Case Law Details
Brief of Case:
Amar Ujala & A & M Publication had being merged & Assessing officer disallowed cost of finance incurred for merger of above said companies & thus CIT(A), ITAT & High Court deleted addition made by AO & thus gave following decision:
All the funds available at that point of time with the respondent / assessee were, in the course of the year, deployed in the business of the respondent/assessee. Therefore, the Assessing Officer could not have disallowed the discount and interest on borrowing through commercial papers and non-convertible debentures.
Fact of the Case:
The respondent/assessee submitted that A & M Publications Limited had merged with the respondent/assessee with effect from 01.04.2007, consequent upon an order passed by this Court on 28.08.2008. It was explained by the respondent/assessee that the commercial paper was issued on 01.11.2006 by the respondent/assessee and A & M Publications Limited to give effect to the Company Law Board’s order dated 07.08.2006 for payment of ₹ 160 crores to Ajay Aggarwal and others. It was further pointed out that the expenses incurred on commercial paper pertaining to the assessment year 2006-07 had been booked under respective accounting heads in both the companies (i.e., the respondent/assessee company and A & M Publications Limited) in the financial year 2006-07. The discount on commercial paper issued by the respondent/assessee was ₹ 4,22,87,991/- and the discount on commercial paper issued by A & M Publications Limited was ₹ 4,22,87,991/- resulting in a total of ₹ 8,45,75,982/-. Since there was a shortage of funds, the non-convertible debentures had also been issued. The Assessing Officer observed that in the proceedings before the Company Law Board, a prayer had been made on the part of the Amar Ujala Group to buy the entire shareholding of Shri Ajay Aggarwal in the said companies. The latter agreed to sell the entire shareholding of 34.33% in both the companies for a total sale consideration of ₹ 16 crores being the fair market price of the shares. After this, the Amar Ujala group was to have complete control of the companies and Shri Ajay Aggarwal and others connected with him would not have any relationship with the said companies in any manner after receiving the full and final consideration. According to the Assessing Officer, the shares of Shri Ajay Aggarwal and others were bought by the respondent/assessee and the transaction was purely one of acquisition of shares and had no bearing on the business being carried out ordinarily by the respondent/assessee. The Assessing Officer also observed that during the year in question, the respondent/assessee and A & M Publications Limited had merged as per the directions of this Court and there was no cross holding of shares in the Amar Ujala group, as there existed only one combined entity and that the shares bought by the Amar Ujala group were its internal holding. Consequently, the Assessing Officer held that the expenditure was not for the business purposes and, therefore, disallowed the discount on commercial paper amounting to ₹ 8,45,75,982/- and added it back to the total income of the respondent/assessee. The interest amount of ₹ 2.34 crores on non-convertible debentures which had been issued to repay the commercial papers, which, in turn, according to the Assessing Officer, had been taken for providing funds for purchase of shares of Shri Ajay Aggarwal and others was also held by the Assessing Officer to be not allowable under Sections 36(l)(iii), 37(1) and 57(iii) of the said Act.
Contention of Assessing Officer:
The Assessing Officer, by virtue of the assessment order dated 29.12.2010, disallowed expenditure to the tune of ₹ 10,79,75,982/- on the ground that the expenditure was not for business purposes. The said figure of ₹ 10,79,75,982/- had two components. The first component was the discount on commercial paper amounting to ₹ 8,45,75,982/-. The second component was the amount of ₹ 2.34 crores which was interest on non-convertible debentures.
Contention of Assessee/ Tribunal/CIT(A):
It was noted that the respondent/assessee, as per the balance-sheet drawn on 31.03.2008, owned funds of ₹ 51.26 crores and had secured loans of ₹ 165.63 crores as against fixed assets of ₹ 171.64 crores and current assets of ₹ 118 crores. It was observed that the funds had been deployed in these assets and this fact remained undisputed. Thus, the Tribunal arrived at a finding of fact that the entire borrowed funds, during the year, stood utilized for the purposes of business of the respondent/assessee. Consequently, the Tribunal agreed with the decision of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Department for the assessment year 2008-09.
Judgement of reputed High Court:
We have heard the counsel for the parties. The counsel reiterated their respective stands as crystallized before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The main point which needs to be stressed is that we are concerned with the assessment year 2008-09. In the present year, there was no re-structuring and/or purchase of shares. All that had happened in the preceding year. As on 01.04.2007 itself, which was the first day of the year under consideration, A & M Publications Limited stood merged with and into the respondent / assessee. All the funds available at that point of time with the respondent / assessee were, in the course of the year, deployed in the business of the respondent/assessee. Therefore, the Assessing Officer could not have disallowed the discount and interest on borrowing through commercial papers and non-convertible debentures. Consequently, the Commissioner of Income Tax (Appeals) and the Tribunal have come to the correct conclusion and have deleted the addition made by the Assessing Officer.
As a result, the question posed is answered by stating that the Income Tax Appellate Tribunal as also the Commissioner of Income Tax (Appeals) had not erred in law or on facts in deleting the disallowance on discount and interest on borrowing through commercial papers and non-convertible debentures amounting to ₹ 10,79,75,982/-.
In view of the fact that the question has been answered against the appellant/revenue, the appeal is dismissed. There shall be no order as to costs.
