Main Search Premium Members Advanced Search Disclaimer
Cites 6 docs - [View All]
The Income- Tax Act, 1995
Section 36(1) in The Income- Tax Act, 1995
Amadeus Global Travel ... vs Dy. Commissioner Of Income-Tax on 30 November, 2007
Commissioner Of Income Tax-I vs Abhishek Industries Ltd. on 4 August, 2006
S. A. Builders Ltd. .. Petitioner vs Commissioner Of Income Tax ... on 14 December, 2006
Citedby 0 docs
Amish R. Kapadia, Mumbai vs Assessee on 6 May, 2016

User Queries
Try out the Virtual Legal Assistant to take your notes as you use the website, build your case briefs and professionally manage your legal research. Also try out our Query Alert Service and enjoy an ad-free experience. Premium Member services are free for one month and pay only if you like it.
Punjab-Haryana High Court
Commissioner Of Income Tax vs M/S Pooja Metal Processors (P) ... on 24 September, 2013
            ITA No.388 of 2009 (O&M)                                                       1

                               IN THE HIGH COURT OF PUNJAB AND HARYANA AT
                                              CHANDIGARH



                                                               ITA No. 388 of 2009 (O&M)
                                                                 Date of decision: 24.9.2013



                        Commissioner of Income Tax, Faridabad
                                                                               -----Appellant

                                                         Vs.


                        M/s Pooja Metal Processors (P) Limited, 89, DLF Indl.Estate
                        No.1, Faridabad.


                                                                              ----Respondent

                        CORAM:-      HON'BLE MR. JUSTICE AJAY KUMAR MITTAL
                                     HON'BLE MR. JUSTICE JASPAL SINGH



                        Present:-    Mr.Tejinder K.Joshi, Advocate for the revenue.

                                     Mr.Pankaj Jain and Mr. Daman Dhir, Advocates
                                     for the assessee.



                        Ajay Kumar Mittal,J.

1. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 23.12.2008, Anenxure III, passed by the Income Tax Appellate Tribunal, Delhi Bench 'F' New Delhi (in short, "the Tribunal") in ITA No.3599/Del/2007, for the assessment year 2004-

05. The appeal was admitted on 7.9.2009 to consider the following substantial question of law:-

"Whether, on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the Singh Gurbax 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 2 order of the learned CIT(A) in deleting the addition of `7,25,000/- made by the Assessing Officer on account of interest on funds diverted for non business purposes by giving interest free loans on investments in shares etc. in contradiction with the judgment of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Abhishek Industries Limited, (2006) 286 ITR 1?"

2. Briefly, the relevant facts necessary for adjudication of the controversy involved, as available on record, may be noticed. The assessee company is engaged in the business of processing and manufacturing of CR sheets/coils, rotor and stator lamination and job processing work for others. Return declaring income of ` 5,15,090/-

was filed on 29.10.2004. The assessment was completed vide order dated 21.12.2006, Annexure 1 under Section 143(3) of the Act at an income of ` 30,24,200/-. It was noticed by the Assessing Officer that the assessee had shown investment of ` 48,50,000/- in the shares of M/s Pooja Decarb Pvt. Limited which is a sister concern of the assessee. It was found by the Assessing Officer that the assessee had raised secured/unsecured loans as under:-

                                                  "As on 31.3.2003      As on 31.3.2004

                                  Secured Loans      33,35,620/-           53,66,171/-
                                  Unsecured Loans 16,80,957/-              20,98,236/-"

The assessee was incurring interest liability on the borrowed funds. The assessee had claimed deduction of ` 12,72,283/-. The Assessing Officer made an addition of ` 7,27,500/- on account of interest paid by the assessee at the rate of 15% on loans proportionate to `48,50,000/-.

Aggrieved by the order, the assessee preferred appeal before the CIT Singh Gurbax 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 3 (A). Vide order dated 30.5.2007, Annexure II, the CIT(A) allowed the appeal, deleting the addition of ` 7,27,500/-. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 23.12.2008, Annexure III, the Tribunal dismissed the appeal. Hence the present appeal by the revenue.

