TaxTMI 
TaxTMI 
2016 (2) TMI 909
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....ignoring the ratio of decision of M/s Abhishek Industries 286 ITR 1(P & H). 2. Whether on the facts and in the circumstances of the case, the CIT(A) erred in not following the decision of Hon'ble P & H High Court in the case of M/s Abhishek Industries 286 ITR 1 wherein it was held that the only thing sufficient to disallow interest paid on the borrowings to the extent the amount is lent to a sister concern would be the assessee has some loans to be repaid irrespective of the fact whether the assessee has own capital or not. 3. Whether on the facts and in the circumstances of the case, the CIT(A) erred in not considering the decision of Hon'ble Punjab and Haryana High Court wherein the High Court held that even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concern on interest free basis, may be it is pleaded to be out of sale proceeds or share capital cannot be accepted. 4. Whether on the facts and in the circumstances of the case, the CIT(A) erred in not considering the fact that partners capital is meant for the purpose of business and not thereafter, giving advances to its partners for non-business purpose. 5. Whether ....
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....ard. Further the assessee contended that the advance had been made for business purpose since the assessee has been making purchases and also selling goods to the said party. The assessee also argued that all his interest bearing funds had been used for the purpose of business and moreover it had sufficient interest free funds to make the impugned advance. The assessee submissions were forward to A.O. for his comments thereon, who stated that the reliance placed by the assessee on M/s Bhogal Sons (supra) was misplaced since it was distinguishable on facts and further emphasized that the assessee had used interest bearing funds for the purpose of making the advance. The A.O.'s report was forwarded to the assessee for his comments who reiterated his earlier submissions made. Ld. CIT(A) thereafter, considering submissions made by both the parties, allowed the assessee's appeal relying upon the judgment of Hon'ble ITAT Chandigarh Bench in the case of M/s Bhogal Sons (Supra). Ld. CIT(A) held at para 3.5 & 3.6 of his order as follows:- I have carefully considered the rival submissions. M/s Deepak Buildcon Infra is a proprietary concern of Mr. Deepak Kumar, who is a major partner in the....
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.... consideration had incurred interest expenditure of Rs. 7,56,445/-. The Assessing Officer has computed the interest rdatable to the number of days on which there was debit balance in the capital account of four of the partners as mentioned above. The perusal of the details tabulated at pages 3 and 4 reflect the break up of the number of days relatable to it. The said interest has been computed by the Assessing Officer. However, no credit has been allowed on account of positive balance available in the capital account of the said partners or even the overall capital balance of the partners in totality available with the assessee. In the case of partnership firm, i.e. the assessee before us, all the partners had made contributions by way of their capital accounts and cumulative opening balances was Rs. 4.32 crores along with additions during the year of Rs. 1.27 crores and withdrawal of Rs. 3.93 crores . After inclusion of the share of profit at Rs. 41.94 lacs, the net capital balance of all the partners i.e. positive minus negative capital balances was Rs. 1.65 crores at the close of the year i.e 31.3.2008. In the entirety of the facts and circumstances where the partners themselves....
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....se of goods in the preceding year ending on 31.03.2009. Ld. AR drew our attention to copy of account of M/s Deepak Buildcon Infrastructure placed at PB 13-16 in this regard. Ld. AR therefore stated that the advance was made for business purposes and there was therefore no question of making any disallowance of interest u/s 36(1)(iii). Ld. AR placed reliance on the decision of the Apex Court in the case of M/s S.A Builders vs. CIT 288 ITR 1 in this regard. Ld. AR submitted that Shri Deepak Kumar who was the proprietor of Deepak Buildcon Infrastructure and was a partner of 81% share in the assessee firm was having capital balance Rs. 4,40,33,756/- on which no interest has been paid by the assessee firm. The advance made to the proprietary concern of Rs. 3,99,87,812/- without interest can be attributed entirely to the capital of the partner and as laid down by the Hon'ble Chandigarh bench in the case of M/s Bhogal Sons ACT. Ld. AR also submitted that the assessee had sufficient interest free funds for the purpose of making the impugned advance. Ld. AR drew our attention to a copy of statement showing non-interest bearing funds available with the assessee and placed at paper book page ....
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....ssessee. The fact the aforesaid party is a debtor from whom money is to be collected by the assessee does not justify the purpose of making such a huge advance. No other fact has been brought on record even before us or the lower authorities to establish the commercial expediency of the transaction and therefore we hold that the advance was not made for the business purpose. Having said so the fact remains that the advance was made to the proprietorship firm of one of the partner of the assessee firm whose capital in the firm amounted to Rs. 4,40,33,756/- on which no interest had been paid by the assessee firm. The interest free advance of Rs. 3,99,87,813/- to the proprietorship firm of the partner could be therefore said to be out of his capital justifying the non charging of interest on the same. We concur with the reliance place by the Ld. CIT(A) on the decision of Hon'ble Chandigarh Bench of the ITAT, in the case of Bhogal Sons (Supra) in support of the above proposition. Besides the fact remains that the assessee had interest free funds of Rs. 6,91,77,985/-. The impugned advances could be therefore attributed to be out of the same. The Hon'ble Punjab & Haryana High Court in t....
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....cision of Apex Court in the case of Hero Cycles (Supra). 6. The appeal of the Revenue is therefore dismissed. Cross Objection 35/Chd/2013, 7. The assessee in its cross objection has raised the following grounds 1. The Ld. CIT(A) erred in law and in facts in sustaining the addition of disallowance of interest u/s 36(1)(iii) on advances of Rs. 50,00,000/- to Sh. Virender Kumar, of Rs. 15,00,000/- to Sh. Anjali Dhand & of Rs. 20.25 lacs to Sh. Akash Singhal 8. Brief facts relating to the issue are that during the assessment proceedings it was noted that assessee had given following advances without charging any interest:- Sr. No. Particulars Balance as on 31.03.2009 Balance as on 31.03.2010 1. Akash Singhal - 175518 2024482 2. Anjali Dhand 1500000 1500000 3. J.V. Steel Tubes 6000000 6000000 4. Varinder Kumar 5000000 5000000 The assessee was asked to explain why proportionate interest may not be disallowed to which the assessee submitted that the advances had been given for business purpose. The A.O. observed that the submissions of the assessee was factually incorrect and therefore, he disallowed interest of Rs. 15,48,965/- @ 12% during appellate proce....
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....ds available with the assessee amounted to Rs. 7,44,58,865/- the advances were to the tune of Rs. 1,25,00,000/-. Thus the ld. AR pleaded that the disallowance upheld by the CIT(A) was not correct. 10. We have heard the rival submissions and perused order of the authorities below as also the documents placed before us. The issue in this case pertains to disallowance of interest u/s 36(1)(iii) on interest free advances made by the assesee to certain persons. Certain facts pertinent to the issue are that interest free advance to Ms. Anjali Dhand amounting to Rs. 15,00,000/- and Shri Virender Kumar amounting to Rs. 50,00,000/- was made in the financial year ending on 31.03.2009, the interest fee funds available with the assessee as on 31.03.2009 amounted to Rs. 2,63,65,304/-as follows:- 1. Partner's Capital Account Rs. 1,64,14,230/- 2. Unsecured loans (Interest free) Rs. 30,11,074/- 3. Mobilization Advances Rs. 69,40,000/- Total: Rs. 2,63,65,304/- The advance made of Rs. 20,24,482/- to Mr. Akash Singhal pertained to the impugned assessment year. The interest free advances available with the assessee during the impugned assessment year amounted to Rs.....