TMI Blog2011 (12) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the AO, the assessee had taken a vague plea to the effect that the amount was given as a financial support to enable M/s Denta Brush (P) Ltd. to produce specialized machine required by the assessee, when nothing prevented the assessee from acquiring such machine directly from the support and the transaction of granting interestfree funds for such along period not to the supplier of the machinery but to a third period purportedly as financial support to enable him to procure the machinery is contrary to normal business practice. (c) The ld. CIT(A) failed to appreciate that the facts being in the special knowledge of the assessee, the onus u/s 36(1)(iii) by virtue of section 106 by the Indian Evidence Act, was on the assessee to prove that all the borrowings were used for the purpose of the business and that the parking of interest-free funds with the associate concern was for business purpose, as settled in the case of CIT vs. Abhishek Industries Ltd. 286 ITR 01 (P H). (2) On the facts and circumstances of the case and in law, the ld. CIT(A) erred in holding that amount of ₹ 2,10,561/- as revenue expenditure, without appreciating the decision of CIT vs. Saravana S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the above interest free advances and investments was also rejected on the grounds that the company s investments in fixed assets alone were in excess of the said interest free funds. Accordingly, the AO held that interest free advance to ASPL to the extent of ₹ 34.91 lacs and entire interest free advance of ₹ 381 lacs to DPL was for non-business purpose. Interest expenditure of ₹ 39,95,709/- out of total interest expenditure of ₹ 43,00,926/- was disallowed on the ground that there was diversion of interest-bearing funds to interest-free advances and investments. 3. The assessee went in appeal before ld. CIT(A) wherein the ld. AR submitted that the company was in the business of manufacturing toothbrushes. It was earlier operating from the factory situated in Padra and also from small office premises on Old Padra Road. Since its business was expanding, it required larger office premises. ASPL and the assessee company entered into an agreement whereby ASPL undertood to construct a commercial building at Old Padra Road, Baroda in which the assessee company would get usage right of 7000 sq.ft. fully furnished space. The premises were to be let out on le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet it is allowable as business expenditure if it was incurred on ground of commercial expediency. Decisions relating to section 37 will also be applicable to section 36(1)(iii) because in section 37 also the expression used is for the purpose of the business . For the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. The expression for the purpose of business is wider in scope than the expression for the purpose of earning profits. In order to consider whether one should allow deduction under section 36(1)(iii) of interest paid by the assessee on amounts borrowed by if for advancing to a sister concern, the authorities and the courts should examine the purpose for which the assessee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ushes. The advance to DPL was for purchase of fixed assets i.e. bristling machine. DPL was being developed as an ancillary industry to the group companies. The nylon bristles produced by DPL were to be used for manufacturing of toothbrushes by the appellant company. This evidently sub-serves the main business of the appellant and the commercial interest is also furthered. The successive annual accounts of M/s Dentabrush Ltd. clearly indicated that the funds advanced by the assessee company were deployed for acquisition of fixed assets. The element of commercial expediency is hence present in the transaction. Following the ratio of the decision of Hon ble Supreme Court in the case of S.A. Builders Ltd. I am of the opinion that the entire advance made by the assessee to ASPL was for business purposes. 3.4 In respect of the investment in equity shares, the ld. AR has submitted that equity shares being income generating assets, investments in such equity shares cannot be held to be diversion of funds for nonITA business purpose. It was submitted that at the extreme, the AO ought to have examined whether a disallowance was justified under section 14A. It was further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,95,709/- is directed to be deleted. Aggrieved by this order of the ld. CIT(A) the Revenue is in appeal before the Tribunal. 4. The ld. DR supported the order of AO and submitted that the assessee had failed to adduce any evidence whatsoever in regard to purchase of blister machine during the year or even subsequently, either from or through the said associate concern. Before the AO the assessee had taken a vague plea to the effect that the amount was given as a financial support to enable M/s Denta Brush (P) Ltd. to produce specialized machine required by the assessee when nothing prevented the assessee from acquiring such machine directly from the support and the transaction of granting interest free funds for such a long period not to the supplier of the machinery but to a third person purportedly as financial support to enable him to procure the machinery is contrary to normal business practice. The ld. CIT(A) failed to appreciate that the facts being in the special knowledge of the assessee, the onus u/s 36(1)(iii) by virtue of section 106 by the Indian Evidence Act, was on the assessee to prove that all the borrowings were used for the purpose of the business and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U in short) with Amigo Securities Pvt. Ltd. for utilization of office space and other facilities. In turn, the assessee-company provided interest free deposit to Amigo Securities Pvt. Ltd. for financing instruction as per the terms and conditions of MoU. The relevant terms and conditions as narrated before us as under:- i) ASPL shall construct the premises on a pre-fixed schedule and having prefixed specification ii) On completion of the construction, ASPL shall allot 7,000 Sq. Ft. of space in the said premises on a priority basis. Broadly speaking, the assessee-company will take premises on lease on pre-fixed monthly rental of ₹ 24/- per sq. ft., which would be inclusive of rent charges for the furniture and fixtures. The assessee company has to give interest free loan of ₹ 1 crore and a floating of advance of ₹ 1.5 crores for enabling ASPL to finance the construction of these premises. There was another condition / option with the assessee in the said agreement to purchase the premises within the specified period and that also at the sole discretion of the assessee. In view of these facts, we are of the considered view that the amount adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on components are to be replaced. The ld. AR also submitted that while in respect of Power Card and CPU (₹ 1,69,290/-) and CRT Electronic Panel (₹ 1,02,456/-), the invoices themselves indicated that they are replacement parts of machines of the company, in respect of TEFC Electric Motor (₹ 29,008) and Dension Pump (₹ 58,995/-) a confirmation from the company certifying that the said items were replacement of parts of machines and details of the machines in which such parts are replaced, were provided. It was further submitted that such replacement merely results in ensuring that the machine continued to function at its stated capacities and functionalities. It did not result in any new feature or capabilities in the machines. There was no litmus test to say that a particular expenditure was revenue expenditure or capital expenditure. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure had been incurred. The test of enduring benefit was not a certain or conclusive test and it could not be applied blindly and mechanically without regard to the particular facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epairs if the old part is not available in the market. It is a current repair because the Carding Machine remains as an asset without any change even after repair or replacement of the autoleveler. To give an example, a Compressor is an important part of an Air-condition Machine. Repair of the Compressor will come in the connotation of the word current repairs in section 31(i) of the said Act because the assessee does not replace the Air-condition Machine. At the highest he replaces a part of the Air-condition Machine. So is in the case of the picture tube in a television set, when the picture tube is replaced the television set is not replaced, therefore, such repairs alone can come within the connotation of the word current repairs in section 31(i) of the said Act as it stood at the material time. They are effected to preserve and maintain the asset, viz., air-conditioner or carding machine. In view of the above, we find no infirmity in the order of ld. CIT(A) and the same is hereby upheld. 12. The third ground relates to deduction u/s 80IB amounting to ₹ 51,67,315/-. During the assessment proceedings the AO denied this deduction on the ground that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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