The Commissioner Of Income Tax v. M/S.cifco Ltd

(-1-) IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1355 OF 2008 INCOME TAX APPEAL NO.1355 OF 2008 The Commissioner of Income Tax..Appellant Vs. M/s.CIFCO Ltd. ..Respondent WITH WITH INCOME TAX APPEAL NO.107 OF 2009 INCOME TAX APPEAL NO.107 OF 2009 The Commissioner of Income Tax..Appellant Vs. M/s.CIFCO Ltd. ..Respondent WITH WITH INCOME TAX APPEAL NO.201 OF 2009 INCOME TAX APPEAL NO.201 OF 2009 The Commissioner of Income Tax..Appellant Vs. M/s.CIFCO Ltd. ..Respondent WITH WITH 8 INCOME TAX APPEAL (LODG.) NO.1030 OF 200 8 INCOME TAX APPEAL (LODG.) NO.1030 OF 200 8 INCOME TAX APPEAL (LODG.) NO.1030 OF 200 The Commissioner of Income Tax..Appellant Vs. M/s.CIFCO Ltd. ..Respondent Mr. P.S. Sahadevan with Mr. Vimal Gupta for the Appellants. Mr. V.B. Joshi with Mr. Sameer G. Dalal, for the Respondents. CORAM: F.I. CORAM: F.I.REBELLO&R.S.MOHITE, JJ.DATED: 13th February, 2009 R.S.MOHITE, JJ. DATED: 13th February, 2009 (-2-) P.C.: P.C.: P.C.: . In all these Appeals which are for different assessment years the question which arises is as under:- "Whether on the facts and in the circumstances of the case the Hon’ble Tribunal was justified in law in allowing the appeal of the assessee and directing the Assessing Officer to delete the interest charged on the interest free advances diverted to group concerns." The issue pertains to disallowance of interest. In respect of previous assessment years the Tribunal has noted that the Assessing Officer had not disallowed the interest on the loans advanced. However, for the assessment year in question in respect of loans taken by the assessee the interest was disallowed. . In Appeal preferred by the assessee before the C.I.T. (A) the submission on behalf of the assessee was that in so far as Arcadia Investment is concerned the appellant was using their office premises at Ahmedabad as its Branch Office and the (-3-) rent charges by Arcadia Investment was less in view of the fact that advance was given. In so far as Apurva Investment Ltd., is concerned, it was argued that it was a subsidiary of the Appellant. It was owning a flat in Wallace Apartment, Mumbai. The flat was leased to the Respondent Company to be used for its Managing Director. The advance was given for the purchase of the above flat. After considering the contentions advanced the learned CIT (A) did not agree with the contentions urged by the assessee and confirmed the order of the Assessing Officer. 3. Aggrieved by the said order the assessee preferred Appeals before the learned Tribunal which were disposed of by common order dated 26th September, 2007. Before the Tribunal it was argued on behalf of the Appellant that no disallowance was made in the earlier years. It was also submitted that the source of funds was not from the funds on which the interest was paid. For that purpose reliance was placed on Annexure I of the submissions wherein specific details of the funds borrowed in the year and utilised thereafter was given. . The learned Tribunal based on the material on record was pleased to hold that admittedly these loans have been given by the assessee to these two (-4-) companies in the earlier years and no disallowance of interest was made in earlier years. It also noted that premises belonging to these companies are being used by the assessee on concessional rate and, therefore, commercial benefits have been derived by the assessee and in view of this matter held that there appears no reason to disallow the interest on those advances. 4. Revenue being aggrieved by the said order have preferred these Appeals. wherein specific details of the funds borrowed in the year and utilised thereafter was given. . The learned Tribunal based on the material on record was pleased to hold that admittedly these loans have been given by the assessee to these two (-4-) companies in the earlier years and no disallowance of interest was made in earlier years. It also noted that premises belonging to these companies are being used by the assessee on concessional rate and, therefore, commercial benefits have been derived by the assessee and in view of this matter held that there appears no reason to disallow the interest on those advances. 4. Revenue being aggrieved by the said order have preferred these Appeals. 5. As noted earlier the advances were given to sister Companies. The first advance was given to a 100% subsidiary company Apurva Investments Ltd. which was given in 1985. The loan taken by the assessee was in the year 1990 from Amalgamated Electricity Co., Ltd. Clearly, therefore, in so far as the loan advanced to Apurva is concerned, the interest could not have been disallowed. In fact in the document available before the A.O., the Company had pointed out that the loan of Rs.9,50,000/- from Amalgamated Electricity Co. Ltd. was utilised for repayment of ICD. The loan advanced was for commercial expediency. 6. We then come to the loan in so far as Arcadia Investments Ltd., is concerned. The loan (-5-) advanced was in the sum of Rs.15,03,105/- for commercial expediency. The next loan after 1990 is in the sum of Rs.1,75,000/- was received on 30th August, 1994 and thereafter other loans. We are really not concerned with them. Therefore, admittedly for the year 1991 when the loan was advanced to Arcadia Investments Ltd., it could not have been from loan taken from Amalgamated Elec. Co. Ltd., as that was limited to Rs.1.75 lakhs from Oceanic Investments Co. Ltd. 7. Considering these facts, in our opinion and considering that in the earlier years also the interest had not been disallowed the Tribunal in its ultimate conclusion was right in holding that the loan taken was not used to give a loan to the sister company. Admittedly the loans advanced were from the surplus with the company. Even otherwise it is open to a company on the ground of commercial expediency to advance a loan to its sister company. See S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) & Ors., (2007) 288 ITR 1 (S.C.). Here a finding of fact has been recorded that the loan was given for ’commercial expediency’. 8. For the view taken we do not propose to go into the issue as to whether the loan advanced to 100% subsidiary companies were for the purpose of (-6-) commercial expediency. 9. For the aforesaid reasons we find no merit in these appeals which are dismissed. (R.S.MOHITE, J.) (F.I.REBELLO,J.)