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of <h1>Tribunal upholds taxpayer appeal on interest disallowance, emphasizing consistency and lack of nexus.</h1> <h3>Income Tax Officer, Ward-2 (1), Ahmedabad Versus Anjani Synthetics Ltd. And Vice-Versa, Anjani Synthetics Ltd. Versus A.C.I.T., Circle -1, Ahmedabad and D.C.I.T., Circle -1, Ahmedabad Versus Anjani Synthetics Ltd.</h3> Income Tax Officer, Ward-2 (1), Ahmedabad Versus Anjani Synthetics Ltd. And Vice-Versa, Anjani Synthetics Ltd. Versus A.C.I.T., Circle -1, Ahmedabad and ... Issues Involved:1. Deletion of disallowance made out of interest.2. Disallowance of interest on borrowed funds diverted for non-business purposes.Summary:Issue 1: Deletion of Disallowance Made Out of Interest (ITA No.2960/Ahd/2004 by Revenue)The Revenue challenged the deletion of disallowance of Rs. 43,05,000/- made out of interest. The AO observed that the assessee had made investments in shares of group companies and calculated that funds not utilized for business purposes amounted to Rs. 2.87 Crores. Applying an interest rate of 15%, the AO disallowed Rs. 43,05,000/-. The assessee argued that the investments were made in earlier years and no disallowance was made in those years. The CIT(A) found no nexus between borrowed money and non-business investments and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds for the investments and no new investments were made during the assessment year under consideration.Issue 2: Disallowance of Interest on Borrowed Funds Diverted for Non-Business Purposes (ITA No.2407/Ahd/2005 by Assessee)The assessee challenged the disallowance of Rs. 21,25,450/- out of Rs. 52,95,000/- on borrowed funds diverted for non-business purposes. The AO disallowed the interest, but the CIT(A) reduced the disallowance to Rs. 21,25,450/- by applying a 9% interest rate. The CIT(A) did not follow the previous year's order, leading to the assessee's appeal. The Tribunal found that no new investments were made in the assessment year and that the AO did not establish a nexus between borrowed funds and non-business investments. The Tribunal deleted the entire disallowance, emphasizing the need for consistency as per the Supreme Court's decision in Radhasoami Satsang Vs CIT.Cross Appeals for Assessment Year 2003-04 (ITA No.163/Ahd/2007 by Assessee and ITA No.653/Ahd/2007 by Revenue)Both parties filed cross appeals regarding the disallowance of interest. The CIT(A) restricted the disallowance to Rs. 19,28,304/- at a 9% interest rate. The Tribunal, following the decision for the previous year, deleted the entire disallowance, noting that the facts were identical and no new investments were made during the assessment year.Conclusion:All appeals by the Revenue were dismissed, and all appeals by the assessee were allowed. The Tribunal emphasized the need for consistency and found no justification for disallowing interest when no new investments were made during the assessment years under consideration. The decisions of the CIT(A) were upheld where they aligned with these principles.
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