Industrial Cables (India) Limited.,, ... vs Assessee on 25 August, 2011

[Cites 16, Cited by 0]

Income Tax Appellate Tribunal - Chandigarh

Industrial Cables (India) Limited.,, ... vs Assessee on 25 August, 2011

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH
                    BENCH 'A'
          BEFORE HON'BLE Ms SUSHMA CHOW LA, JM AND
               HON'BLE SHRI MEHAR SINGH, AM

                        ITA No. 799/Chandi/2009
                        Assessment Year 2006-07


D.C.I.T. Circle               v.        Industrial Cables (India) Ltd
Mandi Gobindgarh                        Industrial Area, Rajpura
                                         PAN: AAACI 3489 P



                        ITA No. 842/Chandi/2009
                        Assessment Year 2006-07

 Industrial Cables (India) Ltd          v.         D.C.I.T, Circle
 Industrial Area, Rajpura                          Mandi Gobindgarh
PAN: AAACI 3489 P

 (Appellant)                                     (Respondent)




                     Department By :         Shri Ajay Sharma
                     Appellant By:           Shri D.K. Goyal

                     Date of hearing: 25.8.2011
                     Date of pronouncement: 30.8.2011


                                   ORDER


 Per Mehar Singh, AM

These are cross appeals filed by the revenue and the assessee. Firstly, the appeal of the revenue is taken up for adjudication. The present appeals filed by the Revenue and the assessee, for Assessment Year 2006-07, are directed against the order of ld. CIT(A) Patiala dated 15.6.2009, u/s 250(6) of the Income-tax Act (for short 'in Act').

ITA No. 799/Chandi/2009 - Revenue's Appeal

2. The revenue has taken the following grounds of appeal:

2 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d "1 In the facts and circumstances of the case, the ld.

CIT(A) has erred in deleting the addition of Rs. 62,45,847/-

made on account of disallowances of interest on interest-free advances/loans given by the assessee to the subsidiary company, M/s Haryana Telecom Ltd., by accepting the ground of commercial expediency whereas no case of commercial expediency was made out."

"2. In the facts and circumstances the ld. CIT(A) has further erred in placing reliance on the Hon'ble Tribunal's decision in the case of the assessee for the Assessment Year 2005-06 ignoring that the Department has not accepting the saiddcn and is in appeal before Hon'ble High Court."

"3 In the facts and circumstances of the case, the ld.

CIT(A) has further erred in placing reliance upon the Hon'ble Tribunal's decision in the case of the assessee for the Assessment Year 2005-06, ignoring that he Department has also filed a Misc. application with the Hon'ble Tribunal, which is still pending."

"4 It is prayed that the order of the ld. CIT(A) be set aside and that of the AO restored."

3. Brief facts of the case are that during assessment proceedings, the AO noted that the assessee had claimed a deduction of Rs. 4,39,20,000/- in the return of income on account of interest paid / payable on loans raised from banks and corporate bodies. The AO has disallowed interest amounting to Rs.

71,27,000/- as per para 4 of the assessment order on account of interest-free loans advanced to its subsidiaries as per details given below:

3 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d Nam e of t h e s u bs i d i ar y c o As o n 1. 4 .0 5 As o n 3 1. 3. 0 6 ( Am ou nt in R u pe es ) G o ods St ar Cr ed i t & p or tf o l 48 , 07 ,0 4 4 48 , 07 ,0 4 4 Har ya n a T e lec om Lt d 3 ,4 7, 0 0, 0 00 3 ,4 7, 0 0, 0 00 IC L T o wer Lt d 8 8, 2 51 88 ,2 5 1 3,95,95,295 3,95,95,295 From the above details, the AO found that assessee had diverted interest bearing loans, for non-business purposes and had charged no interest, on these loans given to its subsidiary companies. He, further, held that when the assessee has claimed a huge deduction on account of interest paid / payable, on loans raised from banks and corporate bodies, then, it is not tenable that the assessee would advance interest free loans, to sister concerns. He, therefore disallowed the amount of Rs. 71,27,000/- @ 18% of the above mentioned loans.

4. The findings of ld. CIT(A) are reproduced hereunder:

"I have considered the facts of the case, rival submissions and counter comments thereon. As regards to loan in the case of Good Star Credit & Portfolio Pvt Ltd and ICL Towers Ltd is concerned, I do not agree with the contention of the appellant that the same cannot be disallowed as no interest was disallowed in Assessment Year 2005-06. I am of the firm view that every year is an independent year and, as such, interest on these two loans has been rightly disallowed by the AO.

