TMI Blog2017 (10) TMI 1624X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order passed by the Assessing Officer is well within the time limit mandated as per section 153(6) of the Act. Hence, the additional ground raised by the assessee stands dismissed. Disallowances of interest expenditure u/s. 36(1)(1) - HELD THAT:- Interest mentioned in item number (i) and (ii) loan given to employees and margin deposits are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above. DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business. Interest on ICDs and interest on fixed deposits, assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's of the authorities below, confirming the treatment of this interest income as income from other sources. Addition for the provision of income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd while computing normal income under the Act as well as computing book profit u/s. 115 JB - HELD THAT:- T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inter corporate deposit. Hence, the assessee clearly fails the test of the amount having been borrowed, for allowance of interest under section 36(1)(iii). Whether the amount borrowed was used for business purposes? - AO has gone on to mention that the assessee has unnecessarily burdened the business by inter corporate deposit obtained from VPCL. We further note that before ld. Dispute Resolution Panel also the assessee has not produced necessary details or evidence showing that the borrowed funds have been utilized for the purpose of business. This aspect has been clearly mentioned in the direction of the ld. Dispute Resolution Panel wherein it has been categorically stated that the assessee had not shown any evidence in this regard. Before us also the assessee had not submitted any detail to counter this clear finding of the authorities below that there was absence of necessary evidence to show that the amount borrowed was used for the purpose of business. Assessee had submitted that the matter may be remitted to the Assessing Officer to enable the assessee to prove this aspect. In our considered opinion, at this stage, there is no cogency in this submission. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 7. The learned Assessing Officer has erred in initiating penalty proceedings under section 271(l)(c) of the Act. 3. The ld. Counsel of the assessee has submitted an additional ground also which reads as under: 1. The order passed by the Assessing Officer u/s. 144C r.w.s 143(3) of the Act dated 16.01.2015 in conformity with the direction of the Hon ble DRP is time barred and hence is bad in law. 4. In the additional ground, the assessee has agitated that the order passed by the A.O. u/s. 144C r.w.s. 143(3) of the Act dated 16.01.2015 pursuant to the direction of the ld. DRP is time barred, hence, bad in law. In connection with the additional ground, the ld. Counsel of the assessee has submitted that the assessment order passed is time barred, hence invalid, as it is passed beyond limitation period. It has been submitted that the additional ground of appeal purely raises the question of law and all relevant materials are already on record. Hence, placing reliance upon the following Hon ble Apex Court and Hon ble High Court decision, it has been prayed that the additional ground may be admitted: 1. National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on issue of equity shares. 4. 18.12.2014 Time limit for passing order u/s. 144C(13) r.w.s 143(3) of the Act expired being 30 days from 18.11.2014 5. 16.01.2015 Order passed u/s. 144C(13) r.w.s. 143(3) of the Act by the Assessing Officer. 6. In this connection, the ld. Counsel of the assessee relies on the case laws as under: 1. Honda Trading Corporation vs. Dy. CIT in ITA No.1132/Del/2015 dated 15.09.2015 (Delhi-Trib) 2. Mahindra Mahindra Ltd. vs. Dy. CIT [2009] 30 SOT 374 (Mum-SB) 7. Per contra, the ld. Departmental Representative (DR) has submitted that in this case the Hon ble High Court has passed an order. It is in pursuance that the Hon'ble High Court order that the A.O. has passed the order. Hence, he submitted that the order has been passed well within the mandated time as per section 153(6)(i) of the Act. Further, the ld. Departmental Representative placed reliance on the following case law: 1. Himalayan Drug Co. vs. Dy. CIT ITAT (Bangalore) 84 Taxmann.com 8/ IT(TP) Appeal No. 807 (Bang.) of 2016 dated 21.06.2017 8. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch direction was received to pass the order. However, the Hon'ble Bombay High Court on 29.01.2014 directed the A.O. not to pass the final assessment order. On 18.11.2014, the Hon'ble Bombay High Court directed the A.O. to pass the final assessment order after deleting the transfer pricing adjustment. Now it is the contention of the assessee that period of one month as mandated u/s. 144C(13) commenced from the date of passing of the Hon'ble Bombay High Court dated 18.11.2014. Thus according to the ld. Counsel of the assessee, the A.O. had time limit upto 18.12.2014, i.e., within 30 days from 18.11.2014 to pass the assessment order. Since the assessment order was passed on 16.01.2015 beyond the date of 18.12.2014, hence as per the ld. Counsel of the assessee the same is time barred. We find that in this case, the Hon ble High Court has passed an order dated 18.11.2014 in which certain directions have been given to the A.O. 11. We may gainfully refer to the Hon ble High Court s order dated 18.11.2014 as under: At the instance of the Counsel the petition is taken up for final disposal at the stage of admission. 