2016 (6) TMI 420

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....company engaged in the business of manufacturing of Automobiles and Engineering components. It filed its return of income on 26-09-2008 declaring loss of Rs. 6,39,898/- which was subsequently revised on 01-01-2010 declaring total income of Rs. 1,47,55,954/-. During the course of assessment proceedings the AO noted that the assessee has shown interest expenses of Rs. 73,45,326/- which includes interest of Rs. 70,19,178/- paid on ICD of Rs. 5 crores taken from its sister concern, M/s. Jaya Hind Sciaky. However, the AO on perusal of the details of unsecured loans accepted by the company during the year noticed that the assessee company has received unsecured loan from its Directors and their relatives and has not paid any interest on these uns....

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....essee's regular business." The AO accordingly disallowed the interest expenses of Rs. 70,19,178/-. 6. In appeal the Ld.CIT(A) upheld the action of the AO by observing as under : "8. The appellant also filed copy of current A/c. wherein it was shown that Rs. 5 crores was received on, 23.03.2007 which was paid to Kinetic Engineering Ltd. on 26.03.2007. the appellant submitted that this should be admitted as additional evidence. The additional evidence filed by the appellant was forwarded to the Assessing Officer vide this office letter 12.04.2012. Subsequently, reminder in this regard was issued on 28.09.2013. However, no reply has been received from the office of the Assessing Officer in this regard. In view of the above posit....

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....as not been able to substantiate that the same was used for the purpose of business. As far as the admissibility of the interest amounting to Rs. 70,19,178/- paid on account inter-corporate deposit of M/s. Jaya Hind Sciaky Ltd is concerned, it is seen that the same has been paid to Kinetic Engineering Ltd. not for the purpose of investment, as the total investment has actually declined. It is seen from the Balance Sheet that as on 31.03.2007 inter-corporate deposit to Kinetic Engineering Ltd., was Rs. 16,19,18,434/- which has been reduced to Rs. 7,42,98,565/-. This being so, payment of Rs. 5 crores received from M/s. Jaya Hind Sciaky Ltd is merely a temporary transaction and not for investment purpose. This being so, the same cannot be allo....

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....r opportunity to the assessee to explain the nexus of interest income with the interest expenditure. 10. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that despite opportunities given during the assessment proceedings and appeal proceedings the assessee was unable to explain the nexus of interest income and interest expenditure. Therefore, the order of the CIT(A) being a reasoned one should be upheld. 11. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We find the AO disallowed the interest expenditure of Rs. 70,19,178/- on the ground that the assessee had more than ....