 2003- 04 and the same was disposed off by the assessee in the financial year 2003-04 to the said subsidiary company. The following assets belonging to Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to its subsidiary Ahimsaa Global Media Limited on 20.3.2004 for consideration of ₹ 1,95,00,000/- by way of allotment of 39 lacs fully paid equity shares of ₹ 5 each of Ahimsaa Global Media Limited. It was reiterated that the consideration by way of transfer of channel received by way of allotment of equity shares was exactly the cost of fixed assets purchased by assessee on or after 1.4.2003 and also the expenses incurred as per preoperative expenses for launching the channel. All these facts were directly verifiable from the annual report of the assessee which was filed before the ld CITA as well as before the ld AO. It was argued that the total movable fixed assets worth ₹ 60,56,419/- were not debited to profit and loss account by the assessee but were capitalized in the books of accounts. Similarly the preoperative expenses of ₹ 1,28,23,581/- incurred by the assessee for various expenses in respect of launching Ahimsaa Channel till the date of launch and preliminary expenses of ₹ 6,20,000/- were capital in nature and were added to the cost of channel along with other fixed assets. It was reiterated that since the fixed assets were purchased du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis as per rates prescribed under Schedule XIV of the Companies Act, 1956 except on Office Premises, Wind Power Project, assets of Ahimsaa Global Media Limited in Ahimsaa Channel where depreciation has not been charged. We are thoroughly convinced from the facts narrated above that there was no surplus that was derived in any manner whatsoever by the assessee warranting chargeability to tax. In any case, we are in complete agreement with the arguments of the ld AR that the transfer of assets by holding to subsidiary company would fall under the exemption clause provided in section 47(iv) of the Act and hence the same, in any event, would not be regarded as transfer within the meaning of section 2(47) of the Act. We find from the facts narrated above, the assessee had only added the fixed assets pertaining to Ahimsaa Channel during the year under appeal including the capitalization of preoperative and preliminary expense relating to the channel and transferred the same at book values / cost to its subsidiary company. There is no profit element derived from it. Hence we hold that there is no case for making any addition towards excess depreciation or profit derived from exces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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