Income Tax Appellate Tribunal - Delhi
Dcit Circle 9 (1), vs Assessee on 28 August, 1999
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCH "G" DELHI ]
BEFORE SHRI R. P. TOLANI, JM AND SHRI K. D. RANJAN, AM
I. T. Appeal No. 4031 (Del) of 2007.
Assessment year : 2003-04.
Dy. Commissioner of Income-tax, M/s. Sunrays Properties & Investment Co. P. Ltd.,
C i r c l e : 9 (1), Vs. 414/1, 4th Floor; DDA Commercial Complex,
N E W D E L H I. Distt. Centre, Janak Puri,
N E W D E L H I.
P A N / G I R No. AAA CS 3655 C.
( Appellant ) ( Respondent )
Assessee by : Shri Anoop Sharma, Adv.; &
Shri Manu K. Giri, Adv.;
Department by : Shri B. Kishore, Sr. D. R.
O R D E R.
PER K. D. RANJAN, AM :
This appeal by the Revenue for assessment year 2003-04 arises out of order of the ld. CIT (Appeals)-XII, New Delhi.
2. The ground of appeal raised by the Revenue reads as follows :-
" On the facts and circumstances of the case, the ld. CIT (Appeals) has erred in law and on facts in deleting the disallowance of Rs.41,61,135/- made by the AO on account of interest paid on secured loans for Rs.41,61,135/-."
3.1 The only issue for consideration relates to deleting the disallowance of Rs.41,61,135/- made by the assessing officer on account of interest paid on secured loans. The facts of the case 2 I. T. Appeal No. 4031 (Del) of 2007.
stated in brief are that the assessee company had taken corporate loan of Rs.11 crores from ICICI bank on 28th August, 1999 for the purpose of meeting a part of assessee's fund requirements for conversion of warrants of Apollo Tyres Ltd. held by the assessee company to the equity shares of Apollo Tyres Ltd. and other requirement of funds. The loan was sanctioned against pledge of equity shares of Apollo Tyres Ltd. by promoters of company. At the end of every fortnight the value of pledged shares shall be at least twice of the amount outstanding under this loan. The value of shares shall be calculated as the lower of average closing prices of the shares on NSE and BSE for that fortnight. The company at all points of time shall maintain a debt service cover of 1.5 between successive due dates. The company shall procure and deliver to ICICI before any disbursement by ICICI out of the facility, irrecoverable and unconditional personal guarantee from Shri O. S. Kanwar in favour of ICICI for the repayment of the facility and the payment of all interest and other money payable by the company. The agreement also provided that the assessee company shall not pay any guarantee commission to the said guarantor. The assessee company availed the term loan, which was utilized by the company for conversion of warrants of Apollo Tyres Ltd. into equity shares. During the assessment year under consideration the assessee company paid the following amounts as interest-free loan to Shri O.S. Kanwar as under:-
Sl.No. D a t e. A m o u n t s. 1. 26/04/2002 Rs.10,00,000/- & Rs.1,40,00,000/-; 2. 21/05/2002 Rs.1,20,00,000/-; 3. 06/06/2002 Rs.50,00,000/-. 3.2 The AO during the course of assessment proceedings required the assessee to show
reasons as to why interest was not charged on the loan amounts paid to Shri O. S. Kanwar. It was submitted by the assessee that Shri O. S. Kanwar had given his personal guarantee to the bank for availing term loan of Rs.11 crores required for conversion of warrants of Apollo Tyres Ltd. into equity shares of Apollo Tyres Ltd. The fund was sanctioned by the bank with the clear understanding from the company that no guarantee commission shall be paid to the guarantor by the company. The assessee did not pay any guarantee commission to Shri O. S. Kanwar. Had 3 I. T. Appeal No. 4031 (Del) of 2007.