Hence, disallowances of interest amounting to Rs. 8,81,153/-

is confirmed. Further, as far as loan to Haryana Telecom Ltd is concerned, I am bound by the order of the Income-tax Appelllate Tribunal, Chandigarh Bench A, Chandigarh and, as 4 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d such, the AO is directed to delete the amount of interest disallowed on the said loan amounting to Rs. 62,45,847/-.

3.4 Hence, ground of appeal is partly allowed."

5. The 'DR' plalced reliance on the assessment order.

6. The 'AR' for the assessee placed reliance on the decision of ITAT Chandigarh dated 12.8.2010 in assessee's own case decided in ITA No. 537/Chandi/2010, for the Assessment Year 2007-08.

7. W e have carefully perused the facts of the case, relevant paper book filed by the assessee and the submissions of both the parties. It is evident that the issue raised by the revenue in its grounds of appeal is squarely covered by the decision of ITAT Chandigarh dated 12.8.2010 in ITA No. 537/Chandi/2010 in the assessee's case. The relevant part of the decision is reproduced hereunder:

"5 . W e h a v e co n s i d e r e d t h e r i va l su b m i s s io n s c a re f u l l y .

A f t e r h a v i n g h e a rd t h e p a r t ie s a n d p e r u s i n g t h e o r d e r s o f t h e l o w e r a u t h o r i t ie s , i t i s c l e a r t h a t t h e f a c t u a l p o s i t i o n i n r e l a t io n t o t h e a m o u n t a d v a n ce d t o M / s H a r y a n a T e le c o m L t d . , a s u b s id i a r y co m p a n y , s t a n d s o n s i m i l a r f o o t i n g a s w a s i n t h e a s s e s s m e n t ye a r 2 0 0 5 -0 6 , w h i ch h a s b e e n a su b j e ct m a t t e r o f c o n s id e ra t io n b y t h e T r i b u n a l v i d e it s o r d e r d a t e d 2 8 . 1 1 . 2 0 0 8 ( s u p ra ) . Th e f o l l o w i n g d i s cu s s i o n in t h e o r d e r o f t h e T r i b u n a l i s w o r t h y o f n o t i ce :

"8. We have considered the rival submissions, perused the mater ial on record. In the instan t case, rehabilitation scheme was sanctioned by the BIFR on 05.07.2001. A copy of the summary record of the proceedings of the hearing held on 5.7.2001 bef ore BIFR have been placed in the Paper Book. It has been held in the af oresaid proceedings in para 22 as under:

5 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d "22. Af ter hearing th e submissions and no caref ully considering the observations made by all in today's hearing and the material on record, the Bench sanctioned the scheme u/s 18(4) of the Act and the Sanctioned Scheme will come in to f orce with immediate ef f ect."

9. It is thus evident f rom the above that, B IFR sanctioned the scheme under section 18(4) of the Act and the Sanctioned Scheme came in to f orce with immediate ef f ect. A copy of the Sanctioned Scheme has also been placed in the Paper Book at pages 25 to 56. From the perusal of the scheme, it is seen that the appellan t co mpany was to pr ov ide pro mo te r s contr ibu tio n of a sum of Rs. 3,50,00,000/- to its subsidiary company, namely, M/s Haryana Telecom L td. Inf act, the scheme also provides in para 6.2 as under:

"d) The company shall satisf y MA that the physical progress and all aspects of cost of the s che me /me ans of f inance of the s che me is complied with as per schedule. To this end, the company shall f urnish to MA such inf ormation and data as may be required by it at quarterly i n t e r v a l s . A n y f i n a n c i a l s h o r tf a l l a r i s i n g o u t o f the delayed implementation of the schedule or f or any other reason shall b me t by the company/promo ters withou t any recourse to F I/Banks or seeking any f urther relief s/concessions including margin money f rom the m than what ha already been provided f or in the Scheme with in a period not exceeding three months."

1 0 . I t i s t h e r e f o r e , c l e a r t h a t , t h e a s s e s s e e wa s o b l i g e d t o provide f unds to the subsidiary company under a rehabilitation scheme sanctioned by B IFR. In o ther words, t h e s e f u n d s we r e p r o v i d e d b y t h e a s s e s s e e t o i t s subsidiary company, namely M/s Haryana Telecom Ltd., as per the scheme f or rehabilitation sanc tioned by the B IFR. Obviously, the appellant can be said to have a deep in terest in the rehabilitation of the business of the subsidiary company. Ostensibly, the f unds have been put to use by the subsidiary f or its business. It is thus a case where f unds have been advanced by the assessee to its s ubs idiar y co mpany on g rounds of co mme r cial e x pe die ncy. I n s o m e wh a t s i m i l a r s i t u a t i o n , A p e x C o u r t i n S . A . B u i l d e r s (supra) observed as under:

