TMI Blog2022 (1) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... RAS HIGH COURT ] has affirmed findings of the Tribunal in deleting additions made by the Assessing Officer towards disallowance of interest expenses u/s. 36(1)(iii) of the Act - Decided in favour of assessee. - I.T.A. No. 2232/Chny/2019 - - - Dated:- 12-1-2022 - Mahavir Singh, Vice President And G. Manjunatha, Member (A) For the Appellant : K.N. Dhandapani, Addl. CIT For the Respondents : R. Sivaraman, Advocate ORDER Per G. Manjunatha, AM This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-2, Chennai dated 30.05.2019 and pertains to assessment year 2015-16. 2. The Revenue has raised following grounds of appeal:- 1. The order of the CIT(A) is contrary to law, facts and circumstances of the case. 2. In the facts and in the circumstances of the case, the CIT(A) erred in deleting the disallowance made u/s. 36(1)(iii) of the I.T. Act, without appreciating the fact that the assessee had diverted interest bearing funds, without charge of any interest, and such diversion of funds shall be squarely covered by section 36(1)(iii) of the Act. 3. The CIT(A) failed to appreciate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerns. Under the circumstance, there is neither exigency nor business prudence on part to the assessee to receive a lesser interest end pay a higher interest thereby burdening itself with the surplus portion. It is pertinent to mention that the Executives of Shriram group and members of Shriram Ownership Trust have taken substantial interest free advances from the firm. Further, the Partners' Current Account exhibits a huge debit balance of ₹ 48,35,83,810/-. If interest were provided on these interest free diversions, the firm need not to have suffered the differential loss. Even under the Provision of Section 40A2(b), the expenditure involving related party transactions requires to be restricted to the market value. In the case under consideration, obviously the market value is determined by the assessee itself, being the interest received from the group concerns to which the interest hearing funds have been diverted. Therefore, the allowability of interest u/s. 36(1)(iii) is restricted to the extent of interest received from the group concerns, thereby enforcing the concept of matching principle between the income and the expenditure. By doing so, an amount of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions made by the Assessing Officer towards disallowance of expenses u/s. 14A r.w. Rule 8D of I.T. Rules, 1962. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 5. At the time of hearing, learned counsel for the assessee submitted that the issue involved in the appeal filed by the Revenue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in assessee's own case for assessment year 2014-15, which was further upheld by the Hon'ble Jurisdictional High Court of Madras in Tax Case Appeal No. 363 of 2020 dated 15.10.2020, where the Hon'ble High Court has affirmed findings of the Tribunal in holding that no disallowance can be made u/s. 36(1)(iii) of the Income Tax Act, 1961, for debit balance in partner's capital account as well as loans advances to group companies. 6. The learned DR, on the other hand, fairly agreed that issue involved in appeal filed by the Revenue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court of Madras for assessment year 2014-15. 7. We have heard both the parties, perused material available on record and gone through orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ika Complex, Chennai, (2015) 54 Taxmann.com 15 (Madras), but the findings of the learned Tribunal in this regard in the present case are not justified. He also submitted that the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals), (2007) 288 ITR 1 (SC), in this regard, has been referred to a Larger Bench of the Hon'ble Supreme Court at a later stage in the case of Additional Commissioner of Income Tax v. Tulip Star Hotels Ltd. in an S.L.P. in C.C. Nos. 7138-7140 of 2012, by an order dated 30.04.2012. 5. On the other hand, learned counsel for the Assessee submitted that applying of 'Matching Principles' by the Assessing Authority as well as CIT (A) in the present case was incorrect and not sustainable, as the Assessee company, being an Investment Company, had applied cash basis of accounting and the actual amount of interest paid and received was recorded by it. He reiterated the findings of the learned Tribunal in Para 7 in this regard and the same are quoted below for ready reference: 7. We have considered the rival contentions and perused the orders of the authorities below. Assessee had debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money is not capable of yielding any income nor any right to a benefit is vested in, therefore provisions of Section 14A are not attracted in view of the decision of the Co-ordinate Bench of this Tribunal in the cases of MSA Security Services and NMS Consultancy P. Ltd. (supra). The Department could not rebut any of the findings of the Commissioner of Income Tax (Appeals). Therefore, we sustain the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made under Section 14A of the Act. The grounds raised by the Revenue are rejected''. Thus assessee has been considered as an investment company and making investments was part of its business. Hon'ble Jurisdictional High Court also in the case of CIT vs. Shriram Investments (Firm), (2015) 54 taxmann.com 15 also held that deduction u/s. 36 (iii) of the Act had to be allowed in respect of interest paid, if capital was borrowed for the purpose of business or profession. As already mentioned by us, there is no finding by any of the lower authorities that disparity between interest receipts and payments arose on account of charging of lower rate of interest on loans advanced when compared to interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset.' It may be noted that in India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC), the apex court was specifically pleased to observe that the object of the loan is an irrelevant consideration. In the State of Madras v. G.J. Coelho (1964) 53 ITR 186 (SC), the Supreme Court was dealing with the deduction claimed under section 5 (e) of the Madras Plantations Agricultural Income-tax Act, 1955. While considering the issue, the court was pleased to observe that in principle there is no distinction between interest paid on capital borrowed for the acquisition of a plantation and interest paid on capital borrowed for the purpose of an existing plantation. Both are for the purpose of the plantation. The court further 9/16 observed that the payment of interest on the amount borrowed for the purpose of the plantations when the whole transaction of purchase and the working of the plantations was viewed as an integrated whole was so closely related to the plantations that the expenditure could be said to be laid out or expended wholly and exclusively for the purpose of the plantations. 8. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er concern cannot be held to have been advanced for commercial expediency of the assessee, the interest paid thereon by the borrower Assessee cannot be disallowed under Section 36 (1) (iii) of the Act. Para 36 of the said judgment is quoted below for ready reference: 36. 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. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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