TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 462
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....arding the disallowance of interest @ 12% for the interest free advances given by the assessee of Rs. 21,56,664/- to Sh. Samir Choudhary and Rs. 7,08,278/- to Smt. Sunita Choudhary (total of Rs. 28,63,942/- to family members) in view of the Punjab & Haryana High Court decision in the case of M/s. Abhishek Industries Ltd. - ITA No.110 of 2005 dated 04.08.2006 reported in 286 ITR-1 (P&H), the assessee vide order sheet entry dated 06.05.2009, was asked to file details regarding the proposed disallowance and in response to the query raised, the assessee filed its reply dated 08.05.2009. The assessee has accepted the fact that the loan given for Rs. 28,63,942/- was interest free and not for the trade purposes. As the assessee is paying interest on loan taken by the firm and in view of the decision of M/s. Abhishek Industries Ltd., disallowance of Rs. 3,43,673/- being 12% of Rs. 28,63,942/- is made and added back to the income of the assessee." 3. The Ld. CIT(A), confirmed the action of the Assessing Officer. 4. The Ld. counsel for the assessee relied upon the submissions made before the ld. CIT(A). 5. The Ld. DR, on the other hand, relied upon the orders of both the authorities below....
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....uilders Ltd. vs. CIT(Appeals) 288 ITR 1 (SC) that when the assessee borrowed the fund from the bank and lent some of it to its sister concern as an interest free loan, then the real test to allow the interest as deduction u/s 36(1)(iii) was whether this was done as a measure of commercial expediency. It was held that it was not necessary that the amount so advanced was for earning profit or not but there must be some nexus between expenses and the purpose of business. The order passed by the Appellate Tribunal was set aside to the Appellate Tribunal to reconsider the matter in the light of the principle laid down by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. (supra). In the case of CIT vs. Punjab Tractors Ltd. 41 DTR (P&H) 169, the Revenue had raised, inter alia, the following question of law: (1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition made on account of interest on interest free loans advanced by the assessee company to its sister concern, M/s. Swaraj Mazda Ltd.?" 6.1. The brief facts were that the assessee was engaged in the business of production of tractors and its spares. The AO compl....
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....rues to the assessee, no tax can be levied. The mere fact that the assessee had not charged any interest on the amounts due from another concern would not itself justify in making the addition on notional basis. Having regard to these facts and circumstances of the case, we are of the opinion that the ld. CIT(A) was justified in deleting the impugned addition. We confirm his order and deleted this ground of appeal. The facts of the case for assessment year under reference are similar to the facts for asstt. year 1991-92. Even for the assessment year under reference the assessee had sufficient surplus funds to cover the impugned loans. Respectfully following the aforesaid order of the Tribunal, we hold that the CIT(A) was justified in deleting the impugned disallowance of interest for both the assessment years. We confirm the orders of CIT(A) and dismiss the respective grounds of appeals of the Revenue for both the assessment years." 6.2. On Department's appeal the Hon'ble High Court noted that the appeals in the assessee's case for AY 1991-92 had been decided vide their order dated 21st Jan., 2009 and the matter had been remitted back to the Tribunal for decision afresh in accorda....
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....of Punjab Stainless Steel Inds. vs. CIT [2011] 196 Taxman 404 (Delhi) the AO noted that the assessee had diverted its interest bearing funds, taken from its cash credit account with a bank, as interest free advances to one of its sister concerns. Accordingly, the AO disallowed a part of the assessee's claim. On appeal, the Ld. CIT(A) upheld the order of the AO. On further appeal, the Tribunal did not find any commercial expediency in making interest free advances to the said sister concern. It was also found by the Tribunal that there was direct nexus between interest bearing loans and the interest free advances, since the advances had been made from the cash credit account and this position had not been disputed. The Tribunal, therefore, upheld the order passed by the authorities below. On appeal, the Hon'ble High Court held that the assessee did not tell the Tribunal as to what it business interest was sought to be achieved by making interest free advances to the sister concern and in what manner that interest was served. The assessee was required not only to claim commercial expediency but also to establish it form the material available to the AO, which it had not even attempte....