" W e wi s h to ma k e i t c l e ar th a t i t i s n o t o u r o p i n i o n th a t i n e v e r y c as e i n te r e s t o n b o r r o we d l o an h as t o b e al l o we d i f th e as s e s s e e ad v an c e s i t to a s i s t e r c o n c e r n . I t al l d e p e n d s o n t h e f ac ts an d c i r c u ms t a n c e s o f th e r e s p e c t i v e c as e . F o r i n s t an c e , if th e d i r e c to r s o f th e s i s te r c o n c e r n u t i l i z e th e a mo u n t ad v an c e d to i t b y th e a s s e s s e e f o r 6 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d th e i r p e r s o n al b e n e f i t, o b v i o u s l y i t c an n o t b e s a i d th a t s u c h mo n e y wa s a d v an c e d as a me a s u r e o f c o mme r c i a l e x p e d i e n c y . H o we v e r , mo n e y c an b e s a i d to b e ad v an c e d to a s i s te r c o n c e r n f o r c o mme r c i a l e x p e d i e n c y i n ma n y o th e r c i r c u ms t a n c e s ( wh i c h n e e d n o t b e e n u me r a te d h e r e ) . H o we v e r , wh e r e i t i s o b v i o u s th a t a h o l d i n g c o mp a n y h as a d e e p i n t e r e s t i n i t s s u b s i d i ar y , an d h e n c e if th e h o l d i n g c o mp an y ad v an c e s b o r r o we d mo n e y to a s u b s i d i a r y an d th e s a me i s u s e d b y th e s u b s i d i ar y f o r s o me b u s i n e s s p u r p o s e s , th e as s e s s e e wo u l d , i n o u r o p i n i o n , o r d i n ar i l y b e e n t i t l e d to d e d u c t i o n o f i n te r e s t o n i ts b o r r o we d l o an s . "

1 1 . F r o m t h e af o r e s a i d , i t i s s af e t o d e d u c e t h a t , a l l t h a t i s r e q u i r e d t o b e s e e n i s wh e t h e r t h e m o n e y h a s b e e n adv anced by th e ass essee on gr ounds of co mme r cial e x p e d i e n c y o r n o t ? If i t i s s o , t h e n n o d i s a l l o wa n c e o f i n t e r e s t i s t e n a b l e a n d t h e a s s e s s e e wo u l d b e e n t i t l e d t o c l a i m o f d e d u c t i o n o f i n t e r e s t o n b o r r o we d l o a n s . I n t h e ins tan t case, as is evident f rom the f acts stated ab ove, it i s a c a s e wh e r e f u n d s h a v e b e e n a d v a n c e d b y t h e a s s e s s e e to its subsidiary company on the ground of commercial expediency. It may be relevant to state here that, th is f act w a s d u l y s t a t e d b e f o r e A s s e s s i n g O f f i c e r , a s wo u l d b e ev id e nt f ro m the re ply f iled bef ore Asse ss ing Of f icer d ate d 09.10.2007 as under:

" A s u m o f R s . 3 , 4 7 , 0 0 , 0 0 0 / - wa s a d v a n c e d t o Haryana Telecom Ltd. Rohtak on various dates as per details attached. Haryana Telecom Ltd. is a subsidiary of Industr ial Cable s (I) L td. IT was declared sick as per Sick Industrial Companies Special Provisions Act, 1985 vide Board f or Financial & Industr ial R econstruction (BIFR) order dated 28-06-1999. The amount under ref erence was paid by Industrial Cables (India) L td. in pursuance of order of BIFR vide the ir order dated 27-08-2001 as promo ter's contr ibu tion for rehabilitation scheme of Haryana Telecom Ltd. ref erence may be made to para 3.0 of the order dated 27-08-2001. In vie w of the f act s tated above, no in terest-f ree advance has been made to a subsidiary company, but the amount has been paid under leg al oblig ation in view of the order of BIFR.

M o r e o v e r , a s af o r e s a i d , H a r y a n a T e l e c o m L t d . i s a subsidiary of you're assessee company and the amount has been paid in addition to the order of BIFR f or commercial expediency and, as such, is f ully covered by the judgement of the apex court in the case of SA Builders vs. CIT , 288 IT R 1. Copies of orders of BIFR ref erred to above are enclosed."