2) This petition challenges the following orders:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Vodafone-IV. 6) This Court by an order dated 29 January 2014 had restrained the Assessing Officer from acting further in pursuance of the impugned order dated 31 December 2013 passed by the DRP. The above stay continues till today. Thus, no final assessment order has been passed till date. 7) In view of the above, the directions of the DRP to tax short fall in consideration received on the basis of the ALP receivable on the issue of Equity shares to Associated Enterprises are set aside. The Assessing Officer is directed to pass the final assessment order on the above basis. 12. A reading of the above order of the Hon ble High Court reveals that the Hon ble High Court has ordered that the directions of the ld. Dispute Resolution Panel to take shortfall on the consideration received on the basis of the ALP receivable on the issue of equity shares to Associated Enterprises are set aside. The Hon ble High Court has found the issue covered in favour of the assessee by the decisions rendered in Vodafone India Services Private Ltd. (supra). Hence, the Hon ble High Court has ordered the A.O. not to comply with ld. Dispute Resolution Panel direction to take shortfall on the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which the time limit was to be computed. Hence, this case is distinguishable from these two decisions. 15. On merits of the issues raised in this appeal, the ld. Counsel of the assessee has submitted that majority of the issues raised are already covered except the ground relating to disallowances of interest expenditure u/s. 36(1)(1) amounting to Rs.3,04,65,754/-. The ld. Departmental Representative does not dispute this proposition. The ld. Counsel has submitted following chart for ready reference: Gr. No. Issue Amount (Rs.) A.O. DRP Remarks Page No. Page No. 1 General 2 Directing the A.O. to treat interest income on 5 41 Issue at Sr. No. l(i) and (ii) are covered in favour of assessee vide i) loan given to employees ii) margin deposits iii) interest on ICDs iv) Intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the breakup of the interest in this case is as under: Gr. No. Issue Amount (Rs.) 2 i) loan given to employees ii) margin deposits iii) interest on ICDs iv) Interest on Fixed deposits 1,078 1,78,86,221 77,10,958 1,33,67,062 As per the above chart submitted by the learned counsel of the assessee, the interest mentioned in item number (i) and (ii) are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above. 19. The ld. DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business. 20. As regards the interest on ICDs and interest on fixed deposits, the ld. Counsel of the assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's of the authorities below, confirming the treatment of this inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to obtain controlling stake in the subsidiary group company, no disallowance u/s. 14A should be done. For this proposition, the ld. Counsel placed reliance upon several case laws. 24. Upon careful consideration, we find that it has been held by Hon ble Delhi High Court as well as Hon ble jurisdictional High Court that no disallowance u/s. 14A is required when the assessee has not earned any exempt income. We may gainfully refer to the decision of Hon ble jurisdictional High Court in the case of a Ballarpur Industries Ltd. (supra) as under: By this income tax appeal, the appellant-Department challenges the orders of the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Nagpur. On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression does not form part of the total income in Section 14A of the Income Tax Act, 1961 envisages that there should be an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the advance given for equity shares were sourced from amount received from assessee's holding company by issuance of shares of assessee. It was also contended that ICD was taken from VPCL after advance towards equity was infused into VPCL and there is no linkage between ICD taken and advance for equity given to VPCL. 10.3 The submissions made by the assessee as also the documents furnished in support of its contentions have been carefully examined. From the Bank summary furnished by the assessee, it is noticed that the assessee has given sums aggregating to Rs.59.75 Crore to VPCL on various dates. It is further noticed that the assessee has received ICD of Rs.50 Cr from VPCL on 27.06.2008. The Ledger account of Vadinar Company Ltd. (Advance Towards Equity shares) as appearing in the books of assessee is as under: Posting Date Text Amount Cumm. Balance ADVANCE TOWARDS EQUITY ISSUE OF SHARES Opening Balance 499.780,001.00 499,780,001.00 25.