TaxTMI 
TaxTMI 
2012 (9) TMI 506
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.... of interest of Rs.9,99,525/- made by the AO. The assessee is an individual and he is engaged in the business of trading in sanitary ware, pipes and fittings. On perusal of the Profit & Loss account the AO noticed that the assessee had claimed deduction a sum of Rs.29,32,184/- under the head interest expenses. The above interest expenditure relates to interest on borrowings of Rs.2,54,65,206/-. From the balance sheet the AO noticed that the assessee has made the following advances. 1. Other loans Rs. 90,46,510 2. Mehra & Sons Rs. 15,00,000 3. Shravan Mehra Rs. 9,00,000 1,14,46,510 The AO further noticed that the assessee has received an interest of only Rs.3,18,480/-. The AO was of the view that the Assesse....
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....from various parties. Unsecured loans from Banks and Fin. Institutions Amount (Rs.) Cholamandalam DBS 699,502.00 DCB Bank loan 576,345,00 Deutsche Bank 484,827,00 ING Vysya Loan A/c 954,700,00 Other unsecured loans Amarchand 346,000,00 Batija Sanjay 200,000,00 B.T.Mohan 200,000,00 Chaitanya & Co 136,960,00 Drusina 250,000,00 Harilal 197,062,00 Kamal Bensilal 173,000,00 Kanchan B Tukrel 171,200,00 Kranti Mohan Mehra 100,000,00 Kripa S Bathija 200,000,00 Manoj Kumar Co 342,400,00 Nirmala Bansilal 200,000,00 Pandu Bhai 550,000,00 Shravan Mehra 72,500,00 Total Rs. 5,854,496,00 4. The CIT(A) however, did not acc....
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....riod 1/4/2006 to 31/3/2007. The abstract of the account is as under. Opening balance as on 1/4/2006 Rs. 65,53,474 Add: Payments made during the year Rs. 1,06,70,476 Less: Amount received as repayment of loan Rs. 84,27,440 Closing balance as on 31/3/2007 Rs. 87,96,510 3.8 A perusal of the ledger account shows that the total advance made during the previous year relevant to the assessment year under consideration was Rs.1,06,70,476/- by withdrawing from the account No.10748 with Canara Bank (OD account). It is interesting to note that repayment of loan was through various parties and that also by journal entries and no single transaction has been received through cheques or demand drafts. A few of such parties are H.Murlidha....
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....he assessee's sister company to the extent of Rs.1,00,85,240/-. Thus, it clearly indicates that the OD account was utilized for giving loan interest free of interest at lower rate. On the other hand, the assessee has claimed interest in respect of OD account amounting to Rs.21,19,225/- and interest of Rs.2,01,055/- on unsecured loan. The assessee advanced loan to the extent of Rs.24,00,000/- to close associates but no interest was charged. 3.11. In the light of the discussions made above, I am in agreement with the AO's observation that the assessee is paying higher rate of interest on the funds, which have been advanced at lower rate of interest. Since there is no exact method of working out such interest, the AO's working for disall....
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.....Baby & Co., ( 254 ITR 248) and 2. CIT Vs H.R.Sugar Factory Pvt.Ltd., (187 ITR 363) wherein it was laid down if the assessee had sufficient interest free funds then the assessee ought not to have borrowed funds and incurred expenditure in the form of interest which would go to reduce its taxable income. Reference was also made to the decision of the Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industry Vs CIT ( 324 ITR 396) wherein it was held that interest disallowance has to be sustained where commercial expediency is not established by the assessee. 8. We have considered the rival submissions. Perusal of the written submissions fled by the assessee before the CIT(A) shows that the assessee has specifically plea....