this condition not been imposed by the bank, the assessee would have paid the guarantee commission every year to Shri O. S. Kanwar and had claimed payments of guarantee commission as business expenditure and would have been allowed as deduction. It was also submitted that Shri O. S. Kanwar was neither a share-holder nor Director of the assessee company and as such he had no interest in any transaction carried on by the company. Since no guarantee commission was paid to Shri O.S. Kanwar, interest on loan given by the assessee to Shri O. S. Kanwar was not charged. Shri O. S. Kanwar was one of the Directors of Apollo Tyres Ltd. It was submitted that the loan was given from assessee's own funds. Another amount of interest free loan of Rs.7 lakhs was given to Shri U. S. Oberoi. The AO examined the financial status of the assessee. The assessee company had debit balances of accumulated losses of Rs.4,64,29,380/- and Rs.4,16,67,012/- as on 31st March, 2003 and 31st March, 2002 respectively. The assessing officer observed that the assessee company preferred to utilize its borrowed funds for advancing interest free loans to the extent of Rs.3,20,00,000/- to Shri O. S. Kanwar and Rs.5 lakhs to Shri U. S. Oberoi having no nexus with the business of the assessee company. In the circumstances and on the facts of the case the amount of interest of Rs.1,64,59,587/- on secured and unsecured loans debited to profit and loss account claimed by the assessee as business expenditure could not be considered as allowable expenditure under section 37(1) of the Act as the same was not expended wholly and exclusively for the purposes of business. Therefore, the interest paid on secured loans of ICICI and Kotak Mahindra to the extent of interest at the rate of 14.5 per cent on the above-mentioned interest free loans/advances for the relevant/proportionate period was treated as expenditure not incurred wholly and exclusively for the purpose of business by the assessee company. The AO accordingly disallowed the amount of Rs.41,61,135/-.
4. Before the ld. CIT (Appeals) it was submitted that the company was sanctioned rupee term loan not exceeding Rs.11 crores to borrow from ICICI Bank related for the purpose of making a part of assessee's funds requirement for conversion of warrant of Apollo Tyres Ltd. held by the assessee to equity shares of Apollo Tyres Ltd. and the other requirements of funds. There was one of the conditions of personal guarantee of Shri O. S. Kanwar in the corporate rupee term loan agreement executed between the assessee and ICICI Bank on 28/08/2009.
4I. T. Appeal No. 4031 (Del) of 2007.
During the year under consideration, Shri O. S. Kanwar was provided interest free loan. It was also submitted that the loan was sanctioned on 28/08/2009 and the repayment of loan started on 15/09/2000. The assessee had not received any installment of loan from the bank during the year under consideration. Therefore, it was wrong on the part of assessing officer to say that Shri O. S. Kanwar was paid out of the loan raised from the bank. The funds were advanced to Shri O. S. Kanwar out of company's own funds. The loan raised from ICICI was directly remitted to Apollo Tyres Ltd. and this loan transaction was not routed through the bank account of the assessee which further proved that Shri O. S. Kanwar was not paid out of loan raised by the assessee company, but it was paid out of company's own funds. The assessing officer while framing the assessment assumed that the company had foregone the interest on the loan paid to Shri Kanwar at the rate of 14.5 per cent and the interest had not been charged by the company on secured loans raised by it from the bank. As regards the loan advanced to Shri U. S. Oberoi, it was submitted that there was opening balance of Rs.5 lacs as on 5/02/2002 against which the company had received back Rs. 2 lacs on 25th September, 2002 leaving a balance of Rs. 3 lacs due from him. He is neither a share holder nor a whole-time Director of the assessee company and had also not been paid remuneration from the company. The loan was advanced to him in the previous year and no portion of loan was paid out of term loan raised from the bank. It is in the wisdom of Board of Directors to waive the interest amount charged from him because of the reason that he was not getting any remuneration nor was any benefit/perquisite being provided by the company to Shri Uberoi. Therefore, the disallowance of interst was not justified.
5. The ld. CIT (A) on consideration of the above facts and relying on decision in the case of CIT Vs. Britannia Industries Ltd. 285 ITR 525 (Cal.) and Hon'ble Supreme Court decision in the case of Godhra Electricity Co. Ltd. 225 ITR 746 and Gauhati High Court decision in the case of Kesri Chand Jaisukh Lal Vs. CIT 248 ITR 47 held that no addition on account of notional interest could be charged in the case of the assessee. He accordingly deleted the addition.
