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TMI Blog2020 (3) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... ort from the A.O. is highly arbitrary, illegal, void and uncalled for. 3. That in the facts and circumstance of the case of the appellant the order of the learned Commissioner of Income Tax (Appeals) is confirming disallowance of Rs. 56450224/- u/s 14A Read with Rule 6D in respect of investment made by the appellant company as partner in M/s Abhitex International, Panipat where investment was made for the business consideration only is altogether arbitrary, against the provisions laid under law illegal and uncalled for." ITA No. 1292/Del/2015 "1. That the order of the leaned Income Tax Officer is against law and facts. 2. That in the facts and circumstance of the case of the appellant the order of the income Commissioner of Income Tax (Appeals) in confirming disallowance of Rs. 4,28,65,241/- u/s 36(1)(iii) in respect of investment made by the appellant company as partner in M/s Abhitex International, Panipat where investment was made for the business consideration only is altogether arbitrary, against the provisions laid under law illegal and uncalled for." (B) First we take up ITA No.- 3572/Del/2014. The core issue in ITA No. 3572/Del/2014 for Assessment Year 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner of Income Tax (Appeals) in confirming disallowance of Interest of Rs. 3,63,74,505/- in respect of investment made by the appellant in M/s Abhitex International, Panipat, which was made for business consideration only, hence is altogether arbitrary, against the provisions laid under law, illegal and uncalled for." 4. Facts of the case in brief are that the assessee was engaged in the business of operation and maintenance of Industrial Park which had been built by M/s RMZ Corp Holdings Pvt. Ltd. and was acquired by the assessee in the year 2005. The assessee had been deriving income from the units located in the Industrial Park. During the year under consideration the assessee had received gross receipt of Rs. 28,59,81,773/- after including other incomes, the assessee arrived at gross total income of Rs. 6,81,02,483/- on which deduction u/s 80IA(4)(iii) of the Act amounting to Rs. 4,49,07,385/- was claimed and taxable income of Rs. 2,31,95,098/- was arrived. The assessee had filed return of income on 10.06.2008 by declaring taxable income of Rs. 2,31,95,100/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant portion of the submissions of the assessee has been reproduced by the ld. CIT(A) in para 7 at page nos. 17 to 20 of the impugned order which read as under: "7. Before me, the Ld. AR for the appellant has submitted that the action of the AO was not justified as the same was not based on proper appreciation of facts and was in violation of legal position on the issue. It was submitted that the borrowing from the bank got reduced from Rs. 136 crores as on 31.03.2006 to 124 crores as on 31.03.2007. It was further submitted that the appellant had non interest bearing funds of Rs. 34,67,15,557/- during the F. Y. 2005-06 and non interest bearing funds of Rs. 31,68,35,3577/- during F. Y. 2006-07 as under: S.No. Particulars F.Y. 2005-06 F.Y. 2006-07 1. Share Capital 45,00,000 45,00,000 2. Reserve & Surplus 6,33,13,861 6,47,722 3. Current Liabilities 27,89,01,966 31,16,87,635 TOTAL 64,67,15,557 31,68,35,357 It was submitted that besides the above non interest bearing funds, the appellant had also during F.Y 05- 06 and 06-07 the cash flow funds availability w.r.t. Depreciation of Fixed assets Rs. 12.30 Cr in A.Y. 2006-07 and Rs. 11.60 Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re contained in the copies of accounts produced. The Paidup capital of M/s. RMZ Futura(now present name as M/s. Paliwal Infrastructure) was Rs. 45 lakhs only as against which the above mentioned five persons of Paliwal Group including two companies invested the amount as stated above i.e. Rs. 86,99.85,000/- which finds place in the respective balance sheets of all the five assessees. Your honour, the paid up share value remained the same as per the balance sheet of the appellant company. (iv) That the amount was made available by M/s Paliwal Infrastructure, the appellant company to M/s. Abhitex international, Panipat was in lieu of commercial expediency only i.e. the management of the company & firm belong to same group of family members only and the investment was withdrawn at one stage from said firm only as mentioned in Para(i) above by three partners. (B) Commercial Expediency Your honour, having stated the relevant facts in brief as above and from the statement of relevant accounts it would be amply clear that at one stage amount was withdrawn for acquiring shares by three Individuals i.e. Partners of M/s. Abhitex International, Panipat which was a commercial expedien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss(which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 32. