TMI Blog2023 (9) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... company becomes Sick and even the recovery of the principle amount in doubt how revenue can tax disallow the claim of interest to the extent of the advance of SIL as notional interest and that too on historic advance given in earlier years. As the advance given by the assessee to SIL which was for business purpose and the assessee holding substantial amount of the share holding in that company the disallowance of interest considering the direction of the bench that the assessee is having sufficient fund which are interest free and therefore, we vacate the disallowance - Ground raised by the assessee is allowed. - Dr. S. Seethalakshmi, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Sh. Ami t Kothari , CA For the Revenue : Sh. S. M. Joshi, JCIT-DR ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the Commissioner of Income Tax (Appeals)-1, Jodhpur dated 31.07.2018 [here in after referred as (CIT(A))] for assessment year 2004-05 which in turn arise from the order dated 28.03.2013 passed under section 143(3)/254 of the Income Tax Act, by ACIT, Circle-01, Jodhpur[ here in after re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 29.12.2006 by then AO, ACIT 14(2), Mumbai at total income of Rs. 40,54,590/- by making following additions: 1. Disallowing purchases amounting to Rs. 2,12,551/- which were bogus in view of the observation of the ld. AO. 2. Disallowance of interest u/s. 36(1)(iii) of Rs. 16,33,869/-. 3. Disallowance of part of personal nature expenses of Rs. 1,56,776/-. Against the above additions so made the appeal filed by the assessee before the CIT(A) against these additions. The said appeal was dismissed. Thereafter the assessee filed second appeal before the Hon ble ITAT. The Hon ble ITAT confirmed the addition on a/c of personal nature expenses amounting Rs. 1,56,776/-. Whereas, regarding other two issues restored back to the issue to the file of AO. To decide the issues afresh notice u/s 143(2) was issued to the assessee on 07.11.2012. Originally, appellant was being assessed at Mumbai, later, in the meanwhile, assessee got itself transferred to the jurisdiction of present AO. Now the assessee before us in the second round of litigation. The only issue before us in the second round is disallowance of interest which was earlier disallowed for an amount of Rs. 16,33,869/- whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in the year under consideration cannot be agreed to in view of discussion at paras 5.1 and subparas included thereto, above. Thus, I do not find any infirmity in the stand taken by the assessing officer; disallowance made by the AO is confirmed, hereby. Appellant fails on this front. 6. In the result, the appeal is dismissed. 8. The ld. AR appearing on behalf of the assessee has filed a paper book containing the following submission / evidences: S. No. Particulars Pages 1 Written submissions filed before ld. CIT(A) on 23.02.2007 and 27.07.2018 1-7 2 Submissions filed before ld. AO 8-10 3 Copy of Judgment in the case of Bright Enterprises P. Ltd. vs. CIT (2015) 381 ITR 107 (P H) 11-17 4 Documents relating to Synco Industries Ltd. Showing proceedings before Board for Industrial and Financial Reconstruction. 18-26 5 Account statement of Synco Industries Ltd. for A.Y 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs. 13,23,694/-. 9. The ld DR is heard who has relied on the findings of the lower authorities and contended the submission made by the assessee is duly considered and the fact that the company to whom the money is advance in BIFR is also considered by the ld. CIT(A) and therefore, he relied upon the finding of the order of the ld. CIT(A). 10. We have heard the rival contentions, perused the material placed on record and gone through the direction of the ITAT given to the ld.AO in the first round of litigation. We note that the ITAT has given the following direction in the first of round litigation in ITA No. 3147/Mum/2009: 12. The Ld. Counsel for the assessee submitted that the assessee had sufficient interest free funds in the form of partners capital as on 31.3.2003 of Rs. 242.55 lakhs and as on 31.3.2004 of Rs. 325.74 lakhs which covered the lending to SIL of Rs. 141.52 lakhs and Rs. 122.46 lakhs on those dates respectively. In these circumstances, we deem it fit to restore the issue to the file of the AO to examine the balance sheet of the assessee on those dates and decide the issue afresh in accordance with law. The AO while deciding the issue should keep in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediency and was in the best Interest of protecting the interest of the assessee. j. In such circumstances provisioning of interest over such doubtful and substandard principal outstandings would have lead to a breach of fundamental tenates of accounts as enshrined in AS-9 of ICAI and income would not present true and fair picture. k. The expression for the purpose of business was explained by the Hon'ble Apex Court in the matter of Madhav Prasad Jatia vs. CIT (SC), 118 ITR 200 (SC) by referring to the decision of Malyalam Plantation, 53 ITR 140 (SC), wherein it was held as It cannot be disputed that the expression for the purpose of business occurring in s 10(2) (ii) as also in 10(2) (xv) is wider in scope than the expression for the purpose of earning income profits or gains occurring in s 12[2] of the Act and, therefore, the scope for allowing a deduction under s 10/21 (1) or 10(2) (xv) would be much wider than the one available under s 12(2) of the Act. This Court in the case of Commissioner of Income Tax, Kerala v. Malayalam Plantations Ltd has explained that the former expression occurring in s. 10(2) (iii) and 10(2)(xv), its range being wide, may take in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company was for the purpose of business and commercial expediency and therefore the assessing officer was not justified in disallowing the claim of interest for being debited as a revenue expenditure .... We therefore, answer reference by holding that the Tribunal was correct in holding that no portion of the interest paid by the assessee on its borrowed funds can be disallowed on the ground that a portion thereof has been diverted to subsidiary company and that the Assessing Officer was not justified as disallowing the assessee company in debiting the interest paid to the bank as a revenue expenditure merely because it has given further loan of Rs. 40,00,000/- to its subsidiary Company. m. In the matter of S.A. Builders Ltd. V CIT (Appeals), (2007) 158 Taxman 74 (SC. Hon'ble Apex Court vide para 35 of the judgment held that, We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities on the direction given by the bench. The only relief that the assessee was given the relief to the extent of the current year net profit divided equally on that amount the relief was given to the assessee. There is no discussion in the order of the lower authority that the assessee till 31.03.2000 regular in charging the interest and has stopped because of the fact that the recovery of further interest becomes doubtful from 01.04.2000 on account of the fact that the company SIL become sick and therefore, we see no reason not to consider the plea of the assessee that when the interest is not received no disallowance can be made. Even the ld. AO through ld. DR at the time of hearing also did not controvert the fact the assessee is having sufficient balance which is interest free as on 31.03.2044 at Rs. 3,25,70,408/- as against the SIL debit balance of Rs. 1,22,45,671.90 and in fact that the assessee earlier charging interest and has stopped on account of the reason that the company becomes Sick and even the recovery of the principle amount in doubt how revenue can tax disallow the claim of interest to the extent of the advance of SIL as notional interest and that to ..... 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