6. Before us the ld. Sr. DR submitted that no case of business expediency had been made out by the assessee. The loan was received from the bank in 1999 and the loan has been paid in 5 I. T. Appeal No. 4031 (Del) of 2007.
the financial year 2002-03. Therefore, the ld. CIT (A) was not justified in deleting the addition on the basis of commercial expediency. He placed reliance on the decision of Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industries Vs. CIT 324 ITR 396 (Del). It was also submitted that the assessee has been paying interest at the rate of 14.5 per cent to the banks whereas interest free loan has been advanced. He further submitted that the contention of the assessee that the amount of commission not charged for giving bank guarantee does not commensurate with the interest foregone. Had this amount not given free of interest, the assessee would have saved interest to that extent by making the payment to the bank. Therefore, it is not a case of commercial expediency which had been explained by Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industries (supra). On the other hand, the ld. AR of the assessee supported the order of the ld. CIT (Appeals) relying on the decisions of various Courts such as DCIT Vs. Core Healthcare 198 ITR 194 (SC); CIT Vs. Sabina Detergents P. Ltd. 303 ITR 320 (Mad.); and S. A. Builders Vs. CIT 288 ITR 1(SC).
7.1 We have heard both the parties and gone through the material available on record. The assessee received term loan at the rate of 14.5 per cent per annum from ICICI Bank and Kotak Mahindra. In addition to securities pledged these financial institutions asked the assessee to furnish personal guarantee of Shri O. S. Kanwar. Shri O. S. Kanwar had given his personal guarantee for the sanction of the loan in favour of the assessee without charging any guarantee commission. The said loan was sanctioned by ICICI and Kotak Mahindra on 28th August, 1999. The assessee had given interest free loan to Shri O. S. Kanwar in the month of April, 2002 to June, 2002. The contention of the assessee is that the interest free loan has been advanced to Shri O. S. Kanwar in lieu of favour of giving personal guarantee to financial institutions without payment of any commission in respect of the guarantee given by Shri O. S. Kanwar. The assessee opted term loan of Rs.11 crores for conversion of warrants of Apollo Tyres into equity shares of Apollo Tyres Ltd. It is also a fact that the assessee company had pledged securities for obtaining the loans from financial institutions. Shri O. S. Kanwar at the time when he gave personal guarantee was one of the Directors of Apollo Tyres Ltd.(for short 'ATL').
6I. T. Appeal No. 4031 (Del) of 2007.
7.2 We have gone through the terms and conditions of agreement dated 28.08.1999. Clauses 3.1 to 3.4 of the agreement provide for the securities to be given by the assessee and are reproduced as under:-
" 3.1 SECURITY FOR THE FACILITY :
The Facility together with all interest, liquidated damages, front end fee, premia on prepayment, costs charges, expenses and other monies whatsoever stipulated in or payable under the Facility Agreement shall be secured as stated below :
(xv) Pledge of 6.186 million registered equity shares of ATL, held by the promoters. Any further stake acquired by the promoters shall also be pledged under this transaction irrespective of adequacy of security cover;
(xvi) Negative pledge of 1.4 million shares of ATL, held by the promoters allotted under preferential allotment in September 1998 and held with a lock in period expiring on September 17, 2001. The promoters shall give an undertaking to create pledge on the above 1.34 million shares on expiry of the lock in period;
(xvii) The above pledge shall rank pari passu with the pledges to be created in favour of ICICI to secure the rupee loans of Rs.70 million given to Neeraj Consultants Ltd. and Rs.120 million to Constructive Finance (P) Ltd.;
(xviii) A lien on dividends payable by ATL on 7.526 million shares (including the 6.186 million shares pledged and 1.34 million shares having a lock-in.);
(xix) A lien on the Management Commission payable by ATL to Shri O. S. Kanwar and Shri Neeraj Kanwar;
(xx) Charge over all movable assets of the company;
(xxi) Irrevocable and unconditional personal guarantee of Shri O. S. Kanwar, Shri Neeraj Kanwar and Shri Raaja Kanwar.
7I. T. Appeal No. 4031 (Del) of 2007.
3.2 SECURITY COVER :
(v) At the end of every fortnight the value of the pledged shares shall be at least twice the amount of outstanding under this loan. The value of the shares shall be calculated as the lower of average closing prices of the shares on the NSE and the BSE for that fortnight;
(vi) The company shall at all points of time maintain a Debt Service Cover of 1.5 between successive due dates;
3.3 CONTINGENT CONDITIONS :
(xvii) The pledged shares shall be valued every fortnight and shortfall, if any, shall be replenished by the company, so as to maintain minimum 100 per cent margin, by way of additional security or repayment of uncovered amounts;
(xviii) The company shall replenish the shortfall in security within a week of such shortfall;
(xix) In the event of failure to replenish the shortfall in security, ICICI shall have the option to call back a part of the loan;
(xx) ICICI retains the right to refuse additional security and sell the shares of part thereof if the security cover falls below 2 times.