7 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d

12. Inf act, th is submission was also reiterated bef ore C I T ( A ) . H o we v e r , b o t h t h e a u t h o r i t i e s b e l o w o v e r l o o k e d t h e a b o v e f a c t u a l p o s i t i o n a n d , h e l d t h e d i s a l l o wa n c e o f t h e i n t e r e s t t o b e t e n a b l e . W e a r e o f t h e r e s p e c tf u l o p i n i o n t h a t , j u d g m e n t o f j u r i s d i c t i o n a l H i g h C o u r t i n t h e c a s e of the appellan t f or assessment years 1991-92, 1992-93, 1 9 9 3 - 9 4 a n d 1 9 9 6 - 9 7 a r e n o d o u b t b i n d i n g b u t o n l y wh e n the f acts of the case of the appellan t in the ins tan t year and, those years are identical. In the present case, it is undisputed that the money has been advanced by the as sess ee co mpany under a Sanctio ne d sche me of BIF R and i t i s a c a s e wh e r e m o n e y h a d b e e n a d v a n c e d o n t h e g r o u n d of commercial expediency. It is not a case and nor it can be held that, the money had been advanced by the assessee f or non-business purposes. Inf act, there is no such f inding e ithe r by Asses s ing Of f icer o r CIT (A) s o as to e nable us to conclude that money had been diverted f or non-business purposes. On the contrary, mechanic al reliance on the judgement of the Hon'ble Jurisdic tional High Court is also not a correct wa y of f ollowing th e judgement. A gainf ul r ef ere nce can be made to the ju dg me nt of the Ho n' ble Punjab & Haryana High Court in the case of the appellant f o r a s s e s s m e n t y e a r 1 9 9 5 - 9 6 , wh e r e i n t h e j u d g e m e n t o f t h e Hon'ble Punjab & Haryana High Court in the case of the appellan t in IT A No. 88 of 2004 dated 28.03.2006 was not f o l l o we d a n d , i t w a s h e l d a s u n d e r :

"We may notice that although the principle of consistency is applicable and the decision on the is s ue hav ing been take n in f av our of the assessee f or the previous year the same has to b e f o l l o we d , b u t e a c h a s s e s s m e n t y e a r b e i n g a n independent one, in vie w of conscious judgment o f t h i s C o u r t o n t h e i s s u e af t e r r e f e r r i n g t o o t h e r judgments and in absence of any direct j u d g m e n t o f t h e H o n ' b l e S u p r e m e C o u r t , we a r e of the view that the earlier order of this Court dismissing appeal of the revenue in limine cannot be taken to be conclusive."

13. It is thus evident th at, the Hon'ble Court thus held th at f acts of each year are independent and have to be taken in to account for determin ation wh e t h e r the d is allo wance of inte r es t is te nable or no t. In the in s tan t c a s e s i n c e we f i n d i n t h e y e a r u n d e r c o n s i d e r a t i o n t h a t f resh adv ance s hav e bee n made o n the gr ound of c o m m e r c i a l e x p e d i e n c y , t h u s t h e i n t e r e s t d i s a l l o we d b y t h e Assessing Of f icer is unjus tif ie d and thus is not s u s t a i n a b l e . M o r e o v e r , i t i s a l s o e v i d e n t f r o m t h e af o r e s a i d observations of the Hon'ble High Court th at there was no direct judgment of the Supreme Court on th is issue and as such, they had placed reliance on the judgment of S.A. Builders Ltd. Vs CIT and Another (P&H) reported in 269 IT R 5 3 5 wh i c h h a s b e e n e x t r a c t e d a t p a g e s 3 a n d 4 o f t h e judgment. The judgment of S.A. Builders reported in 269 IT R 535 already stands set as ide by the Hon'ble Apex C o u r t a s S . A . B u i l d e r s v s . C I T ( s u p r a ) . H e r e , we a l s o s e e k to place reliance on the judgement of Apex Court in the 8 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d c a s e o f C I T v M o d i I n d s r e p o r t e d i n 4 0 S T C 1 7 3 wh e r e i n i t h a s b e e n h e l d t h a t , o r d e r o f A p e x C o u r t i s t o b e f o l l o we d , e v e n if t h e H o n ' b l e H i g h C o u r t h a s s e n t t h e r e f e r e n c e f o r a p a r t i c u l a r p u r p o s e . I n v i e w t h e r e o f , we a r e o f t h e considered opin ion that in the ins tan t case, disallowance had been made by the l o we r au thorities withou t appreciating the f ac ts of the case and the provisions of law and hence the disallo wance of interest of Rs. 32,98,500/- is the r ef ore, dir ecte d to be de le te d. "

As the identical issue has been adjudicated by ITAT Chandigarh Bench, respectfully following the above decision, the appeal of the revenue is dismissed.

ITA No. 842/Chandi/2009 - Assessee's appeal

Now, we would deal with the appeal filed by the assessee.

