TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 45
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....3(3) was passed completing the assessment at an assessed loss of Rs. 26804110/-. Thereafter, an order dated 22.3.2007 was passed under section 263 of the Income Tax Act, 1961 (herein after the 'Act') by the Commissioner of Income, Delhi-IV, New Delhi vide which the assessment was set aside on the issue of allowability of deduction for interest amounting to Rs. 175.27 lakhs paid on borrowed funds utilized in advancing interest free loans to a sister concern. In view of the order passed under section 263 setting aside the assessment on the aforesaid issue, a notice dated 12.10.2007 was issued to the assessee giving it an opportunity to place evidence and arguments in support of its claim in respect of the aforesaid issue. In response thereto, Ld. Counsel of the assessee appeared before the AO from time to time. Assessing Officer on perusing the balance sheet and the P&L A/c of the assessee was of the opinion that the assessee had taken loans amounting to Rs. 180089042/- as on 31.3.2002 on which interest amounting to Rs. 17551634/- had been paid. It was further seen that the assessee had advanced loans amounting to Rs. 518123177/- on which no interest had been earned. So according to ....
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....asstt. year 2003-04, and Tribunal has upheld the order of the Ld. CIT(A) on the deletion of the addition of interest. Hence, the Ld. Counsel of the assessee stated that the similar issue has been dealt by the Ld. CIT(A) as well as by the ITAT in assessee's own case in its favor, therefore, the same may be followed in the present asstt. year 2002-03 and the additions made by the AO and upheld by the CIT(A) may be deleted accordingly. In support of his contention he submitted that the Assessing Officer has disallowed the Interest & Finance Charges of Rs. 17551634/- on the ground that on the one hand, the assessee company has paid interest on the loans taken by it and on the other hand, the assessee company has given interest free advances on which no interest has been charged. The Assessing Officer has held that since the assessee is not maintaining seperate accounts of its funds invested in business and those given for non-business purpose, disallowance of interest is to be made. According to him the action of Ld. A.O. in disallowance of interest is totally erroneous and the assessing officer has failed to give consideration to actual position of the balance sheet of the company. Th....
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....s at that time the assessee company was not getting the desired price and also. it would have resulted into the end of earning of rental income on stock. It may be seen that during the year the assessee company has earned rental income of Rs. 1,17,84,686/- which has been offered as business income and also assessed as such and in the subsequent years also, the assessee company has earned the rental income. In view of the above the ld AR submitted that granting of interest free advances was on account of commercial expediency. 8. The ld counsel relied on in the case of DCIT vs U.K. Paints (India) Ltd (2010) 4 ITR (Trib) 455 (Del) disallowance of interest was made on the ground that the assessee had advanced interest free advances. It was held that Hon'ble Bench of jurisdictional tribunal that interest free funds available with the assessee for exceeded the amount advanced by it as interest free loans arid therefore disallowance of interest was to be deleted. 9. According to the ld counsel in the case of Commissioner of Income Tax vs Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Born) disallowance of interest was made by the Assessing officer on the ground that the ass....
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....ble with the company. Accordingly the appeal was partly allowed and disallowance of interest was partly sustained and partly deleted Thereafter matter was carried to tribunal. The tribunal held that since the interest free funds available with assessee i.e. Rs. 10,95,010/- (being credit balance in capital and current account of partners) were more than interest free advance of Rs. 10,34, 656/- given to sister concern, no disallowance of interest was warranted The Hon'ble Madras High Court upheld the view of Tribunal. 12. Ld counsel further pointed out that the Learned author, Sampath Iyenger in his book Sampath Iyengar's Law of Income Tax, 9th edition, at Page No. 2349 observed as under :- "For the same reason, a presumption appears to be permissible that where the assessee has his own capital as also the borrowed funds, the former rather than later to have been utilized for the non-business or personal expenses". 13. According to the ld counsel, in the case of Bishamber Dayal Badri Prasad vs Inspecting Assistant Commissioner (1986) 18 ITD 279 (Delhi) TM, it was held that since non-interest bearing funds with the assessee were far more than interest bearing loans, there ....