TaxTMI 
TaxTMI 
2014 (2) TMI 73
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....facts and in the circumstances of the case, under section 36(1)(iii), the interest paid 'for the purpose of business' has to be assigned restricted meaning such that overlooking inter connection, interlacing, interdependence and unity of the management and the financial affairs of the assessee ? Briefly, the relevant facts necessary for adjudication of the controversy involved, as available on record, may be noticed. The assessee is deriving income from the business of manufacturing of sewing machines and technical consultancy. It filed its income-tax return declaring an income of Rs. 45,57,615 for the assessment year in question. The return was processed under section 143(1)(a) of the Act. Later on, the case was selected under compulsor....
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.... the Commissioner of Income-tax (Appeals) ("the CIT(A)"). Vide order dated August 29, 2008, annenxure A. 5, the appeal was dismissed. Still not satisfied, the assessee filed an appeal before the Tribunal. Vide order dated June 30, 2010, annexure A. 12, the Tribunal dismissed the appeal. Hence, the present appeal by the assessee. Learned counsel for the appellant submitted that the assessee had taken loan from the bank and advanced the same to its sister concern, M/s. Luxmi Engineering Works, Ludhiana. The shareholdings of the directors in the assessee-company and the partners in the sister concern were common. It was urged that the two concerns were family concerns having different lines of manufacturing under the brand name "Luxmi" and ....
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....evant finding recorded by the Assessing Officer in that behalf is as under : "The assessee-company itself has a profitable return of income while the sister concern has filed a loss return for the assessment year 2004-05 and nil return for the assessment year 2005-06. This makes the intention more clear as funds are being transferred from a profitmaking concern to a loss-making concern which allows the profits to be transferred thereby reducing the tax liability of the profit-making concern. This is made more clear from the table below : Name of the concern C. R. Auluck and Sons Pvt. Ltd. J. C. Auluck Investment Pvt. Ltd. A. C. Auluck Investment P. Ltd. Luxmi Engineering Works Returned income for the assessment year 200....
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....oan extended The contentions of the counsel for the assessee are not acceptable in the light of above discussion from which it is clear that no commercial expediency whatsoever was involved in the advancing of interest-free loan to the sister concern. It was simply advanced to reduce the profitability of the concern. The decision of the High Court of Punjab and Haryana in the case of CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1 (P&H) ; [2006] 156 Taxman 257 (P&H) is more applicable in this case. The issue before the learned High Court Bench was whether once it is borne out from record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and, on the other hand, certain amounts had been advanced ....
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....issions reproduced above the learned counsel has taken up the same arguments as taken before the Assessing Officer. However, as already discussed the Assessing Officer has duly discussed in detail in the assessment order as to how these arguments do not help the case of the appellant. With regard to the reliance placed on the decision of the hon'ble Supreme Court in the case of S. A. Builders (supra), as elaborated and discussed by the Assessing Officer in the assessment order, no business expediency in respect of the appellant having been proved, the ratio of this decision would not help the case of the appellant. Saving the account of M/s. Luxmi Engineering Works from being declared NPA and the buyer of the appellant and that concern bein....
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....s Ltd. (supra), is very much applicable in the case of the appellant. Admittedly, the appellant has borrowed funds on which interest had been paid and, on the other hand, amounts having been advanced to the sister concern of the appellant without any interest and further there is no business expediency involved in relation to the appellant. The disallowance made by the Assessing Officer of interest of Rs. 14,82,695 under section 36(1)(iii) is, therefore, upheld." The Tribunal, while dismissing the appeal of the assessee, had also concluded that there was no commercial expediency and the interest-free borrowed funds had been advanced for non-business purposes and had accordingly disallowed interest amounting to Rs. 14,82,695 being interes....