3. Learned counsel for the revenue submitted that the assessee had invested the amount in the shares of M/s Pooja Decarb (P) Limited and the said amount was taken from borrowed funds. It was urged that the investment of ` 48,50,000/- in the shares of M/s Pooja Decarb, the sister concern of the assessee, having been utilised from loans taken by the assessee, the interest paid on the loan to that extent was not admissible deduction under Section 36(1) (iii) of the Act in view of the judgment of the this Court in Abhishek Industries Limited's case (supra). It was argued that the CIT(A) and the Tribunal had erred in deleting the addition made by the Assessing Officer.

4. Controverting the submissions made by learned counsel for the revenue, learned counsel for the assessee referred to the findings recorded by the CIT(A) and the Tribunal.

5. After hearing learned counsel for the parties, we do not find any merit in the submissions made by learned counsel for the revenue. It would be apposite to refer to the conclusion arrived at by CIT(A) and the Tribunal. The findings recorded by the CIT(A) read thus:-

"6.2. I have carefully considered the submissions of the learned Authorised Representative and perused the order of assessment. I have also examined the account of M/s Singh Gurbax 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 4 Poooja Decarb (P) Limited in the books of the appellant company. First of all, it is found that the Assessing Officer is confused and confounded about the nature of disallowance that he is making in his assessment order. He is making this disallowance under the head 'Interest on loan". On the one hand, he is referring to the investment of ` 48,50,000/- in the shares of M/s Pooja Decarb (P) Limited, its sister concern, and on the other hand, he is treating it as loan out of the borrowed funds on which, according to him, huge interest liability has been incurred by the appellant company, which is contrary to the facts and circumstances of the case. The fact of the case is that M/s Pooja Decarb (P) Limited is doing the business of decarbonizing i.e. conversion of ordinary steel into electrical grade material and M/s Pooja Metal Process (P) limited is turning ordinary steel after punching it and getting it converted into electrical grade material after processing raw material of cold roll sheets supplied to it by M/s Pooja Decarb (P) Limited. Both have inter dependent business or commercial transactions. I have examined the copy of account of M/s Pooja Decarb (P) Limited in the books of the appellant company, showing the inter-unit business transactions with the appellant company. During the year under consideration, the list of creditors for raw material included M/s Pooja Decarb (P) Limited with balance at `25,62,325/- as on 31.3.2004. This sufficiently proves that the investment of ` 48,50,000/- made in the shares of M/s Pooja Decarb (P) Limited in the year 1999-2000 was a commercially viable decision and the business interest is shown by the fact that the value of shares have doubled by 31.3.2004. Moreover, when the investment in the shares of M/s Pooja Decarb (P) Limited on 1999-

Singh Gurbax 2000 was made, the appellant company had no borrowed 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 5 funds in that year. The appellant found a new customer in M/s Pooja Decarb (P) Limited and therefore its profitability had increased by the sale of material to M/s Pooja Decarb (P) Limited. As far as the logic of the Assessing Officer that the investment in shares is not the business of the appellant company, it is rebutted that every company has a constitutional right in the business concerns to invest in any other company and there is no bar to set up a subsidiary as a juristic entity. The AO's logic regarding the entire money in a business entity coming in a common kitty is too general and misconceived, as it is constitutional and legal right of the company to have investment in shares of any other subsidiary company, like M/s Pooja Decarb (P) Limited. Therefore, keeping in view such business nature of the transaction, no disallowance is called for. 6.3. As far as the Assessing Officer's misconception regarding disallowance of interest on loan under Section 36(1) (iii) of the IT Act is concerned, the appellant had already replied that the investment was made out of capital and reserves and that no loan was utilized for making the above investment. The appellant company had reserves and surplus at ` 1,30,03,206/-, `1,26,02,635/- and `1,22,58,455/- as on 31.3.2004, 31.3.2003 and 31.3.2002 respectively evidencing the viability and profitability of the company. However, the Assessing Officer still calculated the interest on loan, which was not there, in view of the jurisdictional High Court's decision in the case of CIT v. Abhishek Industries Limited (supra). Even if the Assessing Officer is on the wrong side in proportionately disallowing the interest on the investment of `48,50,000/- coming to `7,27,500/- on wrong footings as Singh Gurbax is pointed out above, the case relied upon by the 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 6 Assessing Officer is still not applicable. Even in that case also if the funds are utilized for business purposes, the interest is allowable. Moreover, in a recent decision referred to by the learned Authorised Representative in his written submissions i.e. S.A.Builders Limited v. CIT (A), Chandigarh, 2007, 158 Taxman 74 (SC) : (2007) 286 ITR 1, if the borrowed funds advanced to a sister concern or subsidiary or 3rd party are for commercial expediency and not for a personal benefit of the directors, the expenditure is allowable under Section 36 (1) (iii) of the Act and in this case, business or commercial expediency has been sufficiently brought about in paras 6.2 and 6.3."

