2002 (1) TMI 946

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..... appeared on behalf of the assessee, whereas Shri Prasenjit Singh, ld. Sr. DR represented the Department. 4. The Assessing Officer, on examination of the accounts of the assessee, found that the assessee had made advance of Rs. 3,59,466 to Ram Swarup Oil and Allied Industries Limited. There was another advance of Rs. 3,64,639 to Ram Swarup Towers. The Assessing Officer asked the assessee to explain as to whether the advance so made is not related to the business activity of the assessee. After considering the reply of the assessee, the Assessing Officer found that the assessee was paying interest on borrowed money and advances at Rs. 7,24,105 were made for non- business purposes. He, therefore, disallowed interest to the extent of Rs. 1,3....

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....he assessee-company, was merely Rs. 7.25 lakhs or 2 per cent of the total source of the funds and, therefore, it was not possible to say that borrowed funds were utilized for business purposes. It was further pointed out that the amount was also not advanced at one time and there was no nexus between the borrowed funds and amount advanced. The ld. counsel for the assessee made detailed submissions to explain the structure of M/s. Ram Swarup Oil Industries Limited, shareholding of M/s. Ram Swarup Electricals Limited and M/s. Ram Swarup Oil Industries. According to the ld. counsel for the assessee, M/s. Ram Swarup Towers Limited was formulated by the company itself for furtherance of the objective of the company, for utilizing facility of M/s....

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....nds and the making of advances by the company. It may be pointed out that in the case of the assessee peculiar and prominent feature was that the advance was given to the subsidiary company, which was to be maintained by the assessee-company. In the case of D & H Secheron Electrodes (P.) Ltd. (supra), the assessee company had paid interest on money borrowed for business purposes, but did not charge interest on advances made by it to its sister concerns. It was held in that case that merely on the ground that the assessee-company had not chosen to charge interest on the advances made to sister concerns. The ITO was not justified to disallow the payment of interest. In the case of CIT v. Premier Auto Finance (P.) Ltd. (supra) also, a similar ....