TaxTMI 
TaxTMI 
1983 (4) TMI 105
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.... yr. 1977-78 on founds borrowed by it. Out of the borrowed funds, the assessee had advanced moneys to a concern by the name of M.P. Spinning & Weaving Mills P. Ltd. in which the directors of the assessee-company were interested, i.e., they were directors in the M.P. Spinning & Weaving Mills P. Ltd. The ITO found that the account of M.P. Spinning & Weaving Pvt. Ltd. in the books of the assessee was as under: Month Date Particulars V. No CBF. No Amount April 1 To Bal b/f . . 762000 Aug. 10 To Bank 503 67 30000 Aug. 25 To Bank 566 74 25000 Sept. 8 To Bank 618 81 26000 Sept. 11 To Bank 629 82 60000 Jan. 29 To Bank 1191 156 ....
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....r the supply. The supply being totally undependable in the open market, the assessee had considered necessary to set up a company for its own business. In the circumstances, it was submitted that the moneys advanced to the company were entirely for the purposes of the assessee's own business and the interest there on should, therefore have been allowed under the IT Act. After considering the submission made on behalf of the assessee, the CIT(A) referred to the Mysore High Court decision in the case of CIT vs. United Breweries (1973) 89 ITR 17 (Mys) where it has been held that if a part of the borrowed capital was given as advance to a subsidiary concern free of interest, such interest could not be held to be for the purposes of the business....
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....see in its letter dt. 19th July, 1981 before the CIT(A), as the project was subsequently found not viable, the borrower company could not take up the manufacture of the yarn. Our attention was also invited to the resources available at the disposal of the assessee during the year, such as the net profit, depreciation fund, sale proceeds of the investment, increase in the secured loans and its application by way of repayment of unsecured loans, increase in the working capital and dividends for the year, It was submitted that the assessee had advanced the funds from its own resources. Reference was also made to the a ITAT decision in I.T.A. No. 1490 (Bom) 81 decided on 24th December, 1982, wherein, we are told, in similar circumstances, the T....
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....to the borrower. In the circumstances, it is difficult to day that the money was required by the assessee for its own business. As to the assessee's argument that originally it was the intention that M.P. Spinning & Weaving Mills P. Ltd. was being promoted for the purpose of manufacturing yarn for supplying to the assessee, in our opinion, the Mysore High Court decision in the case of CIT vs. United Breweries (1973) 89 ITR 17 (Mys) is a perfect answer for the assessee's argument on this ground. Further, as to the argument on the basis of the decision of the Bombay High Court in the case of Kishinchand Chellaram the facts of the Bombay case are entirely distinguishable. In the Bombay case, the moneys were received by the assessee initially f....
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....e cannot be any question of disallowance. In the circumstances, the ITO should re-examine the assessee's overdraft account with the bank and find out the actual interest for advancing loan to the M.P. Spinning & Weaving Mills P. Ltd. The disallowance will be restricted to this amount. The balance of the disallowance is hereby vacated. 7. The next ground in appeal is concerning the assessee's claim for deduction u/s 80J. The assessee had claimed relief on the basis of the Calcutta High Court decisions in the case of Century Enka Ltd. vs. ITO (1977) 107 ITR 123 (Cal) and 1977 CTR (Cal) 433 : (1977) 107 ITR 909 (Cal). The ITO, however, worked out this relief on the basis of the net assets, viz., gross assets employed in the undertaking less....