3.4 GUARANTEE :
The company shall procure and deliver to ICICI before any disbursement by ICICI out of the Facility, irrevocable and unconditional personal guarantee from Shri O. S. Kanwar, Shri Neeraj Kanwar and Shri Raaja Kanwar in favour of ICICI for the due repayment of the Facility and the payment of all interest and other monies payable by the Company, in a form prescribed by ICICI. The Company shall not pay any guarantee commission to the said guarantors."8
I. T. Appeal No. 4031 (Del) of 2007.
7.3 From the perusal of the terms and conditions of security given by the assessee for the purpose of borrowing funds from ICICI Ltd. it is clear that the promoters of the assessee had pledged 6.186 million registered equity shares of ATL held by them. The promoters have also given undertaking to create pledge on 1.34 million shares out of 1.4 million shares allotted to promoters under preferential allotment in September, 1998 on the expiry of lock-in period. A lien on dividends payable by Apollo Tyres Ltd. on 7.526 million shares [6.186 + 1.34] was also created. Charge over all movable assets of the company was also created. Clause 3.2 of Security Cover provides that the value of pledged shares shall be at least twice of the amount of outstanding loan. The value of shares was to be calculated as lower of the average closing prices of shares on NSE and BSE fortnightly. The company was to maintain at all points of time a debt service cover of 1.5 between successive due dates. In a case if there was any shortfall in the value of pledged shares the assessee was require to replenish so as to maintain minimum 100 per cent margin by way of additional security or repayment of uncovered amount. ICICI retained the right to refuse additional security and sell the shares or part thereof if the security fell below two times. From the above terms and conditions of the agreement given to the assessee it is evident that the loan was sanctioned by ICICI and Kotak Mahindra Ltd. merely because of personal guarantee given by Shri O. S. Kanwar and the assessee was so much obliged to advance interest free loan to Shri O. S. Kanwar that too after expiry of period of almost three years.
7.4 We have also gone through the extracts of Board's Meeting of Apollo Finance Ltd. held on 27th September, 2000 wherein issuance of corporate guarantee was approved. As per minutes of the Board's Meeting it is seen that the Directors have noted that ICICI Ltd. had sanctioned financial assistance to the extent of Rs.30 crores vide their letter dated 5th August, 1999 to Constructive Finance Pvt. Ltd., Sunrays Properties and Investment Company Pvt. Ltd. and Neeraj Consultants Ltd. to meet a part of their fund requirement. These companies had requested Apollo Finance Ltd. for issuance of corporate guarantee in favour of ICICI Ltd. by the company. After some deliberations the Board of Apollo Finance Ltd. passed the following resolution:-9
I. T. Appeal No. 4031 (Del) of 2007.
" Resolved that Shri Prosad Dasgupta, Shri P. N. Wahal, Directors and Shri Satish Mahajan, Manager - Director of the company be and are hereby severally authorized to execute corporate guarantee(s) in favour of ICICI Ltd., in connection with financial assistance to be given by ICICI Ltd. to Constructive Finance Pvt. Ltd. for Rs.12 crores, Sunrays Properties and Investment Company Pvt. Ltd. for Rs.11 crores and Neeraj Consultants Ltd. for Rs.7 crores in consideration of which a commission of 1.8 per cent per annum be charged from the three aforesaid companies availing the said financial assistance.
Resoloved further that Shri Prosad Dasgupta, Shri P. N. Wahal, Directors and Shri Satish Mahajan, Manager - Director of the company be and are severally authorized to sign any deal, agreement, undertaking etc. for the purpose of issuance of corporate guarantee and affix common seal of the company as may be necessary for this purpose on behalf of the company in accordance with the provisions of the articles of association of the company.
Resolved further that a certified true copy of the above resolution be forwarded to ICICI Ltd., under the signatures of any one Director for the time being of the company. "
7.5 From the Board Resolution of Apollo Finance Ltd. it is clear that Apollo Finance Ltd.
have extended corporate guarantee to ICICI Ltd. at a commission of 1.8 per cent per annum. Further from the debit notes raised by Apollo Finance Ltd. as on 30th September, 2002 and 27/11/2002 placed at paper book pages 36 to 38 Apollo Finance Ltd. have charges commission at the rate of 1.8 per cent on market value of shares pledged. As per repayment schedule, the first tranche rupee loan of 5.5 crores was to be paid in 7 equal half-yearly installments commencing from 15th September, 2000 and ending on 15th September, 2003. The repayment of second tranche of loan was to be decided at the time of disbursement of loan.
