TaxTMI 
TaxTMI 
2012 (10) TMI 562
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....e loan 5,27,429/- iii) interest on TDS 75,147/- Total Rs. 34,44,886/- 3. Briefly the facts of the case are that the assessee availed loan from Central Bank of India to the tune of Rs. 2.06 crores, on which, interest of Rs. 28,42,310/- was debited to the P&L A/c and claimed as expenditure. During the year, the assessee had not done any contract work and the assessee had transferred the loan availed from the bank to its sister concern M/s Navayuga Engineering Company Ltd. Since the assessee had not carried on contract work and diverted the funds to its sister concern, the AO worked out the proportionate interest on the transferred fund to M/s Navayuga Engg. Co. ltd. at Rs. 28,42,310/- and disallowed the same. On appeal, the CIT(A) confirme....
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....ween borrowal by the assessee which was in the preceding year and the debit balance in the account of the debtor, namely, Navayuga Engineering Co., sister concern, which was not an advance by the assessee but account transfer of the closing stock/work-in-progress, that too long after the date of cash credit facility obtained by the assessee from the Central Bank of India. The learned counsel also relied on the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs. SA Builders, 288 ITR 1, according to which, if an advance is made for reasons of commercial expediency, disallowance of interest cannot be made even if there is nexus between the borrowal and advance to the sister concern out of the borrowals. He further submitt....
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....he learned CIT(A) is not applicable to the facts of the case here. Finally, the learned counsel submitted that by executing the work through sub-contract, the conclusion that the assessee went out of business is not at all correct or justified. The P&L A/c and the work agreement clearly show that the assessee is in full factual and legal control and management of the execution of contract works. For this proposition, he relied on the decision of the ITAT B Bench in the case of Progressive Constructions Ltd. Vs. ACIT in ITA Nos. 482 & 557/Hyd/01, dt. 23/11/06 wherein in paras 13- 15, it was held that the main contractor is engaged in the contract business through sub contractor. The terms and conditions of the sub-contract agreement in the ....
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..... We have heard the arguments of the parties, perused the record and gone through the orders of the authorities below. With regard to the interest on cash credit of Rs. 28,42,310/-, the assessee's claim is that the assessee had not diverted the funds to its sister concern M/s Navayuga Engg. Co. Ltd. but transferred the work-in-progress to its sister concern to carry on the work on behalf of the assessee. According to the assessee, the work-in-progress which was in semi-finishedstage has been transferred to its sister concern and they have carried the work on behalf of the assesses and the assessee received fixed percentage of commission from this contract. Therefore, it cannot be treated that the assessee had diverted the funds. We find th....