Gujarat High Court
Commissioner Of Income Tax I vs Akar Laminators ... on 27 January, 2015
Author: Jayant Patel
Bench: Jayant Patel, S.H.Vora
O/TAXAP/52/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 52 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
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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 ?
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COMMISSIONER OF INCOME TAX I....Appellant(s)
Versus
AKAR LAMINATORS LIMITED....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL
and
HONOURABLE MR.JUSTICE S.H.VORA
Date : 27/01/2015
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE JAYANT PATEL)
1. The Revenue has preferred the present appeal on the following substantial questions of law;
[a] "Whether the Appellate tribunal has substantially
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erred in law in holding that the Assessing Officer could not prove that the relevant investments were made out of interest bearing funds despite the fact that the same is on the assessee to prove that no interest bearing funds were utilized for making investment which yielded exempt income ?"
[b] "Whether the Appellate tribunal is right in law in deleting the addition of Rs.1,89,68,093/ holding it as deferred revenue expenditure claimed by the assessee ?"
[c] "Whether the Appellate tribunal is right in law in deleting the disallowance of Rs.7,96,250/ made on account of interest on loans given to staff ?"
2. We have heard Ms. Bhatt, learned counsel appearing for the appellant.
3. On the first question, it appears that AO disallowed the expenses mainly on the ground that for earning exempted income the interest paid cannot be allowed. The CIT (Appeals) found that the AO has failed to prove that the relevant investment is out of the interest bearing fund and, therefore, allowed the appeal of the assessee. The tribunal has observed thus;
Paragraph 36:
"We have heard the rival contentions, perused the material on record. The undisputed fact is that the Assessee has received dividends on shares which have been claimed as exempt u/S. 10(33). The investment in shares have been made in FY 199697 and 199798. CIT (A) has given a finding that the Assessee was having interest free funds to the tune of Rs.52.74 crores against the total investment of Rs.11.34 crores and thus the interest free funds were in excess of the investments. He also noted that the AO has Page 2 of 5 O/TAXAP/52/2015 JUDGMENT failed to establish nexus and prove that the interest bearing funds have been used to make investments and there has been no effect investments in the current assessment year. These findings of CIT (A) could not be controverted by Ld.D.R. In view of these facts, we find no reason to interfere with the order of CIT(A). We accordingly uphold that order of the CIT(A) in deleting the addition made by AO. Thus this ground of the Revenue is dismissed.
4. As such the dividends was earned on the shares which were purchased in earlier year. But apart from that whether the interest bearing funds have been used to make investment or not is a question of fact for which the tribunal is the ultimate fact finding authority. We do not find any substantial question of law arise for consideration as sought to be canvassed.
5. On question (B), the AO found that the expenditure of the term loan interest which was capitalized was disallowable as revenue expenditure. In appeal, CIT (Appeals) based on his own decision in respect of previous year as well as in view of the decision of this Court in case of CIT v. Core Healthcare Limited, reported in 251 ITR 61 (Gujarat), rejected the claim of revenue and held in favour of the assessee and treated as revenue expenditure. The tribunal ultimately observed at Paragraph 27 as under: Paragraph 27:
"We have heard the rival contentions and perused the material on record. The factual matrix of the case is that the assessee had treated the expenses as deferred revenue expenditure in the books of accounts but claimed as revenue expenditure while filing the return of income. CIT(A) deleted the addition made by the AO by relying on its decision in the preceding year, ITAT decision in the case of Core Health Care (Supra). The Ld. D.R. Before us could not controvert the above facts nor has brought any binding contrary decision in its support. In view of these facts, we uphold the action of CIT(A) and accordingly Page 3 of 5 O/TAXAP/52/2015 JUDGMENT dismiss this ground of the Revenue.
6. The aforesaid shows that CIT (Appeals) as well as the Tribunal for holding in favour of assessee has followed the decision of this Court in case of Core Healthcare Limited (Supra). Under the circumstances, we do not find that such substantial question of law arise for consideration as sought to be canvassed.
7. On question [C], it appears that the AO disallowed the sum of Rs.7,45,020/ on the ground that the interest free loans were given by the assessee to its employees. In appeal CIT (Appeals) found that there should be clear finding recorded by the AO that the borrowed money or a part thereof had been utilized for non business purpose. It was further found that the AO has failed to establish that the interest bearing fund has been utilized for nonbusiness purpose. Under the circumstances, the addition of Rs.79,96,520/ was ordered to be deleted in favour of the assessee. The tribunal at Paragraph 31 recorded the following findings;
Paragraph 31:
"We have heard the rival contentions and perused the material on record. The facts are that the AO has made additions by estimating the interest rate at 18% on the amount outstanding. The AO has not brought any material on record to prove that the advance is not for the purpose of business. The Hon'ble Madras High Court in the case of CIT v. Hotel Savera (1998) 585, 591, 592 has held that for disallowance of the interest, or a part of it, paid on money borrowed for the business purposes, it is essential that a clear finding should be given by the authority concerned that the borrowed money or part of it has been utilized for nonbusiness purposes. In the present case no such finding has been given by the AO. The finding of CIT(A) could also not be controverted by the Ld.D.R. In view of these facts, we find no reason to interfere with the order of the CIT(A). We accordingly uphold the order of CIT(A) and dismiss this ground of the Revenue.Page 4 of 5
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7. As such the aforesaid shows that before disallowance of the interest or part thereof, it should be established that the material borrowed is utilized for nonbusiness purpose. As no finding was recorded by AO, tribunal concurred with a view of CIT (Appeals) and did not find any case for interference.
8. As such whether borrowed money for business is utilized for nonbusiness purpose is an aspect relating to finding a fact for which the Tribunal is the ultimate fact finding authority. Under the circumstances, we do not find that any substantial question of law arise for consideration as sought to be canvassed.
9. In view of above, the present appeal is meritless and hence the same is dismissed.
(JAYANT PATEL, J.) (S.H.VORA, J.) VATSAL Page 5 of 5