AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 896
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....ot the interest amount. 1.3 Your appellant, therefore, submits that the interest added by the learned A.O. be deleted. 2. Your appellant craves leave to add, alter, amend, withdraw or substitute all or any of the grounds of appeal as the circumstances of the appeal may require. Brief Facts Assesseefirm, engaged in the business of dealing in dial caliper,Gear Tooth,micrometer,filed its return of income on 25.11.2003,declaring income of Rs.() 89.53 lakhs. Assessing Officer (AO) finalised the assessment on u/s.143(3)of the Act on 28.02.2006,determining the income of the assessee at Rs. 35,40,500/. 2. During the original assessment proceedings,the AO found that the assessee had debited a sum of Rs. 86,83,951/under the head Interest in the P&L a/c for the year under the appeal. As per the AO,the assessee had failed to prove the nexus of the above loans and advances with the interest free loans taken/funds. He computed the interest chargeable @ 12% on the above loans and held that the same was disallowable from the interest expenditure. Accordingly,the disallowance was restricted to the extent of the interest debited, since the interest chargeable computed by the AO exceeded the in....
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....onsidering the same the AO held that there was no business expediency in advancing loans to World Wide Commodities Pvt.Ltd.,(WWPL)Priya Blue Ind.Pvt.Ltd.(PBIPL),Sanjay Sales Corporation(SSC),that the assessee had claimed that the above loanees had suffered major reverses and one of the partners had decided support one of the above loanees,that the reasons for not charging interest on the advances paid to the said parties was difference between the partners. He further observed that the assessee had not furnished any details to establish the fact that the above loans were advanced out of interest free surplus funds.In the circumstance no relief was allowed on the disallowance on interest attributable to the loans given to the said three loanees by the AO. With regard to the loan of Rs. 63,09,174/advanced to Sanjay P. Mehta(SPM),the assessee,vide his letter dated 23.12.2011,claimed that he was an ex partner,that he was a partner in the firm till 7thFebruary,that there was no provision for either paying interest on capital account or charging interest on debit balance of the partners. He directed the assessee to furnish the copy of the capital account of SPM and a copy of the partner....
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....ispute,that sister concerns were dissolved,that question of charging interest did not arise,that WCPL was having profitable business and subsequently it sunk into losses,that Umesh Mehta,partner of the assesseefirm was also a director of WCPL,that he was the moving force behind the company,that he had to support the company to save his reputation,that had he not supported WCPL it would have adversely affected the activities of the firm..The assessee also submitted copies of the financial statements of its own and also of WWCPL to explain the issue. After considering the submissions of the assessee,he held that the AO,during the set aside assessment proceedings,gave the assessee ample opportunities to explain/produce details and documents in support of the claim made by it,that in response to AO's opportunity the assessee submitted in a broad manner the circumstances under which the interest could not/did not collect from the parties to whom the assessee advanced loans,that the reply of the assessee had been produced by the AO in the assessment order,that perusal of the reply submitted by it during the setaside proceedings revealed that interest was not be collected with regard....
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....lier years,that it had not charged interest for those years also,that it was interested in recovering the principal and not interest, that the loans were advanced to save the prestige and good will of the partners who were also the directors of the companies or the partners of the firms,that there was dispute among the partners,that the advance to the sister concern had to be treated as business loss, that surplus find was available with the assessee,that the partners' account had balance of Rs. 3.13 crores, that partner's capital had to be adjusted first. He relied upon the case of Reliance Utility (313 ITR 340) and Sridev Enterprises(192 ITR165)of the Hon'ble Karnataka High Court.The Departmental Representative (DR) argued that the assessee had not explained as to how the reputation of the assessee firm was at stake in case if the sister concerns failed, that it was also not clear as to how the assessee was benefited by not charging interest from them,that commercial expediency was not proved by the assessee, that the FAA had given up working of fund flow, that the assessee had not proved the onus cast upon it by the Tribunal on both the counts. 5.We have perused the material be....
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....oncerns were turned out to be bad subsequently,does not entail it not to follow provisions of law. v.The business expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests.The business interest of the assessee has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assessee. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee and working solely in the interest of the assessee, would have extended such interestfree advances. Some business objective should be sought to have been achieved by extending such interestfree advance when the assessee itself is borrowing funds for running its business. It may not be relevant as to whether the advances have been extended out of the borrowed funds or out of the mixed funds, which included borrowed funds. The test to be applied in such cases is not the source of the f....
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.... affairs in the manner it deems fit. But,it cannot claim expenditure that are not incurred wholly and exclusively for carrying out its business of profession.If the assessee had not made a claim of interest expenditure in the P &L account on the borrowings that were advanced as interest free loans to the related persons and WCPL,there would not have been any problem.On the one hand the assessee acts as a benevolent savior to an entity that was difficult situation and on the other it wants that the Sovereign should also shoulder its benevolence by allowing an expenditure that has no business connection. Good deeds have to be appreciated, but not at the cost of the exchequer.In other words,State should not be made party to those items of expenditure that are unrelated with business of an assessee.In the case before us,the assessee has done the same thing.It wants to shift the burden of its generosity in form of claiming an untenable claim.In our opinion there was no commercial expediency in the transactions entered in to by the assessee i.e. non charging of interest from WCPL,PBIPL and others was necessitated by any business consideration.In other words, the assessee had failed to es....