IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 310 of 2010 For Approval and Signature:
HONOURABLE MR.JUSTICE AKIL KURESHI HONOURABLE MS JUSTICE SONIA GOKANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
========================================================= ASSISTANT COMMISSIONER OF INCOME TAX BHARUCH CIRCLE -
Appellant(s) Versus GUJARAT NARMADA VALLEY FERTILIZERS CO LTD - Opponent(s) ========================================================= Appearance :
MR KM PARIKH, ld.advocate for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 31/08/2012 CAV JUDGMENT (Per : HONOURABLE MS JUSTICE SONIA GOKANI)
1. The appellant-Revenue, being aggrieved by the order of Income Tax Appellate Tribunal, Ahmedabad dated 12.12.2008 (“Tribunal” for short) has preferred the present Appeal under section 260-A of the Income Tax Act, 1961, (hereinafter referred to as “the Act”) proposing the following questions of law for determination of this Court:
“A] Whether on the facts and in the circumstances of the case, the Tribunal was right in law in directing to allow deduction of Rs. 7,97,83,057/- disallowed u/s. 36(1)(iii) despite the fact that the decision of Hon'ble Supreme Court in the case of S.A.Builders Vs.CIT reported in 288 ITR 1 was clearly applicable to the facts of the case ?”
2. Upon hearing learned advocate Mr. K.M.Parikh appearing for the Revenue and on close perusal of record, it appears that the Assessee-Company advanced its funds to the Associate Companies available at its disposal . Assessing Officer while working out the fund and utilization thereof, concluded that those were the interest bearing funds utilized for making interest free advances, relying on the decision in case of Shri Digvijay Cement Co.Ltd. Vs. CIT reported in (1982) 138 ITR 45(Guj) and in case of British Paints (India )Ltd. Vs. CIT reported in 190 ITR 196 (Cal). Assessing Officer therefore disallowed the claim of interest on borrowed fund amounting to Rs. 7,97,83,057/- .
Ld. advocate has also heavily bent upon the decision of Apex Court in case of S.A.Builders Ltd. Vs. Commissioner of Income Tax (Appeals) and another reported in [2007] 288 ITR 1 (SC). The test applied by the Apex Court is whether the loan was given by the assessee as a measure of commercial expediency by holding that “the expression “commercial expediency” is one of wide import and includes such expenditure as a prudent business-man 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 grounds of commercial expediency.”
Apex Court also held that “once it is established that there was nexus between the expenditure and purpose of the business, Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits .”
3. In an appeal before CIT (Appeals) considering the approach of ITAT (Ahmedabad) for the Assessment Year 1995-96, it quashed and set-aside such decision of Assessing Officer by holding thus :
“We have considered the rival submissions. On going through the figures in the balance sheet of the assessee company as on 1.4.94 and 31.3.95 we find that the share capital and the reserves and surplus together with the accumulated depreciation would far exceed the loans and advances made to the above said three concerns. The percentage of loans and advances in relation to the own funds of the assessee company would be 0.012% as on 1.4.94 and 0.0135% as on 31.3.95 as per details furnished on page 62 of the paper book. In other words there were sufficient funds available with the company on which no interest was paid and out of which the loans and advances to the above said concerns could be made. There is no clear evidence that the interest bearing loans taken by the assessee company for the purpose of its own business have been diverted for non-business purposes. No direct nexus has been proved either by the A.O. or by the CIT (A) between the interest bearing loans taken and the interest free advances given. In the circumstances, we find that the ratio of the decisions relied upon by the ld. Counsel for the assessee (vide para 7.1)(supra) is squarely applicable to the facts of the present case. In this view of the matter, we direct the A.O. to delete the addition .
The said ITAT decision has been followed by the ITAT in the appellant's case for the assessment years 1992-93 to 1994-95 and A.Y.1995-96 and by the CIT(A) for the assessment years 1996-97 to 2001-02. “
4. When further challenged before ITAT, it concurred with the findings of CIT (Appeals) relying on the decision of Apex Court in case of Munjal Sales Corporation Vs. CIT and another (2008) 298 ITR 298 (SC) wherein the Apex Court has held thus:
“Under the Income Tax Act, 1961, after amendment of the Act by the Finance Act, 1992, in order that interest paid on borrowings can be allowed as a deduction in computing the business profits, every assessee, including a firm, has to establish, in the first instance, that it was allowable under section 36(1)(iii); and in the case of a firm, further that the amount does not exceed the limit fixed by section 40(b)(iv).”
Apex Court in this decision of Munjal Sales Corporation (Supra) on having found that the opening balance of the profits of the assessee-firm was huge and the profits were sufficient to cover the loan given to a sister concern, which was meager as compared to the profits of the firm and therefore,it held that the loans were from the assessee's own fund.
5. Basing its decision on aforementioned authority of Munjal Sales Corporation (Supra) and also since the Tribunal in the year 1995-96 had upheld the say of the assessee and the facts in the instant case (for the Assessment Year 2002-03) being identical, it upheld the order of CIT (Appeals ).
6. Resultantly on having found that Tribunal has rightly satisfied itself that there was sufficient funds available with the assessee-firm no interference is called for. Again, in the past for earlier assessment years, the decision of the Tribunal never came to be challenged by the Revenue, and even if done, the same was not quashed/set aside, with identical facts emerging for Assessment Year 2002-2003 also, contentions raised would have no sustainability. With abovementioned facts and with application of decision of Munjal Sales Corporation (Supra) all other contentions would pale into insignificance and hence, this appeal merits no consideration and is dismissed.
(Akil Kureshi J.) (Ms.Sonia Gokani, J.) bina