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ledger account of Vadinar Power Company Ltd. (ICD) as appearing in the books of assessee is as under: Posting Date Text Amount Cumm. Balance Opening Balance 27.06.2008 50 CRS ICD REVD FM VPCL @ 8% ON 27.06.08 (500,000,000.00) (500,000,000.00) Closing balance (500,000,000.00) From a perusal of the aforesaid two ledger accounts simultaneously, it is evident that there is a opening balance of Rs.49 Crore lying with VPCL at the opening of the year assessee has given a sum of Rs.11 Crore on 25.06.2008 to M/s.VPCL as advance towards equity shares and on 27.06.2008, the assessee has received Rs.50 Crore on 27.06.2008 from VPCL as ICD. Hence, it is crystal clear that the amount of Rs.50 Crores received as ICD is from the opening balance of Rs.49 Crore and the sum of Rs.ll Crore given by the assessee to VPCL as advance for equity shares during the year and Further, on rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proves beyond doubt that these transactions are not assessee's genuine business transactions. Since, the interest has been paid on the borrowed capital (ICD) to a group company and subsequently, investments were made in the same company by way of purchase of equity shares of VPCL is not allowable u/s.36(l)(iii) of the Act. 10.6 Since the assessee has claimed interest expense u/s.36(l)(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. In this respect reliance is placed on case of M/s. Kishanchand Chellaram Vs. CIT [114 ITR 654 (Bom.)]. In this case, it was held that deduction of interest paid on borrowed capital is allowable only if the capital was borrowed as well as used for the purpose of business. The facts of this case are squarely applicable in the case of the assessee. The purpose for which the amount given to VPCL cannot be held as 'business purpose' and assessee has unnecessarily burdened the business with the interest expense on Inter Corporate Deposits (ICD) given by VPCL and finally the amount is seen to have been diverted for inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an approach as erroneous. The test, as mandated by the Hon'ble Supreme Court, in such a case is really whether interest free advance has been given as a measure of commercial expediency, In view of such a categorical judgment of the Hon'ble Supreme Court, it is difficult for us to hold that the test of availability of interest-free funds is still applicable and valid for allowing/disallowing the claim of interest u/s 36(l)(iii), What is really relevant is the test of commercial expediency as the. focus of Section 36(l)(iii) is to grant deduction in respect of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession . It is therefore the test of commercial expediency in giving interest-free funds which is relevant for deciding the issue. The AO has applied the correct test, i.e., the test of commercial expediency to make the impugned disallowance and therefore it is confirmed. 10.9 The activity of investment in shares cannot be accepted as business activity/ commercial expediency of the assessee. 10.10 If the assessee to submit the direct nexus to prove that investments in shares of VPCL is made out of its own funds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Profit Loss account on account of the interest on Inter Corporate Deposit (ICD) was proposed to be disallowed u/s. 36(1)(iii) of the I. T. Act. 24. Upon objection of the assessee, the ld. Dispute Resolution Panel upheld the action of the Assessing Officer by observing as under: The objection of the assessee is regarding disallowance of interest expenditure of Rs.30,465,754 under section 36(1)(iii) of the Act on the basis that it was not for business purpose. The assessee took an ICD of Rs.50 crores from Vadinar Power Company Limited ( VPCL ), carrying an interest rate of 8%. Further during the year the assessee paid to VPCL Rs.59.75 crore towards subscribing equity shares on which no interest was received. The assessee claimed that the source of the funds for advance towards equity was the equity infused by the assessee s parent company, and that the amount was advanced prior to taking of ICD. We have considered the facts of the case and the submissions of the assessee. No direct nexus of non-interest-bearing funds having been used for the purpose of investment has been produced before us. Further despite making a claim regarding commercial expediency no evidence has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. We have carefully considered the submissions of the counsels and perused the records. We find that the assessee has taken inter corporate deposit from Vadinar Power Company Ltd. (hereinafter referred as VPCL ) amounting to Rs.50 crores at 8% interest. It is undisputed that at the time of giving the loan, VPCL had received and had a balance of Rs.60 crores received from the assessee towards advance for equity shares. Thereafter, the assessee company had given further amounts towards share capital. Further, shares have also been allotted to the assessee company from VPCL. However, as on 31.03.2009, the balance in the advance for share account to VPCL was Rs.19,25,00,000/-. In this factual scenario, the case of the assessee is that the assessee has genuinely borrowed Rs.50 crores in the form of ICD from VPCL @ 8% on 27.6.2008. The interest paid thereon has been claimed u/s. 36(1)(iii). 29. Section 36(1)(iii) provides for allowance of amount of interest paid in respect of capital borrowed for the purpose of the business or profession. Thus, for allowance of interest expenditure u/s. 36(1)(iii) firstly, the capital should be borrowed and secondly, it should be for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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