8. The assessee has taken the following grounds of appeal:

"1 A) That the ld. CIT(A) Patiala has erred in confirming the addition of Rs. 8,81,153/- as per para 3 of the order u/s 250(6) of Income-tax Act on account of interest free loan to subsidiary company."

"B) That without prejudice to the above the interest disallowed@ 18% of interest free loan is most excessive."

"2 That the part order is against the provisions of law and facts of the case and right is reserved to assail the same on such other grounds as maybe advanced at the time of hearing for which the appellant request to leave to amend, vary from or add to the ground of appeal herein above appearing."

9. Brief facts of the case are that during assessment proceedings, the AO noticed that the assessee had claimed a deduction of Rs. 4,39,20,000/- in the return of income on account of interest paid / payable on loans raised from banks and corporate bodies. The AO has disallowed interest amounting to Rs.

9 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d 71,27,000/- as per para 4 of the assessment order on account of interest-free loans advanced to its subsidiaries as per details given below:

Nam e of t h e s u bs i d i ar y c o As o n 1. 4 .0 5 As o n 3 1. 3. 0 6 ( Am o un t i n Rs . ) G o ods St ar Cr ed i t & p or tf o l 48 , 07 ,0 4 4 48 , 07 ,0 4 4 Har ya n a T e lec om Lt d 3 ,4 7, 0 0, 0 00 3 ,4 7, 0 0, 0 00 IC L T o wer Lt d 8 8, 2 51 88 ,2 5 1 3,95,95,295 3,95,95,295 From the above details, the AO concluded that assessee had diverted interest bearing loans, for non-business purposes and had charged, no interest, on these loans given to its subsidiary companies. He, further, held that when the assessee had claimed a huge deduction, on account of interest paid / payable, on loans raised from banks and corporate bodies, then, it is not tenable that the assessee would advance interest free loans, to sister concerns.

He, therefore disallowed the amount of Rs. 71,27,000/- @ 18% of the above mentioned loans.

10. The findings of ld. CIT(A) are reproduced hereunder:

"I have considered the facts of the case, rival submissions and counter comments thereon. As regards to loan in the case of Good Star Credit & Portfolio Pvt Ltd and ICL Towers Ltd is concerned, I do not agree with the contention of the appellant that the same cannot be disallowed as no interest was disallowed in Assessment Year 2005-06. I am of the firm view 10 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d that every year is an independent year and, as such, interest on these two loans has been rightly disallowed by the AO.

Hence, disallowances of interest amounting to Rs. 8,81,153/-

is confirmed. Further, as far as loan to Haryana Telecom Ltd is concerned, I am bound by the order of the Income-tax Appellate Tribunal, Chandigarh Bench A, Chandigarh and, as such, the AO is directed to delete the amount of interest disallowed on the said loan amounting to Rs. 62,45,847/-.

3.4 Hence, ground of appeal is partly allowed."

11. The 'AR' for the assessee submitted that the loans are old and the addition on account of disallowances of interest cannot be made in the current the Assessment Year, under reference. He was fair enough to state that as far as, loan against ICL Tower Ltd is concerned, the issue of impugned disallowances of interest has been decided against the assessee by the decision of Hon'ble Jurisdictional High Court and the appellant had filed SLP before the Hon'ble Supreme Court and the same has been admitted, (photocopy of Hon'ble Supreme Court order dated 19.9.2009 granting leave filed).

12. The 'DR', On the other hand, vehemently contended that loan has not been given for any business expediency but for non-

business purpose. Therefore, the decision of Hon'ble Supreme Court, in the case of S.A. Builders v. CIT, 288 ITR 1, is not applicable to the facts of the case.

11 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d 13 (i) Both the 'AR' and the 'DR' were of the opinion that the loan given to Haryana Telecom Ltd. is covered by the decision of the Tribunal in ITA No. 237/Chandi/2009, Assessment Year 2005-06 in the assessee's own case, vide order dated 28.11.2008 in favour of the assessee.

13 (ii) The issue of disallowances in the case of ICL Towers Ltd. is decided by the Hon'ble Jurisdictional High Court against the assessee ass admitted in the course of present appellate proceedings.

14. W e have carefully perused the facts of the case, relevant paper book filed by the assessee and the submissions made by the contending parties. As far as interest free loan to Haryana Telecom Ltd. is concerned the issue has been decided by the Tribunal in favour of the assessee. Therefore, respectfully following the decision of ITAT Chandigarh dated 12.8.2010 in ITA No. 537/Chandi/2010, in the assessee's case the issue is decided in favour of the assessee. The relevant part of the decision is reproduced hereunder:

"5 . W e h a v e co n s i d e r e d t h e r i va l su b m i s s io n s c a re f u l l y .

