M S RATNESH ENTERPRISES PVT LT vs. ASSISTAMT COMMISSIONER

-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR DB INCOME TAX APPEAL NO.177/2002 M/s. Ratnesh Enterprises Pvt. Ltd., SB/38-A, Bhawani Singh Road, Jaipur-302015 (Formerly At B-205(A) Rajendra Marg, Bapu Nagar, Jaipur), Through its Director Shri Arun Dhandhania. Versus The Assistant Commissioner of Income Tax, Company Circle.2, Central Revenue Building, Statue Circle, Jaipur Now Jurisdiction Vest with Income Tax Officer Ward 6(2), Jaipur. Date of order : 29.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTA Mr. N.M. Ranka, Senior Counsel with Mr. N.K. Jain, for the appellant. Mr. K.D. Mathur on behalf of Mr. R.B. Mathur, for the respondent. 1. By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has reversed the findings of the CIT (Appeals) and allowed the appeal of the department. 2. This court while admitting the appeal on 13.12.2002, framed the following substantial question of law for consideration: “Whether the learned ITAT was right in law in disallowing Rs.5,92,840/- being interest paid to the bank u/s 36(1)(iii) read with Sec.37(1) of the Act and whether the finding is perverse?” 3. The facts of the case are that the assessee company is giving loan to the sick industries within the State of Rajasthan and initially advanced a sum of Rs.1,08,00,000/- to M/s Mewar Sugar Mills Ltd. For providing finance to The Mewar Sugar Mills Limited, the appellant company had taken a loan from M/s ANZ Grindlays Bank to

-2- meet with the requirement and demand and subsequently for repayment during the assessment year 1991-92 and repayment of interest of Rs.5,92,840/-. The Assessing Officer while rejecting the claim of the assessee has contended that in the balance-sheet, the said amount is not reflected and, therefore, the amount paid to the bank was doubted. However, CIT (Appeals) observed in para 3.1 to 4 as under: “3.1. The grievance of the appellant is that the addition so made was unjust. The appellant company has raised a loan from M/s ANZ Gridlays Bank, Bombay and repaid the same before the close of the year through M/s Relico (India) Ltd. which had made the repayment of Rs.1,14,49,972/- in the said firm. The loan has not appeared in the balance-sheet because the payment was made during the relevant accounting period through the said party. It has also submitted a certificate from M/s Relico (India) Ltd. to the effect that the loan availed by the appellant from M/s ANZ Grindlays Bank, Bombay was cleared through them and the said Co. is assessed by I.T.O., Ward 3(6), Bombay. In view of this the addition is stated to be unjust. 3.2. After due consideration of the entries made in the books of accounts which indicate that the finance made available to M/s Mewar Sugar Mills Ltd., was on account of the loan availed of from M/s Grindlays Bank, Bombay and also the fact that the payment was made by the other concern, namely- M/s Relico (India) Ltd. on behalf of the appellant towards the said loan, it appears that there was no justification in making the disllowance in question. Hence, the addition, being unjust, is deleted. (relief Rs.5,82,840/-) 4. The next grievance of the appellant is in regard to not giving any specific finding in regard to the determination of carry forward of unabsorbed business loss and depreciation relating to earlier years even though a claim in this regard was duly made. As the impugned assessment order is absolutely silent in this regard, even though there was a claim as contended for, it would be fair and reasonable, if the concerned authority is directed to give a specific finding in regard to the carry

-3- forward of business loss and unabsorbed depreciation etc.” 4. It is clear that the CIT (Appeals) has on the basis of factual matrix found that the loan was taken. However, by way of subsequent repayment, actual interest was paid as Rs.5,92,840/-. Therefore, the addition made by the Assessing Officer was deducted. However, the Tribunal in para 15 has gone on a different point which was never germane in the order of the Assessing Officer or the order of CIT (Appeals) and, therefore, on the premise that the loan which was advanced was not a loan but investment. In our considered opinion, that was not the foundation of the reasoning adopted by the Assessing Officer, therefore, the reasoning adopted by the Tribunal in para 15 is not permissible in law. The Tribunal in para 15 has observed as under: “15. We have carefully considered the rival submission of both the parties, perused the material available on record and the decisions relied upon by the Id. A/R. We find that for taking over the controlling interest and management of the sick industry M/s. Mewar Sugar Mills Ltd., the assessee- company, as per the order of the BIFR dated 15.5.1990, has provided Rs. 1.08 crores to the said sick industry after taking loan from ANZ Grindlays Bank p.l.c., Bombay. The said loan of the bank was repaid along with interest Rs. 5,92,840.60 by the assessee- company after taking an interest-free loan from M/s Relico (India) Ltd. Rs. 1,14,49,972.60 in the same accounting year itself and hence the account of the said bank was not appearing in the Balance Sheet. Since the amount was invested in M/s. Mewar Sugar Mills Ltd. as per order of BIFR dated 15.5.1990 for acquiring controlling interest and management of the said sick industry with a condition that the assessee should provide equity share capital/interest -free loan to the said company, therefore, the said investment cannot be held for business purpose. The interest paid on borrowings for making investment in the said unit is for capital investment, not relatable to the business of the assessee, the same is, therefore, not deductible as revenue expenditure wholly and

-4- exclusively incurred for the purpose of business of assessee. Accordingly, we reverse the finding of the CIT(A) and restore the addition made by the AO at Rs. 5,92,840/- . 5. In that view of the matter, the above finding given by the Tribunal is clearly contrary to material available on record and perverse and hence the order impugned passed by the Income Tax Appellate Tribunal is set aside. We restore the order of CIT(Appeals) and hold that in the facts of the present case, the addition made by the Assessing Officer requires to be deleted and the payment made to the bank by way of interest on loan is required to be allowed as provided under section 36(1)(iii) read with Section 37(1) of the Income Tax Act. 6. The question is answered in favour of the assessee and against the department. The appeal stands allowed. (DINESH MEHTA), J.

(K.S. JHAVERI), J. bblm