2014 (4) TMI 392

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....d 30.12.2009. 2. The only issue arising in the instant appeal is the maintainability of the disallowance of interest in the sum of Rs.8,27,254/- paid by the assessee, i.e., in law and in the facts and circumstances of the case. 3.1 This is the third round before Tribunal; in the first round, order in which (in ITA No. 1513/Mum/2005 dated 01/11/2006) is not on record, it, as noted at para 8 of its order in the second round (in ITA No. 6624/Mum/2007 dated 15.12.2008/ PB pages 34 - 51), restored the matter back to the file of the first appellate authority. The tribunal, after discussing the issue at length in the second round, i.e., with reference to the law in the matter, vide para 9 (at pages 5-11) of its order, restored the matter bac....

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....toward which analysis of the financial statements would have to be made, relying on the decisions in case of CIT vs. Gopalkrishan Murlidhar [1963] 47 ITR 469 (A.P) and CIT vs. U.P State Industrial Development Corporation [1997] 225 ITR 703 (SC). This should not pose much problem (i.e., legally speaking) for individuals and partnership firms, though for the companies proper procedures would be required to be followed. Accordingly, if the assessee has the sufficient interest-free funds for other than business purposes, no disallowance is warranted. Care must though be taken that the interest-free funds available to as well as given by the assessee are not related to the business (para 9.1 through 9.10). 3.2 In the set-aside proceeding, whi....

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....eved, is in second appeal. 4. We have heard the parties, and pursued the material on record. 4.1 The instant proceedings arising out of the set-aside proceedings, our purview shall be governed largely by the consonance or otherwise of the Revenue's action with the directions of the tribunal in the earlier round, i.e., vide its order dated 15/12/2008 (supra), which stands set out at para 3.1 of this order. Continuing further, we find that the AO as well as ld. CIT (A) have by and large appreciated and followed the tribunal's order correctly. So, however, as we shall presently see, wrong inference has been drawn from the working/analysis made. Further, the financial position being subject to change from time to time, it is that as obtai....

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....s. The assessee has, however, paid interest only on the loans from the Bhatija family, which outstand at Rs.52.47 lacs as on 31/03/1997 (PB pg. 20), and not on the total outstanding of Rs.114.05 lacs, or the further loans for Rs.61.87 lacs assumed by the assessee during the current year. As such, Rs.43.53 lacs out of total loans of Rs.52.47 lacs from the Bhatija family, on which interest of Rs.8.27 lacs stands paid, can be rightly can be regarded as utilized for funding business assets and, thus, deductible, disallowing that (the interest) on the balance Rs.8.94 lacs, representing 17.04% of the impugned interest, or Rs1.41 lacs. It is also easy to see that the fresh loan/s finance both the repayment of the interest-bearing loans from the Bh....