7.6 From these facts it is ample clear that corporate guarantee has been extended on payment of commission of 1.8 per cent per annum by Apollo Finance Ltd. in addition to the rate of 10 I. T. Appeal No. 4031 (Del) of 2007.
interest charged by financial institutions i.e. ICICI Ltd. and Kotak Mahindra Ltd. It is important to note that invoking of security cover or corporate guarantee would arise when there is a failure on the part of borrowers. From these facts it is clear that ICICI Ltd. and Kotak Mahindra have not advanced the loans only on the basis of guarantee given by Shri O. S. Kanwar. Apollo Finance Ltd. have extended the corporate guarantee on behalf of the assessee to ICICI Ltd. The copy of said personal guarantee of Sh. O.S. Kanwar has not been given. Shri O. S. Kanwar is neither a share holder nor has any interest in the assessee company or related to the Directors of the company and therefore, it is not known as to why Shri O. S. Kanwar would have given his personal guarantee. The loan of Rs 5.5 crores in first tranche was repayable in seven half yearly installments stating from 15.09.2000. It would mean that the loan of Rs 5.5 crores was disbursed on 15.03.2000. After payment of first installment on 15.09.2000, Apollo Finance Ltd had extended corporate guarantee on payment of commission @ 1.8% of market value of shares of ATL pledged. If Apollo Finance Ltd had given corporate guarantee, where was necessity of personal guarantee of Sh. O.S. Kanwar. The assessee is taking this plea on the basis of a condition in the agreement. There is no such condition in the said agreement about corporate guarantee from Apollo Finance Ltd. but ICICI bank had taken a corporate guarantee. Therefore, merely on the basis of clause it cannot be presumed that Sh. OS Kanwar would have given the personal guarantee. In view of these facts we are of the considered opinion that no case of business expediency has been made out by the assessee.
8. The decision of Hon'ble Supreme Court in the case of DCIT Vs. Core Health Ltd. 298 ITR 194 (SC) is not applicable to the facts of the assessee's case relied upon by the ld. AR of the assessee. In that case the issue related to payment of interest on borrowed funds for purchase of machinery for the purposes of business. The interest was allowable even if the machinery was not used in the year of borrowing. Hon'ble Supreme Court held that all that the section 36(1)(iii) of the Act requires is that the assessee must borrow capital and the purpose of borrowing must be for the business which is carried on by the assessee in the year of account. This decision is distinguishable on facts and is not applicable to the facts of the assessee's case.
11I. T. Appeal No. 4031 (Del) of 2007.
9. The ld. AR of the assessee has relied on the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Britannia Industries Ltd. 280 ITR 525 (Cal). In this case the assessee had packing credit sanctioned by Syndicate Bank to the extent of Rs.25 lakhs, which was enhanced to Rs.175 lakhs. On every date of enhancement of packing credit, a sum of Rs.165 lakhs was advanced to M through a cheque drawn on Syndicate Bank. The assessing officer found that the firm to which interest free loan was advanced was constituted by the relatives of the Directors of the assessee. The AO pointed out that the advance was made to M without any security and without any stipulation for payment of interest whereas the assessee had paid 12 per cent interest on packing credit to Syndicate Bank. The AO disallowed the interest. On appeal the Tribunal found that the assessee was having mixed account in which sales and packing credits were credited and an advance was granted from the said mixed account. It was also found that the assessee was having sufficient funds for making advance free of interest. The Tribunal held that the interest paid was deductible. The stand taken by the Tribunal was upheld by the High Court. The facts of the case before us are distinguishable on facts as the assessee had not proved with evidence that the interest free advance made to Shri O. S. Kanwar and Shri U. S. Oberoi have come out of funds of the assessee.
10. The decision of Hon'ble Supreme Court in the case of S.A. Builders Vs. CIT 288 ITR 1, it has been held that in a case where borrowed amount is not utilized by the assessee in its own business, but had been advanced as interest free loan, the relevant factor is to be seen is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is held that there was nexus between the expenditure and the purpose of business, the Revenue could not justify claim to put itself in the arm's chair of the businessman or in the position of Board of Directors and assume the role to decide how much was reasonable expenditure having regard to the circumstances of the case. In the case before us, the assessee had received loan in terms of agreement dated 25/08/1999 and the interest free loan has been advanced in April, 2002 to June, 2002. The assessee had given corporate guarantee of Apollo Finance Ltd on payment of guarantee commission of 1.8% per annum. This does not prove any business expediency between the loan taken by the assessee from ICICI Ltd. in 1999 and interest free advance made to Shri O. S. 12 I. T. Appeal No. 4031 (Del) of 2007.