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case." In view of above it is prayed that disallowance of interest out of Bank Intt. deserves to be deleted in the facts and circumstances stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Abhitex International during the year to the extent of 12% share in profit. It contributed Rs. 45,81,77,955/- as share capital in the said firm, out of which Rs. 5,34,00,000/- were withdrawn during the year. The said contribution was made out of borrowed funds from the ABN Amro Bank. The AO disallowed the proportionate interest of Rs. 3,63,73,505/-payable to the said bank against the aforesaid borrowed funds. The AO further observed that it was a diversion of funds to the group concern without having any business purpose. (ii) The Ld. AR emphasized that it was not a case of diversion of borrowed funds but it was investment as capital in the firm M/s Abhitex International in which the appellant company was partner of share profit to the extent of 12%. He further emphasized that the said investment was made for business purpose and in the light of commercial expediency. It was also submitted that contrary to the AO's observations, the borrowing from the bank got reduced from Rs. 136 crores as on 31.03.2006 to 124 crores as on 31.03.2007. Hence, the disallowance of the interest of Rs. 3,63,73,505/- was not justified and the same is required to be deleted. (iii) On considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 12% had been held by the daughters of the Promoters of the assessee company, hence, the assessee company and the firm are under the same management. It was contended that the intention of the assessee was not to reduce incidence of Income Tax by doing so, because the profits of the Industrial Park are eligible for 100% deduction under clause (iii) of sub-section (4) of Section 80IA of the Act, whereas its associate concern's profits are fully taxable. It was further contended that even if the addition has been made it will not attract any tax incidence because the claim of deduction u/s 80IA(4)(iii) is allowable. It was stated that the assessee made the investment in M/s Abhitex International, as partner's capital for exclusively for business consideration and there was no loss of revenue from this investment to the Income Tax Department. It was further stated that if M/s Abhitex International had taken loan from the bank by not accepting capital funds from the assessee, the returned loss had been Rs. 96,28,134/- instead of returned income of Rs. 3,35,98,390/- declared by the firm as per following calculation: "Secured Loans from bank for working capital As on 31.03.2007 Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terated the observations made by the ld. CIT(A) in the impugned order. She further submitted that the assessee earned share profits of Rs. 31,24,346/- from M/s Abhitex International being partner and such profit was exempt from tax in the hands of the assessee, therefore, the AO was justified in disallowing the proportionate interest amounting to Rs. 3,63,73,505/- which was an expenditure for the earning of exempted income and that the AO did not mention the provisions of Section 14A of the Act yet, the provisions of said Section were clearly applicable as has been held by the ld. CIT(A). 14. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the assessee had entered as a partner in M/s Abhitex International, Panipat w.e.f. 01.04.2006 having 12% share in profit and contributed Rs. 45,81,77,955/- as share capital in the said firm out of which 5,34,00,000/- was withdrawn during the year under consideration. The assessee made the investment in lieu of commercial expediency i.e. to manage the firm belonging to the same group to which the assessee belonged. In the instant case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Under Section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colourable device. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits." It has been further been held: "That if all the requisite conditions in section 36(1)(iii) for allowance of interest were fulfilled, it was not possible and open for the Revenue to make a part disallowance, unless there was a positive finding recorded that a part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Applying the aforesaid ratio to the facts of this case as already noted above, it is manifest that the advance to M/s. Hero Fibres Limited became imperative as a business expediency in view of the underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by the ld. CIT(A). Therefore, our findings given in former part of this order shall apply Mutatis Mutandis for the assessment year 2008- 09. 18. In the result, appeals of the assessee are allowed." (D.1) The Ld. Counsel for assessee further submitted that during Assessment Years 2009-10 and 2010-11, with which we are concerned in the present appeals before us, no tax- free income has been earned by the assessee, and also, there are no fresh advances. The Ld. Counsel for assessee relied on the orders of Hon'ble Delhi High Court in the cases of Principal Commissioner Vs. DLF Home Developers Ltd. (2019) 411 ITR 0378 (Delhi) and Principal Commissioner Vs. IL & FS Energy Development Company Ltd. [2017] 84 Taxmann.com 186 (Delhi). Relying on the aforesaid precedents, the Ld. Counsel for assessee submitted that the aforesaid additions made by the Assessing Officer for Assessment Years 2009-10 and 2010-11 and confirmed by the Ld. CIT(A) vide aforesaid orders dated 01.04.2014 and 20.01.2015 of Ld. CIT(A) should be deleted. The Learned Departmental Representative ("Ld. DR", for short) contended that we now have the benefit of the decision of Hon'ble Supreme Court in the case of Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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