2013 (6) TMI 337

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....g substantial questions of law:- "1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the disallowance of interest on borrowed funds merely on the ground that there was additional amount of advances given to directors, without any nexus being established between the borrowed funds and the advances made to Directors? 2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that interest on borrowed funds cannot be disallowed without any nexus between such borrowed funds and the advances made to Directors? 3. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal w....

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....e Commissioner of Income Tax (Appeals), a remand report was called for from the Assessing Officer. In the remand report, the Assessing Officer had stated that the assessee's contention that there was no nexus between the borrowed funds and the advances given to the Directors, was a fresh argument advanced during the appellate proceedings and further the disallowance of interest paid to the Bank on borrowals diverted in the form of loans/advances to Directors without corresponding return thereof in the form of interest was a subject matter of assessment for the assessment year 2001-02. The disallowance made for the assessment year under consideration was only a continuation of the position the Assessing Officer had taken in for the immediate....

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....he question of disallowance of interest paid to the Bank does not arise. Consequently, he contended that the Tribunal had committed serious error in holding that the assessee had not proved that the interest bearing borrowed funds were exclusively used for the purpose of business. 7. In this connection, he placed reliance on the decision of this Court reported in (2008) 216 CTR (Mad) 180 (Commissioner of Income Tax V. Kandagiri Spinning Mills Ltd.) and contended that the amounts advanced by the assessee to the Directors being out of commercial expediency and in any event, the amount advanced were not out of the borrowed funds, the claim has to be sustained. 8. We do not agree with the above-said contention of the learned counsel appea....