Kanwar and Shri U. S. Oberoi in April, 2002 to June, 2002. Therefore, the decision of Hon'ble Supreme Court in the case of S. A. Builders Vs. CIT (supra) is not applicable to the facts of the assessee.
11. The ld. AR of the assessee has also relied on the decision of Hon'ble Madras High Court in the case of CIT Vs. Sabina Detergents P. Ltd. 303 ITR 320 (Mad). In this case the assessee company was engaged in the business of scoulding power, pickles etc. and claimed expenditure in respect of advertisement of pickles marketed by it which were manufactured by its sister concern. The AO disallowed the amount of advertisement expenditure on the ground that the expenditure was incurred for promoting the products manufactured by its sister concern and there was no memorandum of understanding or agreement between the assessee and the manufacturing company in this regard. The ld. CIT (A) also confirmed the disallowance. However, the Tribunal allowed the claim of the assessee. On further appeal it was held that the marketing of products of its sister concern by itself was a trade undertaken by the assessee and the expenses claimed were the expenses incurred during the course of such marketing. The assessee incurred expenses not in its personal capacity as an agent for the products manufactured by its sister concern, but in its capacity as businessman in marketing the products by itself. This decision of Hon'ble Madras High Court is also not applicable to the facts of the assessee's case.
12. During the course of hearing the ld. Sr. DR strongly relied on the decision of Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industries Vs. CIT 324 ITR 396 wherein it has been held as under :-
" The commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests. The business interest of the assessee has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between advancing of funds and business interest of the assessee. The appropriate test in such a case would be as to whether a reasonable person 13 I. T. Appeal No. 4031 (Del) of 2007.
stepping into the shoes of the Directors/partners of the assessee and working solely in the interest of the assessee would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advance when the assessee itself is borrowing funds for running its business. It may not be relevant as to whether advances have been extended out of borrowed funds or out of mixed funds which included borrowed funds. The test to be applied in such cases is not the source of funds, but the purpose for which advances were extended."
13. If we examine the facts of the case before us in the light of decision of Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industries Vs. CIT (supra) we find that no business objective has been achieved by extending such interest-free loan when the assessee itself has been borrowing funds for running its business. Therefore, no case of commercial expediency had been made out by the assessee.
14. Hon'ble Punjab & Haryana High Court in the case of CIR Vs. Abhishek Industries 286 ITR1 has held that where amount is advanced from a mixed account or share capital or sale proceeds or profits the contention of assessee that it would not be deem diversion of borrowed capital or that the Revenue had not able to establish nexus of the funds advanced to sister concern with the borrowed funds, is not correct. Once it is worn out from the record that the assessee had borrowed certain funds on which liability to pay interest 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 under section 36(1)(iii) of the Act.
15. In the case before us, the assessee had received Rs.5.5 crores of loan in first tranche in March, 2000 for the purpose of conversion of warrants of Apollo Tyres Ltd. into equity shares. The payment has been directly made to Apollo Tyres Ltd. Therefore, the payment of interest free loan has not come out of Rs 5.5 crores advanced in March 2000. At the same time it is not 14 I. T. Appeal No. 4031 (Del) of 2007.
known as to when the payment of second loan of Rs 5.5 crores was made. In the absence of full facts it is not possible for us to decide the issue relating to disallowance of interest. We, therefore, feel it proper to set aside the issue to the file assessing officer with the direction obtain necessary details of second loan taken and decide the issue of allowance interest paid by the assessee on borrowed funds in the light of judicial pronouncements. Needless to say the assessee will be given proper opportunity of being heard before deciding the issue.
16. In the result the appeal filed by the Revenue is allowed for statistical proposes.
The order pronounced in the open court on : 15th July, 2011.
Sd/- Sd/-
[ R. P. TOLANI ] [ K. D. RANJAN ]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 15th July, 2011.
*MEHTA*
" Copy of the order forwarded to : -
1. Appellant.
2. Respondent.
3. CIT,
4. CIT (Appeals),
5. DR, ITAT, NEW DELHI.
True Copy. By Order.
Assistant Registrar, ITAT."