TaxTMI 
TaxTMI 
2009 (10) TMI 574
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....t for the year 2004-05, the Assessing Officer noticed that the assessee borrowed massive amounts from banks and advanced the same to sister concerns, namely, the partnership firms in which it was a partner, without collecting any interest. The Assessing Officer, after verifying the interest bearing borro-wals from banks and the interest-free advances made from the beginning to the end of the relevant previous year, found that the interest expenses attributable for the interest-free loans advanced to the firms of which it was a partner worked out to Rs. 31,21,599. The Assessing Officer held that the diversion of borrowed funds by the respondent to other firms is not for business purpose and so much so, the interest paid on borrowed capital a....
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....y-able by the assessee but not paid valid and in accordance with law ?" 3. The contention of the appellant is that the finding of the Assessing Officer that funds advanced by the respondent to sister concerns which are partnership firms are out of borrowed funds on which interest is paid by the assessee, is not found against by any of the appellate authorities including the Tribunal. According to him, advancing of loan by the respon-dent-company to a firm of which it is partner is not a business expenditure and, therefore, interest paid for borrowing funds for advancing interest-free loan to the sister firms is not an expenditure allowable under section 36(1)(iii) of the Act. However, counsel appearing for the respondent-asses-see h....
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....le income of the assessee, section 14A(1) applies which prohibits deduction of any expenditure incurred in relation to income not includible in total income. The said section reads as under : "14A.(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act." 4. Standing counsel appearing for the appellant contended that the Asses-sing Officer has not expressly referred to section 14A(1) because according to him, advancing a loan to a firm of which the respondent is a partner is prima facie not a business expenditure entitling the assessee for deduction o....
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....on 14A, the Tribunal has not referred to the section, but allowed the claim just following the decision of the Supreme. A remand for the purpose of considering eligibility for deduction based on commercial expediency, if at all the same exists, is not called for in this case because section 14A(1) expressly bars allowance of any expen-diture for earning income which does not constitute part of the total income of the assessee. It is the admitted position that the advancing of interest-free loan is made by the respondent-assessee only to partnership firms of which it is a partner and it does not receive any interest from the same and the only benefit is receipt of share income from such firms which do not constitute income of the assessee un....