TaxTMI 
TaxTMI 
2012 (9) TMI 749
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....apital borrowed for the purpose of business. (ii) That on the facts and in the circumstances of the case the ld. CIT(A)-V, Kolkata erred in holding that the advances in question were made out of borrowed funds while the fact isthat the advances were made out of the appellant's own resources. (iii) That on the facts and in the circumstances of the case the Ld. CIT(A)-V, Kolkata had misconstrued the facts and erred in upholding the disallowance of interest on misconception, surmise, extraneous consideration and his action is therefore perverse and not tenable in law." 3. Brief facts leading to the above issue are that the original assessment in this case was completed u/s. 143(3) of the Act vide order dated 20.03.1997 in which the AO after considering the facts of the case allowed the claim of interest amounting to Rs.10,24,59,637/- paid on capital borrowed for the purpose of business. Subsequently, the AO noticed that interest on loans of Rs.33355.96 lacs and Rs.1629.71 lacs given to its two subsidiary companies i.e. Poly Investments Ltd. and Chohal Investments Ltd. respectively without interest out of borrowed funds obtained from different financial institutions involving ....
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....e Tribunal was justified in law in upholding the disallowance of interest expenditure to the extent of Rs.10,24,59,637/- incurred by the appellant in respect of capital borrowed and utilized for the purposes of its business in respect of which the appellant was entitled to deduction under section 36(1)(iii) of the Income Tax Act, 1961. (b) Whether there was any material before the Tribunal to hold that any part of the interest free loans to the subsidiary and associate companies was given by the appellant out of borrowed funds and its purported findings upholding the disallowance of interest expenditure of Rs.10,24,59,637/- have been arrived at by ignoring the relevant materials and/or by taking into consideration relevant and/or extraneous materials and/or are otherwise arbitrary, unreasonable and perverse." And Hon'ble High Court has held as under: "Mr. Bajoria pointed out further that Miscellaneous Application was also filed before the Tribunal but the Tribunal did not advert to any of the argument and the document placed before us and did not deal with the submissions made by the assessee. In these circumstances he submitted that the Tribunal has erred in passing that ....
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....o. Ltd. out of sale proceeds of shares of Ballarpur Industries Ltd. held by it. The assessee has enclosed copy of bank statement of HSBC in which sale proceeds of such sale were deposited and from which the advance was made to Chohal Investments Ltd. These details are available at assessee's paper book page 334. The assessee has disclosed profit arising from sale of shares of Ballarpur Industries Ltd. for AY 1993-94 and these are included in Balance Sheet for the year ending 31.03.1993. These details are enclosed at assessee's paper book pages 332 and 333. The Balance Sheet and Schedule of assets are also enclosed at assessee's paper book pages 319 and 320. It was the argument of assessee that in such circumstances, no disallowance in respect of any interest on borrowed fund can be made. We find that the AO during the course of original assessment proceedings for AY 1993-94 examined the aforesaid facts and made assessment vide order dated 20.03.1997 and no such disallowance was made by AO in respect of this amount of borrowed funds. The assessee has enclosed copy of assessment order at page 240 of assessee's paper book. 7. In respect to amount advanced to Chohal investment Ltd. ....
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....correct. The assessee has enclosed copies of assessment orders for these three assessment years at pages 256, 265 and 274 of assessee's paper book. The Ld. counsel has drawn our attention to the fact that the amounts outstanding against various concerns are most of it were brought forward from earlier years. This fact can be clear from the statement of opening balance and closing balance in respect of various concerns which has been reproduced from the records of the assessee as under: Sl. No. Name of Concern Opening Balance as on 01.04.93 Closing Balance as on 31.03.94 1. Chohal Investments Ltd. Rs.59,80,28,792 Rs.16,30,14,292 2. Poly Investments Ltd. Rs.43,54,00,163 Rs.33,55,95,062 3. Gupta & Syal Ltd. Rs. 1,41,404 Rs. 1,56,004 4. Kishanchand Spinning Mills Ltd. Rs. 26,62.979 Rs. 26,49,071 5. Kedernath Kishanchand Finance & Investments Ltd. Rs. 22,51,470 Rs. 22,51,470 8. From the above facts and circumstances, we find that the amount outstanding against the two subsidiaries i.e. Chohal Investment Ltd. and Poly Investment Ltd. was substantially reduced during the year and there is no addition of advance at ....
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....nts of above five concerns. This being a very negligible and small amounts and by taking the clue from this no disallowance of interest on borrowed capital can be made. Apart from that the AO from the very beginning i.e. from AYs 1991-92, 1992-93 and 1993-94 and even in subsequent assessment years 1995-96 to 1997-98 the advances were there but no disallowance of interest on borrowed capital is made by AO and accepted as it is. From the records it is noticed that assessment orders are available in assessee's paper book as mentioned above, it established that the advance to subsidiary companies or other concerns as mentioned above, are given out of sale proceeds of shares or the profits of shares or the internal accruals. In the instant case, the assessee who for the purpose of running of its business required funds and borrowed money from banks and other financial institutions and used for the purpose of business as is evidently clear from the above discussion because the amount advanced to its subsidiaries and others is out of its own funds. While making a disallowance or while arriving at a finding that the interest bearing funds are used for the purpose of interest free advanc....