2014 (10) TMI 110

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.... it was noticed that the assessee has received money by way of capital introduction by partner and loan given by various other parties. The assessee has given interest on most of these funds and charged to profit and loss account. The assessee has also advanced funds to various parties including its sister concern and in many cases of such lending, no interest has been collected. In order to ascertain, whether the assessee has made expenditure by paying interest, related details were called for. The assessee furnished general ledger extracts and monthly summary account of M/s.K Raheja Hotels and Estates Private Limited. An analysis of the said accounts reveals that on the amount received from M/s.Ivory Properties Pvt. Ltd., the assessee has....

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....said that the assessee diverted the funds. Therefore, it set aside the order passed by the lower authorities and upheld the claim of the assessee for disallowance. Aggrieved by the said order, the Revenue is in appeal. 3. The appeal was admitted on 23.07.2009, to consider the following substantial question of law:        "Whether the Tribunal was correct in holding that due to an award passed in Arbitration Proceedings between M/s.K. Raheja Development Corporation and M/s.Unique Estates Development Corporation and M/s.Sea-Crust Properties Pvt. Ltd. where the Assessee was not a party, interest was paid due to compelling reasons and therefore allowable deduction?" 4. We have head the learned Counsel for ....

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.... the Apex Court in S.A.Builders case comes to the rescue of the assessee. In the aforesaid judgment, the Apex Court, has made it clear that it is not their opinion that in every case interest on borrowed loan has to be allowed if a assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective cases. In the said case, the assessee received payment from its clients and it deposited the same in the account and subsequently, the said amount were paid to the sister concern. No interest was charged for the amounts so advanced to the sister concern. In that context, it was held that the assessee borrowed the fund from the bank and lent it to the sister concern as interest free loan. The test in such a ca....