Commissioner Of Income Tax v. Themis Chemicals Ltd.....opponent(S

O/TAXAP/263/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 263 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?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 ?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 ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus THEMIS CHEMICALS LTD.....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1MR MANISH K KAJI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 08/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeal, the appellant has challenged the judgment and order dated 28.4.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ in ITA No. 2618/Ahd/1998 for AY 1995-96. 2.While admitting this appeal, this Court has framed the following substantial question of law: “Whether on the facts and circumstances of the case and in law was the Appellate Tribunalrighttodeletingthe disallowance of interest of Rs. 45,63,627/- even as the borrowed funds were not utilized for the purpose of business and were given to its sister concern as interest free unsecured loans ?” 3.The return of income showing taxable income at Rs, 1,13,20,015/- is filed on 30.11.2005. The return is accompanied by a statement of computation of total income, copy of Annual Report of the company and audit report u/s. 44AB of the IT Act in statutory form and audit report u/s.80HHC in Form No. 10CCAC. The return was duly processed u/s. 143(1)(a) of the IT Act. In O/TAXAP/263/2007 JUDGMENT response to the notice under sec. 143(2) of the Act, the assessee has furnished necessary documents. After considering the necessary material on record,the assessment order came to be passed. The said order has been challenged by the assessee before the CIT(A) which was dismissed. Against the said appeal, the assessee has preferred an appeal before the ITAT which was partly allowed, against which the present Tax Appeal is preferred by the Revenue. 4.Heard the learned advocates appearing for the parties and considered the submissions. Learned advocate for the appellant has contended that the Tribunal has committed an error in deleting the interest on the loan which is given to its sister concern and nothing is shown on record that it was earned for the commercial expediency. Learned advocate Mr. Kaji has relied on the decision of the Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-Tax (Appeals) & Anr., reported in [2007] 288 ITR 1 (SC), wherein, the Hon’ble Supreme Court has held as under: “In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g., a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of as under: “In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g., a subsidiary of the assessee) should be allowed as a deduction under section 36(1)(iii) of O/TAXAP/263/2007 JUDGMENT the Income-tax Act, 1961, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression “commercial expediency” is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have beenincurredunderanylegal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency.” 5.Relying on the different decision of the Hon’ble Supreme Court and other High Courts, the question was decided in favour of the assessee by the Tribunal in paragraph 4 and have held that CIT (Appeals) allowed this kind of amount for the AY 1996097 and so allowed for AY 1995-96 by well reasoned fact finding and application of law in the factual scenario. In our view, the issue involved in the present appeal is governed by the decision of the Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. Commissioner of Income-Tax (Appeals) & Anr., reported in [2007] 288 ITR 1 (SC). Therefore, the question is answered in favour of the assessee and against the Revenue. The present Tax Appeal is dismissed. (K.S.JHAVERI, J.) mandora O/TAXAP/263/2007 JUDGMENT (K.J.THAKER, J)