A f t e r h a v i n g h e a rd t h e p a r t ie s a n d p e r u s i n g t h e o r d e r s o f t h e l o w e r a u t h o r i t ie s , i t i s c l e a r t h a t t h e f a c t u a l p o s i t i o n i n r e l a t io n t o t h e a m o u n t a d v a n ce d t o M / s H a r y a n a T e le c o m L t d . , a s u b s id i a r y co m p a n y , s t a n d s o n s i m i l a r f o o t i n g a s w a s i n t h e a s s e s s m e n t ye a r 2 0 0 5 -0 6 , w h i ch h a s b e e n a su b j e ct m a t t e r o f c o n s id e ra t io n b y t h e T r i b u n a l v i d e it s o r d e r d a t e d 2 8 . 1 1 . 2 0 0 8 12 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d ( s u p ra ) . Th e f o l l o w i n g d i s cu s s i o n in t h e o r d e r o f t h e T r i b u n a l i s w o r t h y o f n o t i ce :

"8. We have considered the rival submissions, perused the mater ial on record. In the instan t case, rehabilitation scheme was sanctioned by the BIFR on 05.07.2001. A copy of the summary record of the proceedings of the hearing held on 5.7.2001 bef ore BIFR have been placed in the Paper Book. It has been held in the af oresaid proceedings in para 22 as under:

"22. Af ter hearing th e submissions and no caref ully considering the observations made by all in today's hearing and the material on record, the Bench sanctioned the scheme u/s 18(4) of the Act and the Sanctioned Scheme will come in to f orce with immediate ef f ect."

1 0 . I t i s t h e r e f o r e , c l e a r t h a t , t h e a s s e s s e e wa s o b l i g e d t o provide f unds to the subsidiary company under a 13 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d rehabilitation scheme sanctioned by B IFR. In o ther words, t h e s e f u n d s we r e p r o v i d e d b y t h e a s s e s s e e t o i t s subsidiary company, namely M/s Haryana Telecom Ltd., as per the scheme f or rehabilitation sanc tioned by the B IFR. Obviously, the appellant can be said to have a deep in terest in the rehabilitation of the business of the subsidiary company. Ostensibly, the f unds have been put to use by the subsidiary f or its business. It is thus a case where f unds have been advanced by the assessee to its s ubs idiar y co mpany on g rounds of co mme r cial e x pe die ncy. I n s o m e wh a t s i m i l a r s i t u a t i o n , A p e x C o u r t i n S . A . B u i l d e r s (supra) observed as under:

" W e wi s h to ma k e i t c l e ar th a t i t i s n o t o u r o p i n i o n th a t i n e v e r y c as e i n te r e s t o n b o r r o we d l o an h as t o b e al l o we d i f th e as s e s s e e ad v an c e s i t to a s i s t e r c o n c e r n . I t al l d e p e n d s o n t h e f ac ts an d c i r c u ms t a n c e s o f th e r e s p e c t i v e c as e . F o r i n s t an c e , if th e d i r e c to r s o f th e s i s te r c o n c e r n u t i l i z e th e a mo u n t ad v an c e d to i t b y th e a s s e s s e e f o r th e i r p e r s o n al b e n e f i t, o b v i o u s l y i t c an n o t b e s a i d th a t s u c h mo n e y wa s a d v an c e d as a me a s u r e o f c o mme r c i a l e x p e d i e n c y . H o we v e r , mo n e y c an b e s a i d to b e ad v an c e d to a s i s te r c o n c e r n f o r c o mme r c i a l e x p e d i e n c y i n ma n y o th e r c i r c u ms t a n c e s ( wh i c h n e e d n o t b e e n u me r a te d h e r e ) . H o we v e r , wh e r e i t i s o b v i o u s th a t a h o l d i n g c o mp a n y h as a d e e p i n t e r e s t i n i t s s u b s i d i ar y , an d h e n c e if th e h o l d i n g c o mp an y ad v an c e s b o r r o we d mo n e y to a s u b s i d i a r y an d th e s a me i s u s e d b y th e s u b s i d i ar y f o r s o me b u s i n e s s p u r p o s e s , th e as s e s s e e wo u l d , i n o u r o p i n i o n , o r d i n ar i l y b e e n t i t l e d to d e d u c t i o n o f i n te r e s t o n i ts b o r r o we d l o an s . "

" A s u m o f R s . 3 , 4 7 , 0 0 , 0 0 0 / - wa s a d v a n c e d t o Haryana Telecom Ltd. Rohtak on various dates 14 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d as per details attached. Haryana Telecom Ltd. is a subsidiary of Industr ial Cable s (I) L td. IT was declared sick as per Sick Industrial Companies Special Provisions Act, 1985 vide Board f or Financial & Industr ial R econstruction (BIFR) order dated 28-06-1999. The amount under ref erence was paid by Industrial Cables (India) L td. in pursuance of order of BIFR vide the ir order dated 27-08-2001 as promo ter's contr ibu tion for rehabilitation scheme of Haryana Telecom Ltd. ref erence may be made to para 3.0 of the order dated 27-08-2001. In vie w of the f act s tated above, no in terest-f ree advance has been made to a subsidiary company, but the amount has been paid under leg al oblig ation in view of the order of BIFR.

