9911796707
TMI Blog2017 (12) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... alled "the tribunal") read as under:- "1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai has erred in deleting addition of Rs. 1,59,66,007/- made on account of section 36(1)(iii} of the I.T. Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai failed to appreciate the fact that the cost of advancing moneys have been very low i.e. 1.40% whereas the percentage of interest paid out is as high as 22.75%. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai erred in deleting the addition of Rs. 28,61,468/- made on account of section 41(1) of the I.T. Act, 1961. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai failed to bring out any new facts on record and simply deleted the addition 5. The appellant prays that the order of CIT(Appeals) on the above grounds be set aside and that of the Assessing Officer restored. 6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Section 36(1)(iii) as on the one hand the assessee has borrowed funds by way of loans on which heavy interest is paid and on the other hand , the amounts are advanced to subsidiaries and as well grant of ICD , majority of which have become doubtful. The AO observed that loans were incurred by the assessee not for the purposes of business but for the benefit of someone else and hence interest on such loans cannot be claimed u/s 36(1)(iii). It was observed that loan contracted by the assessee are colourable device to reduce tax liability. It was also observed by the AO that out of loans and advances of Rs. 6.51 crores , the assessee has advanced Rs. 1.60 crores to subsidiary on which interest of only Rs. 9.18 lacs has been recovered which is approx. @ 5.7% . It was also observed that various ICD's are not providing any benefit to the assessee. The A.O observed that before allowability of interest expenses u/s. 36(1)(iii), the assessee has to prove that money was borrowed by the assessee for the purposes of its own business on which interest has been paid. The A.O relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Calcutta Agency Ltd. (1951) 19 ITR 191(SC) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch reflected Rs. 1,60,89,336/- as loans to subsidiaries while ICD including interest accrued thereon were to the tune of Rs. 5,68,50,000/- and balance amount was towards trade advances, deposits, taxes paid , accrued interest on fixed deposits . It was submitted that on the amount advanced/loaned to subsidiaries , the assessee has recovered interest @8% per annum on reducing balance. It was submitted that only the amount of loan and advances to subsidiaries to have been considered by the AO as the others are trade advances, deposits, taxes accrued etc. . Without prejudice , it was submitted that out of total fund , USD 550000 had been advanced to Crest Communication , Singapore out of assessee own funds during F.Y. 2000-01 , out of which USD 394161 was converted to equity during F.Y. 2001-02 . It was submitted that these monies were from assessee's own funds and therefore no disallowance of interest can be made to this extent. It was also claimed that the amount of disallowance be restricted based on difference of interest between actual maximum rate of interest on borrowed funds i.e. 12.25% and the interest charged at 8% from the subsidiaries. The learned CIT(A) after considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries are held to be for purpose of business and commercial expediency. It is further held that amounts pertaining to advances recoverable in cash or in kind, sundry deposits, taxes paid, interest accrued on fixed deposits with banks cannot be considered for disallowance of interest as this disallowance had not been discussed by AO, neither substantiated nor established to be based on facts." And so far as Inter Corporate deposit of Rs. 56,850,000/- is concerned , the learned CIT(A) observed that the assessee has not established this advances as being for purpose of business or commercial expediency . It was also not established by the assessee that this ICD was out of its own funds or non interest bearing funds. Thus it was held by learned CIT(A) that interest bearing funds of assessee have been diverted towards this inter corporate deposit from which no interest was received or accrued during the impugned period. The learned CIT(A) upheld the disallowance @ 12.25% w.r.t. borrowings on OD account . With respect to the invocation of provisions of Section 41(1) for cessation of liabilities of the creditors , the assessee had submitted that no opportunity was provided to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year. Further in view of the pending litigation with Shaft Broadcast, there is no evidence of this liability having been ceased or remitted. The addition u/s. 41(1) by tile AO is, therefore, deleted in entirety." 7. Aggrieved by the appellate orders dated 19-05-2010 passed by learned CIT(A), both the Assessee and Revenue have come in appeal before the tribunal . None appeared on behalf of the assessee despite several notices issued to the assessee. . Ld. DR has vehemently argued for upholding orders of the A.O. . With respect to the relief given by the Ld. CIT(A), it was submitted that interest bearing funds were raised to the tune of Rs. 7.11 crore at the cost of the 22.75% , while with respect to the advances given interest received was only Rs. 9.18 lacs which were given in the form of loans to subsidiaries and ICD's . It was also submitted that with respect to the subsidiaries , the learned CIT(A) has given relief w.r.t. advances so made to subsidiaries while learned CIT(A) upheld the disallowance of interest in connection with ICD of Rs. 5.68 crore given to Classic Credit Limited . With respect to the additions made u/s. 41(1) in connection with cessation of liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business on which interest has been paid. The A.O relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Calcutta Agency Ltd. (1951) 19 ITR 191(SC) and that the onus is on the assessee to prove that expenses have been incurred for the purposes of business of the assessee . Thus, the AO observed that effective rate of interest paid by the assessee was 22.75% , while the effective rate of interest recovered comes to merely 1.4% , which led to be additions to the tune of Rs. 1,59,66,007/- which was held to be in contravention of Section 36(1)(iii), vide assessment order passed by the AO. The learned CIT(A) has granted partial relief w.r.t. loans to subsidiaries on which rate of interest recovered was @8% wherein additions stood deleted by learned CIT(A), while w.r.t. ICD granted by the assessee wherein no interest was recovered and business nexus was not proved, the additions stood sustained by learned CIT(A). We have observed that the assessee has raised loans to the tune of Rs. 7.11 crore on which interest of 1.61 crore have been paid . The loans raised are mainly term loans, vehicle loans, cash credit limits/packing credit limits from the banks. It is also seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
