TMI Blog2017 (6) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of account followed by the assessee. In so far as assessee has offered this interest income in the A.Y.2011-12 on the plea that it was actually received in the A.Y. 2011-12, we direct the AO to reduce the same in the A.Y.2011-12, otherwise it will amount to double taxation of the same income. We direct accordingly. Disallowance of interest u/s. 36(i)(iii) - investment in the shares of subsidiary companies - Held that:- As per the audited balance sheet placed on record the assessee was having own funds of ₹ 600.02 crores as on 31.3.2009, whereas the investments were to the tune of ₹ 44.95 crores. There was also increase in capital reserve and surplus from ₹ 496.30 crores to ₹ 600 crores as on 31.3.2009. Thus, it is clear that the assessee was having sufficient own funds for investment in subsidiary which was also for the purpose of business. In view of the decision of SA Builders [2006 (12) TMI 82 - SUPREME COURT] since there was business expediency, investment in subsidiary is to be treated for the purpose of business. Accordingly, we do not find any justification for the disallowance of interest u/s. 36(1)(iii) of the Act. Disallowance u/s.14A rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vited to the order of the Tribunal in case of Birla Sunlife Asset Management Company Ltd., in ITA No.5457/Mum/2013 dated 30/06/2015 wherein under similar facts and circumstances, matter was restored back to the file of the AO. 7. We had carefully gone through the order of the Tribunal in case of Birla Sunlife Asset Management Company Ltd., (Supra) wherein matter was restored back by the Tribunal to the AO after having the following observation:- 9. In view of the observations of the Hon ble Supreme Court, in our view, it will be proper to dispose of this appeal in the light of the order of the Hon ble Supreme Court dated 08.05.2009 passed in the case of CIT vs. Exide Industries Ltd. (supra). We therefore dispose of the present appeal with a direction that the assessee will pay the tax as if section 43B(f) is on the statute book, however, till the decision of the Hon ble Supreme Court in the case of CIT vs. Exide Industries Ltd. (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon ble Supreme Court in the case of Exide Industries Ltd. It would be open to the Department to recover the outstanding intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act which is not applicable to the interest payment so made by assessee. 12. As per learned AR, on perusal of the said provisions, it is evident that what is disallowable is 'any sum paid on account of any rate or tax levied on profits or gains of any business or profession'. It is submitted that as per the said provisions, income tax payable by assessee or interest on income tax payable by assessee i.e. personal income tax is not allowable as deduction. It is submitted that TDS is not personal tax rather it is a tax on the third person which would not be covered u/s 40(a)(ii). Similarly interest paid on TDS is not 'on account of 'any personal tax and hence the same would not be hit by the provisions of S. 40(a)(ii) of the Act. 13. It was also submitted that it is not the case of the Assessing Officer that interest paid is not an expenditure u/s 37 of the Act. It is submitted that the Assessing Officer has equated the interest on TDS with interest levied u/s 234A, 234B and 234C of the Act and has concluded that the same is not allowable u/s 40(a)(ii) of the Act which is erroneous. 14. It was further submitted that interest on late payment of TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of TDS made by assessee. In the present case, TDS has been deducted correctly but the same was not deposited in time with the Government on which the assessee paid interest. The said interest is a business expenditure and not hit by provisions of S. 40(a)(ii) for reasons stated above. 18. It was further submitted that the interest paid on TDS is compensatory in nature and hence would not be hit by Explanation to S. 37(1) of the Act. In view of the above, it is submitted that interest on TDS is allowable us/ 37 of the Act and is not hit by provision of S. 40(a)(ii) of the Act. 19. We have considered rival contentions and gone through the orders of the authorities below. In this case, AO has disallowed interest paid on delayed payment of TDS by invoking provision of Section 40(a)(ii). So far as nature of payment is concerned, we are in agreement with learned AR that this interest is not on the personal tax but is attributable to the tax which, the assessee has deducted in respect of payment made to others. Disallowance u/s.40(a)(ii) is in respect of any rate or tax levied on profit or gains of any business or profession. However, said payment of interest on the delayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the above investments were made as an extension of existing business which were purely on account of commercial expediency. 