ITA No. 224 of 2013 (O and M). Case: Bright Enterprises Pvt. Ltd. Vs Commissioner of Income Tax. High Court of Punjab (India)
| Case Number | ITA No. 224 of 2013 (O and M) |
| Counsel | For Appellant: Pankaj Jain, Senior Advocate, Divya Suri and Sachin Bhardwaj, Advocates and For Respondents: Rajesh Katoch, Advocate |
| Judges | S. J. Vazifdar, Actg. C.J. and Gurmeet Singh Sandhawalia, J. |
| Issue | Direct Tax |
| Judgement Date | July 24, 2015 |
| Court | High Court of Punjab (India) |
Judgment:
S. J. Vazifdar, Actg. C.J.
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This is an appeal against the order of the Income Tax Appellate Tribunal dated 07.08.2012 in so far as it allowed the appeal filed by the revenue against the order of the Commissioner of Income Tax (Appeals) deleting an addition of Rs. 1,31,24,332/- made by the Assessing Officer on account of disallowance of interest paid to the bank on the ground that the appellant/assessee had advanced an interest free loan to its sister concern although the appellant had no business dealings with the sister concern. The matter pertains to the assessment year 2005-06.
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The appeal is admitted on the following substantial question of law:-
Whether under the facts and circumstances of the case, while arising at the 'chargeable income' u/s 29 considering the provisions of Section 36(1)(iii), the disallowance of interest paid to banks is mandatory on the true and correct interpretation of the words 'for the purpose of business?
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Section 36(1)(iii) reads as under:-
"36. Other deductions.--(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--
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(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession:
Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.
Explanation.--Recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;"
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As noted in the assessment order, the Assessing Officer found from the sundry advances that the assessee had advanced an amount of Rs. 14,08,25,185/- as project advance to various parties, out of which an amount of Rs. 10,29,17,301/- was advanced to the appellant's sister concern M/s. Kolkatta Hotels Private Limited. The Assessing Officer disallowed the interest paid by the appellant to the bank amounting to Rs. 1,31,24,332/- and added the same back to the appellant's income observing that the advance to the appellant's sister concern "does not appear to be for business purposes as the assessee-company has no business dealing with the company M/s. Kolkata Hotel". The Assessing Officer observed that no interest was charged from M/s. Kolkatta Hotels Private Limited on the advance of Rs. 10,29,17,301/- whereas the appellant had paid the interest amounting to Rs. 1,31,24,332/- on the loans taken from various banks. He observed that had the appellant not advanced the said sum to its sister concern without charging interest, it would have been left with sufficient funds to refund the bank loan and the appellant would not have had to pay interest to the bank. In arriving at this conclusion, the Assessing Officer relied upon the judgment of this Court in the case of Commissioner of Income Tax-I, Ludhiana vs. M/s. Abhishek Industries, Ludhiana, [2006] 286 ITR 1 (P&H). The Assessing Officer also initiated penalty proceedings under Section 271(1)(c).
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The CIT (Appeals) allowed the appellant's appeal. The order records findings of fact which we find are established. They have not been shown to be incorrect. We have also held the inferences of fact and law to be well established. In fact, we have referred to additional facts which reinforce the findings.
The findings of the CIT (Appeals) are as follows. The appellant and its sister concern were in the hotel business and the advance was as a measure of commercial expediency and only for the purpose of the business of the sister concern. The funds advanced had been used for the purpose of the business of the sister concern. This plea had been raised by the appellant along with a copy of the balance sheet of the sister concern and the Assessing Officer had not commented adversely on the appellant's contention that the funds were used by the sister concern for the purpose of its business. The CIT (Appeals) also rightly held that the judgment of the Supreme Court in S.A. Builders Ltd. vs. Commissioner of...
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