TaxTMI 
TaxTMI 
2012 (7) TMI 326
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.... assessee has diverted interest bearing loans in interest free advances/loans. 2. That ld CIT(A) has ignored the fact that during the course of assessment proceedings assessee failed to discharge its onus to establish that advance have been made to family members out of interest free funds available with it. 3. The appellant craves leave to add, alter or amend any/all the grounds of appeal before or during the course of hearing of the appeal. 2. The brief facts of the case are that the assessee is a firm and for the assessment year 2007-08 return was filed on 31.7.2007 declaring a loss of Rs..18,54,445/-. The case of the assessee was selected for scrutiny and the Assessing Officer during course of assessment proceedings foun....
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....ng Officer u/s 271(1)(c) of the Act was deleted by Ld CIT(A). 3. The Ld CIT(A) after considering the submissions of the assessee deleted the addition made by the Assessing Officer. The relevant portion of CIT(A)'s order is reproduced below:- "I have considered the submissions of the Ld counsel and the remand report of the Ld Assessing Officer as well as other facts on record. In this case the first finding which needs to be recorded is that the payment of interest does not relate to any fresh loan taken during the year but relates to brought forward interest bearing loans of earlier years. The requirement of law as has been held by the various Courts is that the Assessing Officer is required to establish the nexus of interest bearing ....
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....the revenue has filed appeal before us. 5. The Ld DR contended before us that the assessee had not sufficient capital to give interest free loans and he took us to page 14 of the paper book wherein the balance sheet dated 31.3.2007 partner capital stood at Rs..260.41 lakhs against which loans and advances were to the tune of Rs..476.05 lakhs and in view of that position he pleaded that payment of interest of un-secured loan was not warranted as assessee had diverted interest bearing funds towards disbursement of interest free loans. 6. On the other hand, the Ld AR argued that sufficient proof was filed with CIT(A) to prove that the assessee had sufficient interest free funds to give interest free loans and advances. In this respect he....
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....w much of the un-secured loans has been used for making loans and advances and how much were used for acquiring business purposes is difficult. The cases relied by the assessee before Ld CIT(A) in the case of CIT v. Tin Box Company (supra), it was held that where the capital of the firm and interest free un-secured loans exceed the amounts advanced to sister concern then disallowance of part of interest on borrowed capital was not justified. Similarly, in the case of CIT v. Hotel Savera (supra) it was held that where the assessee firm had itself own funds as well as borrowed funds and that money borrowed inextricably assessee's own funds so as to make it impossible to delineate that funds were advanced to sister concern then in such a case ....