2009 (12) TMI 925

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.... During the course of assessment AO found that the assessee company has given interest free advance to the following concerns:- i) M/s Chirag Spinning Mills :Rs. 15,00,000/- ii) M/s Dina Nath & Sons :Rs. 2,67,359/- 3.1 AO observed that no interest has been charged from the above parties. On enquiry in this regard assessee replied that the advances were given as trade advance for supply of yarn. AO did not accept this contention in the absence of any supporting detail. He referred to the decision of the Hon'ble Punjab and Haryana High Court in the case of CIT V.s M/s Abhishek Industries Ltd. reported in 286 ITR 1 and made a disallowance of interest ₹ 211512/- in this regard. 4. Upon assessee's appeal CIT(A) observed "that advance....

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....der the assessee is in appeal before us. 6. We have heard both the counsels and perused the records. Ld. Counsel of the assessee reiterated that these were trade advances and hence no disallowance of interest is called for. In this regard, ld. Counsel referred the decision of the Hon'ble Apex Court in the case of HOnMunjal Sales Corp. Vs. CIT 298 ITR 298, SA Builders vs. CIT 288 ITR 1 and Hon'ble Madras High Court in the case of CIT Vs. Savera Hotel CTR 148 ITR 585. Ld. counsel also claimed that above parties were not related to the assessee. 6.1 Ld. DR on the other hand submitted that it has been a categorical finding in orders of the authorities below that the parties are related and assessee has incurred interest in obtaining the funds....

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....his regard cannot be said to be unjustified. 8.1 The case laws relied upon by the ld. Counsel of the assesse as rightly contended by the ld. DR are not applicable on the facts of the case. In Munjal Corporation case cited above the Hon'ble Apex Court has explained the legal position with regard to section 36(1)(iii) and 40b(iv) and of the Act. The Hon'ble Apex Court has held that section 40 is corollary to section 30 to 38 and therefore section 40 is not a stand alone section. In a SA Builders case cited above Hon'ble Apex Court has held that there could be no disallowance of interest, if interest free advance has been given for commercial expediency. In Hotel Savera case cited above the Hon'ble Madras High Court has held that when the ass....