TaxTMI 
TaxTMI 
2012 (8) TMI 947
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.... "1. The Ld. CIT(A) has erred both in law and on facts of the case in deleting an addition of Rs. 1,31,24,332/- made by the A.O. on account of disallowance of interest paid to banks whereas the assessee had advanced interest free loan to its sister concerns with whom it had no business dealings. 2. The appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off." 3. The assessee has raised following grounds of appeal: "1. That the Ld. CIT(A) is wrong in both law and facts, hence liable to be quashed. 2. That the Ld. CITA) has erred in law and facts of the case, in sustaining addition of RS.33,00,000/- on account of fee paid to M/s. Rajinder Kumar Associates and to M/s. India Interio....
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....of Income Tax-1, Ludhiana vs. M/s. Abhishek Industries, Ludhiana, in ITA No.110 of 2005." 5. The Ld. CIT(A) vide para 3.5 and 3.6 of his order observed and allowed the relief to the assessee, which for the sake of clarity is reproduced as under: "I have considered the rival contentions carefully. The AO's reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Abhishek Industries Ltd 286 ITR 1 (P&H) does not appear to reflect the latest position of law on the issue of advance of interest free loans to sister concerns. In a subsequent judgment in the case of S.A. Builders Ltd. 288 ITR 1 (SC), the Hon'ble Apex Court have examined the issue of disallowance of interest on account of advance of interest free funds to ....
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..... The Hon'ble Jurisdictional High Court have also, in their recent decision in the case of CIT vs. Marudhar Chemicals & Pharmaceuticals (P) Ltd. 319 ITR 75, held that disallowance of interest in respect of interest free advance to sister concern was not warranted where the advance was given as a measure of "commercial expediency". They have held that it was not relevant as to whether the assessee had utilized the borrowed amount in its own business or had advanced the same as interest free loan to its sister concern, but held that there should be some nexus between the funds and purpose of business. The Hon'ble High Court followed the decision of the Hon'ble Apex Court in the case of S.A. Builders (supra) while referring to the earlier deci....
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....igh Court in the case of CIT vs. Marudhar Chemical and Pharmaceutical Ltd. (supra), I hold that disallowance of interest was not called for in this case. The disallowance of Rs. 1,31,24,332/- is, therefore, deleted. Ground No.3 of appeal is allowed." 6. The Ld. DCIT(DR), Sh. Tarsem Lal, argued at the outset with regard to the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. 288 ITR 1 (SC), where the ld. CITA) has not interpreted and had applied the said decision in the right spirit. In the case of S.A. Builders Ltd.(supra), the Hon'ble Supreme Court has decided that in order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern should be allowed as deduction o....
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....d the facts of the case. We are convinced with the arguments made by the Ld. DCIT(DR) Mr. Tarsem Lal that the Ld. CIT(A) has not taken the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT 288 ITR 1 (SC), in right spirit. No where the assessee has established the measure of commercial expediency either before the AO or before the ld. CIT(A) and not even before us. There is nothing on record that the money so advanced by the assessee to the sister concern had been used as a measure of commercial expediency. In the facts and circumstances of the case, the ld. CIT(A) has wrongly interpreted and relied upon the decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (supra), which in fact goes ....