AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 1191
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....he ITAT has partly allowed the appeal filed by the respondent-assessee. It relates to assessment year 1992-93. 2. The appeal was admitted on the following substantial question of law:- "Whether under the facts and circumstances of the case and in law the findings of the Tribunal are perverse on account of deletion of addition of Rs. 5,80,215/- confirmed by the CIT(A) towards disallowance of interest as interest free advances were given to its sister concerns ?" 3. The brief facts, which can be noticed on perusal of the order impugned and the orders of the lower authorities are that the respondent-assessee is a limited company and had furnished Return declaring income of Rs. 1,22,05,430/-. During the course of the assessment p....
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....T, the ITAT, after analyzing the evidence on record, particularly, in view of the fact that the assessee was having its own sufficient funds and was maintaining a composite account and the revenue was unable to prove the nexus between the borrowed funds and the advances given, came to the conclusion that the disallowance is not proper and deleted the notional/hypothetical interest disallowed by the AO. 6. Learned counsel for the appellant-revenue contended that the AO so also the CIT(A), after detailed analysis of the material on record, had correctly come to the conclusion that the assesseee had diverted money to sister concerns from whom either interest was not charged or if charged, was at lower rate of interest and on the one hand, t....
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.... Apex Court and this Court as well as other High Courts, in such facts and circumstances, have come to the conclusion that once the assessee has its own capital, to that extent it is for the assessee to manage its own affairs. He further contended that the AO has not been able to prove the nexus in between the amount borrowed and diverted towards non-business/ interest bearing funds. 8. After hearing counsel for the parties and going through the material on record, we notice that it is an admitted fact that the assessee had its own capital balance to the tune of Rs. 80 lacs in addition to reserve and surplus of Rs. 446.80 lacs and to this extent the said funds were available with the assessee for advancing or acting in accordance with th....
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....ee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is ....
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....e relevant year were sufficent to cover the impugned loan of Rs. 5 Lakhs." 12. Allahabad High Court in the case of CIT vs. Radico Khaitan Ltd. (2005) 274 ITR 354 has held that the assessee Company had sufficient fund other than the borrowed money for giving the amount in question as loan to its sister concern, which finding had not been specifically challenged in the present appeal. The conditions of Section 36(1)(iii) of the Act had been complied with and, therefore, the assessee company was entitled to full allowance of the amount of interest paid by it on borrowed capital. 13. Delhi High Court, in the case of CIT vs. Dalmia Cement (Pvt.) Ltd. (2002) 254 ITR 377 has held that once it is established that there was nexus between the e....
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.... Court in the case of CIT vs. Motor Sales Ltd. (2008) 304 ITR 123 (Allahabad) has held that it was finding of fact as found in the case that respondentassessee had capital/reserve/surplus of Rs. 6.10 Crores on which no interest was being paid and therefore interest free advances made by it are covered and ultimately held that there is no question of any disallowance of notional interest on loan taken by it. It was further held that the Tribunal had also recorded a finding that the assessee had not diverted any borrowed fund on which interest was paid for non-commercial purposes and therefore, there is no question of disallowance of interest out of the interest paid by the assessee. 16. In view of the authoritative pronouncement of the Ap....