TaxTMI 
TaxTMI 
2011 (9) TMI 601
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....borrowed capital could not be disallowed on the excess of interest bearing borrowals over and above what was required and utilised for business purposes?" 2. The assessee is engaged in the business of purchase and sale of medicines on a wholesale basis. While claiming net business loss, the assessee debited certain sum as representing interest paid. While going through the assessment proceedings for 1998-99, the Assessing Officer found that the assessee had diverted a part of the business fund towards non business purposes. The Officer viewed that the claim for deduction on interest on the funds so diverted in each of the above assessment years could not be granted, thus income liable to tax in respect of the above said assessment y....
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....nsidered the interest free deposits available with the assessee during the respective years were sufficient for making investments. It was contended that as the investments was made in the year 1993-94, the same ought not to have been held against the assessee. The assessee had a credit of Rs.1,50,000/- in capital account apart from interest free funds to the tune of Rs.14.16 lakhs as on 31.3.98, which clearly established that advances were given only from out of such interest free funds. 4. As far as the investments in M/s. Capline Point Laboratories is concerned, the Commissioner of Income Tax (Appeal) pointed out that the dealership agreement dated 17.8.93 made no mention about the impugned interest and even when the agreement wa....
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....e construction. Hence, he directed the Assessing Officer to rework the diversion of funds for non business purposes. 6. As regards the interest bearing borrowals, not fully utilised for business purpose, the Commissioner of Income Tax (Appeals), particularly in its order relating to assessment year 1998-99, pointed out that during the course of assessment proceedings, the Assessing Officer questioned the assessee regarding the extent of interest-bearing borrowals used for non business purposes, to which, the assessee agreed in its letter dated 5.2.2001 that as a measure of compromise and to avoid litigation, the loss claimed by it under the head 'business' to be ignored while completing the assessment. In the circumstances, taking n....
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.... year and almost the entire interest related to earlier loans and/ or brought forward balances. However, this would not be a justifiable ground for allowing the assessee's claim that there was no diversion for non business purposes. The first Appellate Authority, viz., the Commissioner of Income Tax (Appeals) pointed out in his order for the assessment year 1998-99 that as against the total interest bearing borrowals amounting to Rs.36 lakhs, the business assets aggregated to Rs.27 lakhs. Thus, only a sum of Rs.9 lakhs was there to be taken as interest bearing borrowals diverted for non business advances. However, taking note of the fact that the assessee had claimed business loss to the tune of Rs.2,73,740/- and as a measure of compromise ....
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....e letter given by the assessee, the Assessing Officer ignored the returned loss, and the Commissioner of Income Tax (Appeals) restricted the diversion of interest bearing funds for non business purposes to the extent of Rs.2,73,740/-. 12. As far as the orders passed for assessment year 1997-98, 1999-2000 and 2000-01 are concerned, the Commissioner of Income Tax (Appeals) worked out the non business advances / investments at Rs.13,56,937/-, Rs.18,29,174/- and Rs.18,94,723/- as relatable to assessment years 1999-98, 1999-2000 and 2000-2001. The said amount was worked out by the Commissioner of Income Tax (Appeals) by looking into the accounts of the assessee as well as on the investments made during this period. The Commissioner of In....