6. The observations of the Tribunal are as under:-

"On appeal, learned CIT(A) deleted the addition by giving the following reasons:-
i) The fact of the case was that M/s Pooja Decarb Pvt. Limited was doing the business of decarbonising i.e. conversion of ordinary steel into electrical grade material and the present assessee company is turning ordinary steel after punching it and getting it converted into electrical grade material after processing raw material of CR sheets supplied to the assessee company by M/s Pooja Decarb Pvt. Limited.
ii) A copy of account of M/s Pooja Decarb Pvt. Limited in the books of assessee company shows the inter unit business transaction with the assessee company.
iii)List of creditors of raw material included M/s Pooja Decarb Pvt. Limited having balance at ` 25,62,325/-.
iv)These points taken together would show that the investment in the shares of M/s Pooja Decarb Pvt. Limited in the year 1999-2000 was a commercially viable decision and for business interest.

Singh Gurbax 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 7

v) When the investment in the shares of M/s Pooja Decarb Pvt. Limited was made in 1999-2000, the assessee company had no borrowed funds in that year.

14. The learned CIT(A) had applied the principle laid down by the Hon'ble Supreme Court in the case of SA Builders v. CIT reported in 158 Taxman 74 (SC).

15. We have heard both the parties and have gone through the orders of the authorities below. In the light of the facts pointed out by the learned CIT(A) in his order and in the light of the preposition laid down by the Hon'ble Supreme Court in the case of SA Builders v. CIT( supra), we are of the considered view that the assessee's decision to make investment in the shares of M/s Decarb Pvt. Limited was for a business expediency, and moreover, when this investment was made, no borrowed amount was utilized by the assessee. We, therefore, uphold the order of learned CIT(A) on this issue."

7. From the above, it emerges that the assessee-respondent had invested the amount of ` 48.50 lacs in the shares of M/s Pooja Decarb, its sister concern and as per the findings recorded, the investment had doubled by 31st March 2004. The CIT(A) as well as the Tribunal had recorded that the assessee had thought it commercially expedient to invest in the shares of its sister concern M/s Pooja Decarb Limited. The Apex Court in S.A.Builders Limited's case (supra), held that the commercial expediency as envisaged under Section 37(1) of the Act has also to be kept in view with regard to the assessee's decision in advancing borrowed funds to a sister concern or subsidiary while examining deduction under Section 36(1) (iii) of the Act. In the absence Singh Gurbax of any perversity shown in the findings recorded by CIT(A) and the 2013.10.28 16:38 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.388 of 2009 (O&M) 8 Tribunal, the assessee was entitled to deduction of interest paid on ` 48,50,000/-.

8. Accordingly, the substantial question of law reproduced in para 1 above, is answered against the revenue and in favour of the assessee.

9. The appeal is dismissed.


                                                                   (Ajay Kumar Mittal)
                                                                         Judge

                     September 24, 2013                             (Jaspal Singh)
                      'gs'                                              Judge




Singh Gurbax
2013.10.28 16:38
I attest to the accuracy and
integrity of this document
High Court Chandigarh