TaxTMI 
TaxTMI 
2012 (11) TMI 748
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....ed by the appellant. 2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the additions and/or disallowances of Rs.17,32,449/-/- being the interest on loans advanced by the appellant without any cogent reasons whatsoever." 3. The assessee is a private limited company engaged in the business of trading CNSL Oil, yarn, paper and shares filed its return of income for the assessment year 2001-02 showing a loss of Rs. 16,74,893/-/- on 29.10.2001 along with audit report. The case was taken up for scrutiny and the assessment was completed on 25.02.2004 under section 143(3) of the Act. 3.1 During the course of the assessment proceedings, the ld. AO observed that the assessee had furnished funds to the directors who, in turn, purchased certain investments in the form of mutual funds in their individual names. During the previous year, the directors sold the mutual funds incurring loss of Rs.80,77,500/- and the assessee company claimed this loss in its return of income as its loss. The ld. AO disallowed this loss in the hands of the assessee for the following reasons: a) The company is a separate legal entity and capable of making....
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....he following observations: "4.2. I have carefully considered the submission made and details furnished by the assessee, both at the time of assessment proceedings and at the appellate proceedings. I find that the units were purchased in the names of the directors of the company out of which one of the director Shri C. K. Pandya had resigned from the company. Assessing Officer had specifically asked assessee to file details in connection with the purchase and sales of mutual fund units along with copies of applications made. The claim of the assessee that investment was made in the name of the directors to avoid lengthy and complicated procedure does not appear to reason because directors are basically employees of the company and keep on rotating. This is evident from the fact that one of the director have resigned from the company. It is also noticed that alleged copy of Board's Resolution authorizing investment in the names of various directors is signed by a single director and no such resolution was enclosed with the return of income neither there was any mention about the purchase and investment in units of mutual funds in the names of directors, in any of the records. It i....
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....e company and when there was a huge loss, the entire transactions were transferred in the name of the company stating that investment was made in their own name on behalf of the company. In view of the above discussion, the claim cannot be accepted and action of the Assessing Officer in disallowing the loss is upheld." 5.2 I have carefully considered the submissions made. As discussed in respect of investment in units of mutual funds, interest bearing funds were diverted to the directors accounts for purchase of units of mutual funds. Apart from that assessee company had advanced Rs.1.16 crores to Omkar Finstock Ltd. In respect of this advances, it was claimed that the amount was advanced for trading in shares. However, no bills, correspondence etc. could be produced by the assessee either at the time of assessment proceedings or at the time of appellate proceedings. Therefore, there is nothing to show that this amount was advanced for any genuine purpose or any business expediency. The actual nature of transactions have never been explained by the assessee. In these circumstances, I fully agree with the Assessing Officer that the disallowance has to be made and accordingly, dis....
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....investments were made, they were duly disclosed in the balance-sheet and statement of affairs of the company. 6. The ld. D.R. stoutly refuted to the submissions of the ld. A.R. He relied upon the orders of the ld. AO and the ld. CIT(A). He submitted that the company had advanced interest bearing funds to the directors of the company, who, in turn, invested in mutual funds in their individual names. On knowing that losses have been occurred on such investments, they conveniently desired it to show the loss in the hands of the company. He therefore, prayed that the orders of the Revenue may be confirmed. 7. We have heard the rival submissions and perused the materials on record. On examining the balance-sheet of the assessee for the year ending 31.03.2000 at page 34 and 37 of the paper book, it is evident that the assessee has shown the mutual funds as its investment. Therefore, there was no suppression of the fact with respect to investment as doubted by the ld. A.O. Further, there is no bar for the assessee company to make investments in the name of the directors due to certain strategic reasons. The assessee has submitted the Board's resolution duly certified by one of the d....
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.... the party is presently absconding. The assessee has not explained the nature of transactions. In the light of the above facts, it is crystal clear that the assessee has diverted the interest bearing loans to the directors and others. The facts of the case showed that there was no business need and expediency in advancing money to the directors and to Omkar Finstock Ltd. to such huge extent. The facts and circumstances of the case narrated above established beyond any ambiguity that the funds borrowed from bank has not been utilized for business purpose but it was diverted towards interest free advances. The interest expenses are therefore not allowable." 8.2 The ld. CIT(A) confirmed the ld. AO. 9. The ld. A.R. submitted before us that the investment in mutual funds was not made during the year under appeal but in the month of March, 2000 i.e. assessment year 2000-01 and the redemption of the said units was made on 08.06.2000, 05.07.2000 and 23.03.2000. The correct amount of 1.44 crores being the amount redeemed has been redeposited in the bank account. Therefore, there cannot be any disallowance for the entire year. Further trading in different commodities amounted to Rs.....