28. However, the Assessing Officer has held that borrowed funds were used for the above investments in subsidiary and hence, he disallowed the interest on borrowed funds u/s 36(1)(iii) of the Act. 29. We have considered rival contentions. From the record, we found that during the course of assessment the assessee, vide letter dated 22.03.2013 has furnished copies of Bank statement from Dena Bank from which the funds corresponding to the investment in aforesaid equity shares have been made by the assessee. The relevant details are extracted herein below for better understanding of the issue: S.No. Entry Date Posting Date Amount (Rs.) Text Bank 1 10.03.2009 01.03.2009 15,00,000 AS PER DR BOI-MUM-CC- 16030110000019-Deposit 2 06.04.2009 01.03.2009 4,50,00,000 BEING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only if the borrowed capital was used for the purpose of business or profession. The above analysis proves beyond doubt that these transactions are not assessee's genuine business transactions. Since, the interest has been paid on the borrowed capital which was utilized towards investments in equity shares of EOSSL is not allowable u/s.36(1)(iii) of the Act. 32. The AO further observed that since the assessee has claimed interest expense u/s.36(1)(iii), therefore, the onus is on the assessee to prove that the entire borrowed funds were used for the purpose of business and retained in the business during the relevant year. 33. The AO further observed that if the assessee had not made investment in EOSSL, the need to borrow money would have been alleviated. Since the assessee has not furnished any evidence or fund flow statement to prove that the monies advanced to its subsidiaries is not made out of borrowed funds the contention of the assessee is not acceptable as it is for the assessee to submit the direct nexus to prove that investments in shares of EOSSL is made out of its own funds, and also the utilization of the borrowed funds which the assessee failed to prove. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested in EOSL purely to manage the specialised nature of marine construction business' and hence, the investment made by the assessee is pure on account of commercial expediency. It is reiterated that the assessee was also able to earn income from sub-contract given by EOSL which further strengthens the stand of the assessee that the said investment were for business purpose. It was further submitted that the assessee has sufficient own funds to cover up the investments in subsidiary. The own funds available with the assessee as per the balance sheet as on 31.03.2009 are ₹ 600.02 crores whereas the investments are ₹ 44.95 crores. 39. Reliance was placed on the decision of Hon'ble Bombay High court in the case of Reliance utilities (313 ITR 340) wherein it was held that, in case of mixed funds, if own funds are sufficient to cover up the value of investments it has to be presumed that the own funds have been utilised for the purpose of investments and hence, no interest disallowance is required to be made u/s 36(1)(iii) under the Act. 40. It was further submitted that the assessee has used the overdraft account for making investment in subsidiary. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved for addition made on the basis of mismatch of AIR information with the assessee s books of accounts. 47. We have considered rival contentions and found that AO has downloaded AIR data of TDS and after matching it with assessee s investment, asked the assessee to reconcile the same with its books of accounts. The assessee filed details of reconciliation of AIR information vide letter dated 08/03/2013. On doing a party-wise reconciliation, AO found that the following receipts aggregating to ₹ 4,99,58,097/- are not recorded in the books of the assessee. Name of the Party As per AIR As per Books Difference Remarks State Bank of Hyderabad 11,91,043 0 11,91,043 Accounted in A.Y.2010-11 Essar Holdings Ltd., 4,44,05,195 0 4,44,05,195 Accounted in A.Y.2010-11 Hindustan Construction Co. 43,61,859 0 43,61,859 Not pertains to assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of AIR Information/data with Books of Accounts. 50. The DRP has also rejected assessee s contention by having its observation at para 23.2 of its order. However, nothing was placed before us by learned AR so as to persuade as to deviate from the findings and conclusion of the lower authorities, except the sum of ₹ 43,61,859/-. It appears that AO has inadvertently again added the same in assessee s income. Since the amount has been deleted by DRP, we direct the AO to delete the sum of ₹ 43,61,859/-. 51. It was also contention of learned AR that balance amount has been offered to income in the A.Y.2010-11. In the interest of justice, we direct the AO to verify the income offered by the assessee in the A.Y.2010-11 and if the AO found that same income has been offered by the assessee in the A.Y.2010-11, the same should be excluded from the income of A.Y.2010-11. We direct accordingly. 52. Grounds raised in the A.Y. 2010-11 are also same as discussed in the A.Y.2009-10, accordingly, following the same reasoning, we direct the AO to decide in terms of directions given hereinabove. 53. In the result, appeals are allowed in part in terms indicated hereinabove. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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