"We may notice that although the principle of consistency is applicable and the decision on the is s ue hav ing been take n in f av our of the 15 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d assessee f or the previous year the same has to b e f o l l o we d , b u t e a c h a s s e s s m e n t y e a r b e i n g a n independent one, in vie w of conscious judgment o f t h i s C o u r t o n t h e i s s u e af t e r r e f e r r i n g t o o t h e r judgments and in absence of any direct j u d g m e n t o f t h e H o n ' b l e S u p r e m e C o u r t , we a r e of the view that the earlier order of this Court dismissing appeal of the revenue in limine cannot be taken to be conclusive."

H e r e , we a l s o s e e k t o p l a c e r e l i a n c e o n t h e j u d g e m e n t o f A p e x Court in the case of CIT v Modi Inds reported in 40 STC 173 wherein it has been held that, order of Apex Court is to be f o l l o we d , e v e n if t h e H o n ' b l e H i g h C o u r t h a s s e n t t h e r e f e r e n c e f or a particular purpose. In view the r eof , we are of the considered opinion that in the instan t c ase, disallowance had b e e n m a d e b y t h e l o we r a u t h o r i t i e s w i t h o u t a p p r e c i a t i n g t h e f acts of the case and the provisions of law and hence the 16 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d disallo wance of interest of Rs. 32,98,500/- is theref ore, directed to be deleted."

15 (i) The same issue is decided in favour of the assessee in its own case in ITA No. 237/Chandi/2008, Assessment Year 2005-06.

15 (ii) In view of the ratio laid down in the above case, the issue is decided in favour of the assessee.

16. As far as, the interest free-loan to ICL Tower Ltd is concerned, the issue is adjudicated against the assessee by the Hon'ble Jurisdictional High Court as admitted by the 'AR', for the assessee, at the time of hearing before the Bench. Further the 'AR' for the assessee submitted a copy of photocopy of SLP filed against the order of Hon'ble Jurisdictional High Court. However, as of now the decision of Hon'ble Jurisdictional High Court is binding and has not been reversed by the Hon'ble Apex Court. Therefore, respectfully following the decision dated 21.12.2006, at 2005-06 the Hon'ble Jurisdictional High Court, the issue in question is decided in farour of the revenue and against the assessee.

17. Further the ld. CIT(A), confirmed, disallowance of interest, to the tune of Rs. 8,81,153/-, in respect of interest free loan advanced to Goods Star Credit and Portfolio Pvt Ltd. The contention of the assessee that the loan pertains to earlier years, cannot be accepted as plausible explanation. In the light of decision of Hon'ble Jurisdictional High Court, in the case of CIT v. Abhishek Industries, 286 ITR 1 (P & H), the issue in question, is decided, in favour of the revenue. The relevant portion of the decision of Hon'ble 17 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d Jurisdictional High Court, is reproduced, hereunder, for the purpose of appreciating the same:

"Business expenditure - Interest on borrow ed capital - condition precedent for grant - Borrow ed capital must be used for business purposes - loans advanced interest-free to sister concerns w hile payment outstanding on borrow ings by company - Inference that advances w ere from borrow ed funds and for non-business purposes - Onus on assessee to show borrowings used for business purposes - Not on revenue to show nexus betw een borrow ings and advances - That advances by company were out of its ow n funds of share capital or out of mixed funds, not sufficient to discharge onus - interest to extent relating to sums advanced interest-free to be disallowed - Income-tax Act, 1961, s. 36(1)(iii).

Section 36(1)(iii) of the Income-tax Act provide for deductions of interest on loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the AO that whatever loans were raised by the assessee were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be a very heavy onus on the assessee to discharge before the AO to the effect that in spite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, there was justification to advance loans to sister concerns for non-business purposes without any interest and accordingly the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent.

