TMI Blog2019 (1) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... part of borrowed funds for non-business purposes; nor was it prudent to make pre-payment of loan repayments even if the assessee had its own interest free funds. In these specific and peculiar facts and circumstances, there is no case for any disallowance of interest u/s 36(1)(iii) of I.T. Act. Disallowance of interest U/s 36(1)(iii) on merits. Accordingly, both the appeals filed by the Revenue are dismissed. - ITA Nos.:- 3869 & 3870/Del/2014, C.O. No.-128/Del/2017 - - - Dated:- 21-12-2018 - Shri Amit Shukla, Judicial Member And Shri Anadee Nath Misshra, Accountant Member For the Assessee : Sh. Manoneet Dalal, Adv. Sh. Ankit Goyal, CA For the Revenue : Sh. Surender Pal, Sr. DR ORDER PER: ANADEE NATH MISSHRA, AM ITA No. 3869/Del/2014 by Revenue is directed against the order of Learned Commissioner of Income Tax (Appeals)-XVII, Delhi (for short hereinafter referred to as the Ld. CIT(A) ) dated 09.04.2014 for Assessment Year 2007-08, on the following grounds of appeal: - ITA No.-3869/Del/2014 i. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 6,45,21,521/- u/s 36 (1) (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, alter, amend or modify any ground on or before the time of hearing. (1.3) In this order, the following abbreviations have been used: a. Assessing Officer as AO b. Assessment Year as A.Y. c. Commissioner of Income Tax (Appeals) as CIT(A) d. Departmental Representative as DR e. Dated as dtd. f. Income Tax Act, 1961 as I.T. Act,1961 g. Income Tax Appellate Tribunal as ITAT h. Learned as Ld. i. Read with as r/w j. Under Section as U/s (1.4) For the sake of convenience, we hereby dispose off the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, we do not have to give a final decision as to whether there is suppression of material fuels by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficient or correctness of the material is not a thing to he considered at this stage. We are of the view that the court cannot strike down the reopening of the-case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs. 5.3 The issue was again examined by the apex court in the case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161 TAXMAN 316 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under section 148 read with section 147(q). But under the substituted section 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. 18. So long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued . 5.4 The Hon'ble Courts in the judgments mentioned above have clearly held that formation of belief by the AO is within the realm of subjective satisfaction and it is not necessary for the AO to conclusively prove the escapement of income before initiating proceedings u/s 147. Therefore, it is held that the AO had reasons to believe that income had escapement assessment and he was within his competence to invoke the powers contained in section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionary meaning has to be looked up. The meaning of the word 'borrow' as given in the Shorter Oxford Dictionary is to take (a thing) on security given for its safe return. Since borrowing implies a consensual act by a debtors receiving money from a creditor, it would not cover a case of any and every liability. Borrowing money and payment or interest is a mere commercial transaction. Where the appellant, a public limited company, carrying on the business in manufacture of sugar, owning about 2000 acres of land on which it grew sugarcane, borrowed a certain sum which was credited to the agricultural section of the appellant, it was held that the interest payable on the borrowings credited to the agricultural section was an admissible deduction. The borrowing must be a genuine borrowing and not a bogus one. The borrowing may be on a permanent footing such as by way of debenture loan or a spasmodic one such as from year to year, or for short term such as by way of overdrafts from banks, or loans from time to time. 6.7 The amount should be borrowed for the purposes of the business. The moneys should be borrowed by the appellant for purposes of the appellant's bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant is not incurring any such expenditure which is not a business expenditure. All expenditure has been incurred for the purpose of business. The appellant had borrowed funds which was for business purposes and was paying interest on these funds. In view thereof, the addition of ₹ 6,45,21,521/- is deleted. The ground of appeal is ruled in favour of the appellant. (1.4.1) Against the aforesaid order of Ld. CIT(A), the Revenue is in appeal before us, vide aforesaid ITA No. 3869/Del/2014 for A.Y. 2007-08 and the assessee has filed Cross Objection vide C.O. No. 128/Del/2017 for A.Y. 2007-08. (1.5) The Assessment Order U/s 143(3) of I.T. Act for A.Y. 2010-11 was passed on 27/12/2012, in which inter alia, an addition of ₹ 15,41,80,533/- was made towards disallowance on account of interest U/s 36(1)(iii) of I.T. Act. Aggrieved, the Assessee filed an appeal before Ld. CIT(A), who, vide impugned order dated 09/04/2014, deleted the addition made by the AO, on