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2013 (8) TMI 948

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....ficer noticed that assessee had claimed interest expenditure amounting to Rs. 2,85,38,397/- in the Profit and Loss account and at the same time assessee was found to have given certain loans and advances of Rs. 2,44,74,710/- to its sister concerns on which no interest was charged. On being called upon to explain as to why disallowance under Section 36(1)(iii) of the Act should not be made, assessee contended that the advances to one sister concern namely, TACO was given for procurement of forgings, but due to internal problems, the said concern could not produce quality forgings and the advances could not be repaid due to its precarious financial conditions. In respect of advances to another sister concern namely Trinity Forge Ltd., it was explained that the said sum was receivable on account of sales made to the party in the earlier years and was not recovered due to poor financial condition. The Assessing Officer was of the opinion that poor financial condition of the sister concerns was no reason to extend interest-free advances to them where assessee itself was paying substantial interest on borrowings. The Assessing Officer concluded that the assessee had diverted interest bea....

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....esentative has reiterated the points raised by the lower authorities in support of the disallowance, and as the same have been noted by us in earlier paragraphs of this order, the same are not being repeated for the sake of brevity. 6. We have carefully considered the rival submissions. Ostensibly, in this case, it was found that assessee had advanced interest-free funds of Rs. 2,44,74,710/- to two sister-concerns as on 31.03.2008. The opening balance of such advances as on 01.04.2007 was Rs. 23,09,460/- and the balance of Rs. 2,21,65,250/- was advanced during the year under consideration. On the other hand, assessee incurred interest expenditure of Rs. 2,85,38,397/- on borrowings. The Revenue has disallowed the interest proportionate to the impugned interest-free advances by invoking Section 36(1)(iii) of the Act professing that the same is for non-business purposes. That such advances are for non-business purposes is not an issue for consideration before us inasmuch as the assessee has not disputed the position arrived at by the CIT(A) that such advances are for non-business purposes. However, before us, the disallowance has been sought to be resisted on the basis of the proposi....

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.... High Court is applicable only in a situation where the advances/investments are made for business purposes alone. As per the CIT(A) where advances to sister concerns are for non-business purposes, the aforesaid proposition laid down by the Hon'ble Bombay High Court is not applicable. In our considered opinion, the interpretation placed by the CIT(A) on the judgement of the Hon'ble Bombay High Court is quite misplaced. Infact, to say that the proposition that where there are funds available both interest-free and interest bearing, then a presumption would arise that investments are out of interest-free only if interest-free are sufficient to cover the investment is a proposition which is available only in a situation where the investments are for business purposes, is wrong. We say so for the reason that if the investments/advances to the sister concerns were for business purposes then the question of disallowance under Section 36(1)(iii) would not arise at all, as Section 36(1)(iii) explicitly permits deduction for the amount of interest paid in respect of capital borrowed for the purposes of business or profession. Once interest is paid in respect of funds used for purposes of bu....

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....marily basing on the contents of the Director's report of the assessee company which indicated that the building was still under construction as on 31.03.2008. The CIT(A) further noticed from the Director's report an averment that the company would start installation of equipments in the building from October, 2008. For all the above reasons, the CIT(A) upheld the action of the Assessing Officer in disallowing the depreciation of Rs. 13,57,651/- on the ground that the building in question was incomplete and not put to use during the year under consideration. 10. In the above background, assessee is in appeal before us. However, there is no material brought on record to negate the findings of the Assessing Officer as well as the CIT(A) and for that reason we are unable to interfere with the conclusion drawn by the lower authorities. On the basis of the facts on record, as emerging from the orders of the authorities below, it is quite evident that claim of the assessee for depreciation of Rs. 13,57,651/- with respect to the new building at Shikrapur unit was untenable and has been rightly denied by the lower authorities. We hereby affirm the same. Thus, on this Ground assessee fails....

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....he impugned addition afresh as per law. On this Ground, assessee succeeds for statistical purposes. 17. The last ground in this appeal relates to an ad-hoc disallowance of Rs. 6,52,530/- out of Welfare Expenses. In this context, the brief facts are that assessee was found to have incurred Welfare Expenses of Rs. 65,25,324/- whereas in the immediate preceding year it had incurred expenditure of Rs. 34,00,000/- only. The increase was found to be abnormal by the Assessing Officer and therefore he disallowed 10% of the total expenditure, which amounted to Rs. 6,52,530/-. The CIT(A) has also sustained the disallowance, against which assessee is in appeal before us. 18. The stand of the assessee before the CIT(A) as well as before us is to the following effect. Firstly, as per the assessee in the earlier years certain expenses were included under the head 'salary and wages' while in the year under consideration, such expenses were included under the head 'staff welfare' and because of regrouping of the expenditure under the head 'staff welfare', the figure was not comparable to that of the earlier year. Secondly, it was explained that during the year under consideration expenditure on ....