2011 (4) TMI 788

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.... is that the ld. CIT(A) has erred in deleting the addition made by the AO amounting to Rs.18,36,000 on account of disallowance of interest paid to M/s. Lord Krishna Bank since the amount borrowed by the appellant was given as interest free security deposit to M/s. ASM Technologies Pvt. Ltd., though it was held by the ld. CIT(A) that there was no commercial expediency in the transaction with M/s. ASM Technologies Pvt. Ltd. other than savings on account of rent payment to M/s. ASM Technologies Pvt. Ltd.   3. The appellant is a private limited company engaged in the business of software development and services. It filed its return of income for the A.Y. 2006-07 on 27.11.06 declaring a taxable income of Rs.7,33,680. Initially after the r....

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....enditure in the ambit of "commercial expediency" or "business prudence" it has to be shown inevitably that there exists some connection between the expenditure and the business purpose of the assessee. Here I find no such connection. An analysis of the loan sanction orders of LKB show that, though the loan has been sanctioned in the name of the appellant, the collateral security kept for sanction of loan is the land and building of ASM located in 80/2, Lussane Court, Richmond Road, Bangalore and primary security is the receivables of the appellant. In other words, if the appellant fails to pay the loan plus interest, the amount has to be recovered from sale of property of ASM and thus the inevitable corollary, no stake of the appellant in t....

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....lakhs. The appellant has calculated the rent @ Rs.2.1 lakhs p.m. i.e. @ Rs.9 per sq.ft. I find such estimation of rent is very less. It is in record that the appellant is running its business from a rented premises in the same locality in Richmond Road. The rent shown is Rs.27,500/- for 901 sq.ft. i.e. Rs.30/- per sq.ft. which is much more than Rs.9/- estimated by the appellant in this case. Therefore, herein I find the application of principles of commercial expediency which entitles the appellant for the benefit of allowance of Rs.18.36 lakhs claimed by it as expenditure on borrowed funds. Hence, addition is deleted. Appeal is allowed."   6. The ld. AR submitted before us that the appellant company and M/s. ASM Technologies Ltd., be....

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....rayed that a short time may be granted for producing sufficient documents to establish that the appellant was in occupation of the premises during the tenure of loan and had utilize the premises for its business. Subsequently on 3.3.2011 i.e., after the date of hearing, the ld. AR submitted the following documents:   (a) Affidavit sworn by Sri Rabindra Srikantan, Managing Director of M/s. ASM Technologies Limited stating that the accommodation was provided to the Respondent. (b) Copy of the Balance Sheet, Profit and Loss account along with the schedules for the year ended 31/03/2006.   (c) Copy of the Balance Sheet, Profit and Loss account along with the schedules for the year ended 31/03/2005.   9. The documents submitt....