account of the aforesaid disallowance of ₹ 15,41,80,533/- U/s 36 (1)(iii) of I. T. Act. The Revenue is in appeal against the aforesaid order dated 09/04/2014 of Ld. CIT(A) vide ITA No. 3870/Del/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be looked up. The meaning of the word 'borrow' as given in the Shorter Oxford Dictionary is to take (a thing) on security given for its safe return. Since borrowing implies a consensual act by a debtors receiving money from a creditor, it would not cover a case of any and every liability. Borrowing money and payment or interest is a mere commercial transaction. Where the appellant, a public limited company, carrying on the business in manufacture of sugar, owning about 2000 acres of land on which it grew sugarcane, borrowed a certain sum which was credited to the agricultural section of the appellant, it was held that the interest payable on the borrowings credited to the agricultural section was an admissible deduction. The borrowing must be a genuine borrowing and not a bogus one. The borrowing may be on a permanent footing such as by way of debenture loan or a spasmodic one such as from year to year, or for short term such as by way of overdrafts from banks, or loans from time to time. 7.7 The amount should be borrowed for the purposes of the business. The moneys should be borrowed by the appellant for purposes of the appellant's business. Further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurring any such expenditure which is not a business expenditure. All expenditure has been incurred for the purpose of business. The appellant had borrowed funds which was for business purposes and was paying interest on these funds. In view thereof, the addition of ₹ 15,41,80,533/- is deleted. The ground of appeal is ruled in favour of the appellant. (1.5.1) Against the aforesaid order of Ld. CIT(A), Revenue is in appeal before us vide ITA No. 3870/Del/2014. (1.6) During appellate proceedings, the Assessee filed Paper Books containing the following particulars: 1. Copy of assessment order passed under section 143(3) of the Act dated 10th December, 2009 passed by the Ld. ACIT, Circle 14 (1) for AY 2007- 08. Copy of the notice issues under section 148 dated 30th March, 2012 of the Act. 2. Copy of the reply filed against the notice issued under section 148 of the Act and requesting for reasons to believe dated 16 April, 2012. 3. Copy of reasons recorded by Ld. Deputy Commissioner of Income-tax, Circle 14(1) dated 27th March, 2012. 4. Copy of letter of objection dated 12th September, 2012 filed against reopening of assessment U/s 147 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans by the assessee. Further, at the time of hearing before us, with the help of materials available on record, including the Paper Books; the Ld. Counsel for Assessee contended that the company had used the borrowed funds for the purposes of business only. The borrowed funds were used by the Assessee for investment in fixed assets which was entirely for the purposes of business, the Ld. Counsel contended. He further contended that investments in mutual funds started only after the assessee company had started earning operating income from the business of transmission of electricity; and till that time, investments in mutual funds had not even started. The Ld. Counsel further contended, taking us through materials on record, including the Paper Books, that the assessee always had sufficient interest free funds of its own, adequate for making investments in mutual funds; and at no point of time investments in mutual funds exceeded the assessee s own interest free funds. The Ld. Counsel for assessee further contended, with the help of the following judicial precedents, that in the facts and circumstances of the assessee, in any case, there is presumption that investments were m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the judicial precedents on which the Ld. Counsel for assessee relied or on which the Ld. CIT(A) deleted the addition made by the AO on account of disallowance of interest U/s 36(1)(iii) of I.T. Act. However, he relied on the Assessment Orders for A.Y. 2007-08 and A.Y. 2010-11, passed by the AO. (4) We have heard both sides patiently and we have perused the materials on record, including the paper book, synopsis etc. filed in the course of appellate proceedings in ITAT, carefully. We have also considered the judicial precedents referred to in the record and also the precedents brought to our attention, at the time of hearing before us. (4.1) The common issue involved in both the appeals filed by Revenue is regarding disallowance of interest U/s 36(1)(iii) of I.T. Act. As mentioned earlier, the Ld. DR did not dispute the facts contended by the Ld. Counsel for assessee. The relevant facts are not in dispute. It is not in dispute that the investments in mutual funds had not started till the time, the assessee started earning operating income from transmission of electricity. It is also not in dispute that the borrowed funds were entirely used by the assessee for invest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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