TaxTMI 
TaxTMI 
2017 (1) TMI 897
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....of the IT Act. 2. Assessee also filed cross objection in support of the order of the CIT(A). 3. Rival contentions have been heard and record perused. 4, Grievance of Revenue relates to disallowance of interest paid on money borrowed at higher rate of interest. 5. In this connection, the AO observed that the assessee had charged interest on the loans advanced at a rate lower than the rate of interest on its borrowings. The AO computed an average rate of interest on the secured loans and unsecured loans at 9%. Similarly he computed the rate of interest on the interest received in respect of total sundry debtors, advance for properties, deposit and others at 4.96%. He therefore concluded that the rate of interest earned was less by 4.04% a....
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.... Le Advance to PARINEE DEVELOPERS & PROJECTS PVT. LTD(WHOLLY OWNED SUBSIDIARY) In both these Companies, Parinee Realty Pvt. Ltd is the sole shareholder holding 100 % shares of the Subsidiaries. These advances are given out of business expediency and for the purpose of business. No notional interest can be estimated in such cases as held in case of CIT v. Premier Industries (2002) 257 ITR 762 (MP) and V.M.Salgaocar & Bros. Pvt. Ltd. V. CIT (2000) 243 ITR 283 (SC). Also, this amount of loan is fully covered by Share Capital of Rs. 3,00,00,000/- and Reserves and Surplus of Rs. 13,23,75,239/-." 5.3.1. It is further contended that the AO has computed average rate of interest on the balance amount outstanding as on 31/03/10 instead of taking th....
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....e details of the nature of advances and the purpose party wise for the amounts advanced on which the AO has held that the interest should have been charged. The perusal of the table extracted earlier shows that the amount advanced is business advances on which there is no requirement or basis for charging of interest. These are not in the nature of loans advanced for interest. Deposits with Utility Company and Municipal Corporation cannot give rise to interest income. From the detailed working furnished in the appellate proceedings, it is seen that the appellant has taken loans as vehicle loans on which the applicable rate of interest is 9%. In addition the overdraft facility from Union Bank of India, Bank of India and term loan from Vijaya....
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.... income and that even on merits there is no case for computing interest on advances which are for specific business purposes. No interest can be disallowed as advanced for non business purposes. The advances to subsidiaries has not gone up this year and in any case such advances are less than own funds. The addition made by the AO is deleted. 7. We have considered rival contentions and carefully gone through the orders of the authorities below. From the record we found that assessee was having sufficient interest free funds in the nature of shares capital, reserve and surplus and advances for sale of flats. Substantial portion of the advances and deposits were given purely for business purpose for having property on development on which n....
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....9. A detailed finding has been recorded by CIT(A) to the effect that out of total advance of Rs. 182 crores, 120 crores was incorporated deposits with the Parini Developers Ltd., and Rs. 3.80 crores with INEZ Infotech Pvt. Ltd., from whom interest has been charged by assessee @12%. The CIT(A) has also observed that other advances were also for business. The other two advances were found to be given to wholly owned subsidiaries. As against these advances, increase in reserve and surplus was of Rs. 9.35 crores. Thus, it was found that not only advance was for the purpose of business but also there was sufficient owned funds available which was more than the amount advanced to the subsidiaries. A finding of fact has also been recorded by the C....