TaxTMI 
TaxTMI 
2011 (3) TMI 645
X X X X Extracts X X X X
X X X X Extracts X X X X
.... right in holding that the interest paid on the loan availed of from bank can be allowed as a deduction, when the said loan was advanced to the managing director without charging any interest ?" 2. The assessee is a company in which the public are not substantially interested. The assessee is engaged in the business of manufacturing and sale of maida, sooji and wheat items. The relevant assessment years are 1991-92 and 1992-93 and the corresponding financial years ended on March 31, 1991 and March 31, 1992 respectively. For the assessment year 1991-92, the assessee filed a return admitting the loss of Rs. 27,29,851. The Assessing Officer processed the same under section 143(1)(a) of the Income-tax Act. Later, it was found in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer also made certain prima facie adjustments and determined the tax to the extent of Rs. 5,18,492. Later, the assessment was taken for scrutiny and he completed the assessment under section 143(3) and determined the total income at Rs. 18,35,727. While completing the assessment, he disallowed the interest payment of Rs.4,24,800 on the ground that the assessee has diverted the borrowed funds. Aggrieved by those orders disallowing the interest, the assessee filed appeals to the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) confirmed the assessment order and dismissed the appeals. Aggrieved by that, the assessee filed the appeals to the Income-tax Appellate Tribunal. The Tribunal held that the Revenue has not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....managing director of the assessee-company and N. Chockalingam as per the agreement of sale dated October 26, 1983. As per the agreement, a sum of Rs. 20,00,000 was given as advance to the managing director during the previous year relevant to the assessment year 1984-85. Also, one of the clauses in the agreement contemplated that if the vendors are unable to comply with the sale as per the agreement entered on April 30, 1984, they would refund the amount taken as advance and also pay the consolidated damage of Rs. 5,00,000. The said agreement was also renewed year after year. Due to some unavoidable reasons, the sale was not effected and the Revenue has not disallowed any interest in earlier assessment years i.e., 1984-85 to 1990-91. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... basis for not making the disallowance for these years also. The principle of opportunity cost as enumerated by the Commissioner of Income-tax (Appeals) has not relevance when there is no nexus between the borrowed funds and advanced funds. Following the case law cited by the assessee's counsel cited supra and going through the facts of the case, we allow the claim of the assessee and accordingly, set aside the orders of the authorities below." 7. From a reading of the above, the Tribunal has given a categorical finding that there is no nexus established by the Assessing Officer between the borrowed fund and the advanced amount. Therefore, the Assessing Officer has failed to establish that the borrowed amount was given as a loan to the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficiary of the investments made by the partners and their relatives and the advance money was interest free, the Assessing Officer was justified in disallowing the interest. In the present case, the facts are factually different and distinguished from the Kerala High Court judgment. Therefore, the judgment relied on by the Revenue does not help the case of the Revenue. 9. In the decision of the Punjab and Haryana High Court in CIT v. Abhishek Industries Limited [2006] 286 ITR 1 (P&H), it has been held that the borrowed fund was used for non-business purposes. Therefore, the Punjab and Haryana High Court held that the investment was made as advance for non-business purposes and hence, the said judgment is also not helpful and suppo....