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II. Direct Taxes Case Laws:
1. PCIT vs. The Basti Sugar Mills Company Limited, I.T.A. No. 205/2018, Date of Pronouncement: 28.09.2018, High Court of Delhi
Issue:
Whether
interest paid on borrowed funds to be tested as commercial expediency
in case the assessee gave an advance to sister concern and explained
that advances are made out of own funds?
Answer: No,
Brief Facts:
The Assessment Order on remand observes that the assessee had been
asked to adduce material to prove that the interest free advances to
sister concerns were out of its own funds and not out of borrowed
capital from the bank on which there was interest liability. This was
necessary to examine the question of "commercial expediency”. The
assessee having expressed their disability to correlate each and every
entry of the advances to the sister concerns with availability of its
own funds, there was failure to justify and explain commercial
expediency in giving interest free advances of Rs.8,33,56,295/- to the
sister concerns.
Held:
The issue “commercial expediency” is different. The Supreme Court in
S.A. Builders (288 ITR 1) had observed that sec 36(1)(iii) of the Act
states that interest paid in respect of capital borrowed for the purpose
of business or profession is to be allowed as a deduction in computing
taxable income. Accordingly, expenditure voluntarily incurred on the
test of commercial expediency is to be allowed as a deduction. It is
immaterial if a third party also benefits by the said expenditure.
The expression "commercial expediency" is again of wide import and
includes such expenditure incurred for the purpose of business.
Therefore, once it is established that there was a nexus between
expenditure and purpose of business, which need not be the business of
the assessee, deduction under Section 36(1)(iii) of the Act must be
allowed. Revenue cannot assume the role and occupy armchair of a
businessman to decide whether expenditure was reasonable.
The test
of "commercial expediency" would only come into play if there was any
finding that interest bearing funds had been diverted for making
interest free loans. The loans taken by the respondent-assessee were for
specific purposes and were duly represented by the value of stock. He
observed that the respondent-assessee during the period relating to the
Assessment Year had sales of Rs.37.16 crores, paid up share capital of
Rs.8.20 crores and reserves of Rs.1.23 crores. He concluded that the
assessee had furnished ample evidence to show that sufficient funds were
available to give interest free loans. Accordingly, addition of Rs.
1,50,04,133/- was directed to be deleted. The aforesaid factual
reasoning negates and nullifies the factual reasoning given by the
Assessing Officer.
The appeal is in favour of the assessee and against the Revenue.
(Please click here for judgment)
2. Sudhir Menon Vs ACIT, I.T.A. No. 1744/Mum/2016, Date of Pronouncement: 03.10.2018, ITAT- Mumbai
Issue:
Whether AO has jurisdiction to pass the reassessment order if no
fresh notice under section 143(2) is issued after the assessee files a
return in response to notice under section 148 of the Income Tax act,
1961?
Held: No
Brief facts:
The assessee has filed his return of income on 31.07.2010 declaring
total income at ₹46,76,95,780/- which was processed u/s 143(1) of theAct
on 21.03.2012.A notice u/s 148 of the Act was issued dt 01.04.2013 on
assessee for the reopening of the case. A notice u/s 143(2) was issued
by the Ld. AO on 03.05.2013.The assessee filed a reply dt 23.05.2013 in
response to notice u/s 148 stated that the return originally filed be
treated as return filed in response to notice u/s 148 of the Act.The Ld.
AO completed the assessment. The hon’ble CIT (A) agreed with the order
of Ld. AO.Being aggrieved, the assessee filed an appeal before Hon’ble
ITAT.
Held:
A notice u/s 148 of the Act dated1.04.2013 was issued and AO issued a
notice u/s 143(2) of the Act dated03.05.2013 requiring the assessee to
attend the office on 13.05.2013 before filing of return by assessee
inresponse to this notice. Till 13.05.2013 no return of income was
filedby the assessee in response to notice u/s 148 of the Act.According
to consistent view of jurisdictional High Court andDelhi High Court, in
the absence of pending return of income, theprovisions of section 143(2)
of the Act is clear that notice can be issuedonly when a valid return
is pending for assessment. Accordingly, thisnotice has no meaning. The
assessee filed return of income undersection 148 of the Act vide letter
dated 23.05.2013 stating that theoriginal return of income can be
treated as return filed in response tonotice u/s 148 of the Act. It
means that the assessee has filedreturn of income only on 23.05.2013. No
notice u/s143(2) ofthe Act was issued by the Department on or after
23.05.2013. Therefore, the assessment framed without issuing a notice
u/s143(2) of the Act when the return was filed by the assessee in
responseto notice u/s 148 of the Actis bad inlaw. Accordingly,
assessment is quashed.
Hence, the appeal was held in favour of theassessee and against therevenue.
Cases cited:
DIT vs. Society for Worldwide Inter Bank Financial, Telecommunications (2010)323 ITR 249 (Delhi- HC)
ACIT vs. Geno Pharmaceuticals Ltd. (2013) 32 taxmann.com 162 (Bombay- HC)
CIT vs. Ms. Malvika Arun Somaiya (2010) 2 taxmann.com 144 (Bombay- HC)
(Please click here for judgment)
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