TaxTMI 
TaxTMI 
2012 (5) TMI 231
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....e is in appeal before us. 4. Ground No.1 is against the sustenance of disallowance of interest of Rs.17,51,997/-. 5. Brief facts of the above issue are that, the AO from the PandL Account observed that the assessee firm has debited interest of Rs.17,51,997/- against the business income and Royalty income. He further observed, from the balance sheet, that during the year under consideration the assessee has shown unsecured loan of Rs.2,32,42,889/- and paid interest of Rs.17,51,997/- thereon. He further observed that during the year under consideration the partners have withdrawn the funds from the firm to the tune of Rs.2,34,33,638/- and loan and advances given Rs.1,46,73,258/- to various entities on which the assessee has not charged any interest except Rs.3,74,375/- from M/s Bluplast Industries Ltd. On being asked to explain as to why the interest paid Rs.17,51,997/-on unsecured loan should not be disallowed, it was submitted by the assessee that as per para 3 Obligation of the Licensor of Addendum dated 14.3.2005 an obligation was put on the firm to invest Rs.2 crores to the share capital of the company as the company has decided to go for an IP0. This is the ....
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....m agreement dated 14.3.2005 appearing at page 1 to 6 of the assessee's paper book an obligation was on the firm to invest Rs.2 crores to the share capital of the company as the company has decided to go for an IPO. This is the reason that the firm has borrowed the money from various parties and contributed to the share capital of the company through its partners and firm had to pay interest on loans of Rs.17,51,997/-. He further submits that as per clause 2.1 of the said agreement, the assessee has received interest free deposits of Rs.1.50 crores from the said company which is appearing in the balance sheet of the assessee firm. He further submits that as per clause 0.2 of the said agreement the assessee has received royalty charges of Rs.25,86,656/-. In the light of the above, he submits that the amount of Rs.2 crores was given for the purpose of business of the assessee, therefore, the disallowance of interest is uncalled for. The reliance was also placed on the following decisions: 1. S.A.Builders Ltd. V/s CIT(A) (2007)288 ITR 1(SC), 2. CIT Delhi V/s Bharti Televenture Ltd. 11 Taxman 356.(Del),and 3. M/s R.M.Patel and Sons V/s ITO ITA No.1845/Ahd/2....
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....at the specified rates on the turnover. In order to fulfilment of the condition, the assessee through its partners has deposited Rs.2 crores after taking unsecured loans from the various parties and in lieu thereof the assessee has received the interest free deposits of Rs.1.50 crores and Royalty during the year Rs.25,86,656/-. Thus the amount advanced to the company by the assessee firm through its partners is a measure of commercial expediency and the AO has erred in holding that the investment cannot be said for business consideration and the ld. CIT(A) was also not justified in holding that the investment of Rs.2 crores with the company was an in-house arrangement which is not according the business principles. 10. In S.A.Builders Ltd.(supra) held (placitum 36, page 10 of 288 ITR 1): ".......where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." Respectfully following the ratio ....
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....ity as un-served with remark 'left/not known/unclaimed' and 23 loan creditors have not filed any submission in response to summons issued to them. In the light of the above, the assessee was given opportunity to prove the same. In response, the assessee filed copy of bank statement and copy of return of some of the loan creditors but has failed to file any supporting evidence to prove the genuineness of 12 loan creditors aggregating to Rs.23,50,000/-. In absence thereof, the AO added the same to the total income of the assessee. On appeal, the assessee has filed certain new evidence before ld. CIT(A), therefore, the ld. CIT(A) remanded the matter to the file of the AO for verification and report. The ld. CIT(A) after considering the remand report and the assessee' submission while confirming the addition in the account of S/Shri Omesh Bajaj Rs.1,00,000/-, Nimesh Biharilal Rs.1,00,000/- and Kundandas Panjwani Rs.2,00,000/- aggregating to Rs.4,00,000/- on the ground that the assessee failed to file confirmation and PAN to establishidentities, genuineness of transaction and creditworthiness of loan creditors, deleted the balance amount of addition. 16. At the time of hearing....