The entire money in a business entity comes in a common kitty. Monies received as share capital or as term loan or as working capital loan or as sale proceeds do not have a 18 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d different colour. W hatever are the receipts in the business have the colour of business receipts and have no separate identification. The only thing sufficient to disallow the interest paid on the borrowings to the extent the amount is lent to a sister concern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had a surplus which, according to it, could not be repaid prematurely to any financial institution, it would either be required to be circulated and utilized for the purpose of business or to be invested in a manner in which it generates income and not diverted towards sister concerns free of interest. This would result in not presenting the true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the benefits thereof. There should be nexus between the use of borrowed funds for the purpose of business to claim deduction u/s 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concerns on interest free basis are to be disallowed.

If the plea of the assessee is accepted that the interest free advances made to the sister concerns for non-business purposes were out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee would show the figures of capital introduced by it as a margin for loans being raised and after the loans are raised, when substantial amounts are diverted to sister concerns for non- business purposes without interest, a plea would be raised that the amount advanced was out of its capital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans have been raised by the assessee at the time of disbursement of funds. This would depend on the facts of each case.

19 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d The view that where the amount is advanced from a mixed account or share capital or sale proceeds or profits, it would not be deemed diversion of borrowed capital or that the revenue had not been able to establish nexus of the funds advanced to the sister concerns with the borrowed funds, is not correct. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed u/s 36(1)(iii) of the Act.

CIT v. Tin Box Co. (2003) 260 ITR 637 (Delhi), CIT v. Orissa Cement Ltd. (2001) 252 ITR 878 (Delhi), CIT v. Radico Khaitan Ltd. (2005) 274 ITR 354 (All), CIT v. Prem Heavy Engineering W orks P. Ltd (2006) 285 ITR 554 (All), CIT v. Britannia Industries Ltd. (2006) 280 ITR 525 (Cal) and R.D. Joshi and Co. v. CIT (2001) 251 ITR 332 (MP) dissented from.

The assessee, a public limited company, filed its return of income for the Assessment Year 1993-94 showing its income as "nil". Subsequently, a revised return was filed declaring a loss of Rs. 4,53,07,410/-. The assessment was completed assessing the loss at Rs. 96,81,213/-, inter alia, disallowing interest u/s 36(1)(iii) of the Act on the ground of interest-free purposes and treating the receipt of sales tax subsidy by the assessee as revenue receipt, rejecting the assessee's explanation that the loans were given out of the company's own funds represented by share capital and that no borrowed funds had been utilized in giving the interest free loans, that the interest-free loans were advanced to the sister concerns before the commencement of production and also after the commencement of production. The Tribunal held in favour of the assessee. On appeal contending, inter alia, that the tax effect in the present case being "nil" as even if the deductions in question were disallowed, no tax would be 20 ITA No. 799 & 842/Chandi/2009 D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d payable and since by circulars of the Board a limit had been prescribed for filing appeals before the court, the appeal should not be entertained:

Held, (i) that the share capital is meant to be used for productive use in the business. If the share capital, according to the assessee, was surplus and it could part with the same to its sister concern for non-business purposes without any interest, there was no need to raise the loans to that extent and the amount of such share capital should have been utilized for the project itself. In case the assessee had not advanced loans to its sister concern on interest-fee basis, even if the alleged surplus amount could not be repaid to the financial institution before the scheduled date as far as the term loan was concerned, the interest being paid by the awe on the working capital could have certainly been saved to that extent. The borrowing of the funds by the company to that extent was not for the purpose of business and there was nothing on record to suggest that amounts were advanced to the sister concerns to advance some business object. Accordingly, the assessee was not entitled to claim deduction of the interest on the borrowings to the extent those were diverted to sister concerns or other persons without interest."

18. In view of the above discussion, it is evident that the issue is covered by the decision of Hon'ble Jurisdictional High Court in the case of Abhishek Industries (supra). Respectfully following the decision of the Hon'ble Jurisdictional High Court, the issue is decided in favour of the Revenue and against the assessee.

21 ITA No. 799 & 842/Chandi/2009

D C IT V . In d u s t r i a l C a b l e s ( I n d i a ) Lt d 19 In view of above discussions, the issues are adjudicated as indicated above.

20 In the result, appeal filed by the revenue is dismissed and the appeal filed by the assessee is partly allowed.

                     Order Pronounced on     30.8.2011


              Sd/-                                 Sd/-
           (SUSHMA CHOWLA)                     (MEHAR SINGH)
          JUDICI AL MEMBER                  ACCOUNANT MEMBER

Chandigarh, the 30.8.2011

SURESH

Copy to:

     1.     The   Appellant
     2.     The   Respondent
     3.     The   CIT
     4.     The   CIT(A)
     5.     The   DR

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Income Tax Appellate Tribunal - Chandigarh

Industrial Cables (India) Limited.,, ... vs Assessee on 25 August, 2011