TaxTMI 
TaxTMI 
2017 (3) TMI 746
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....ng the AO to recompute the disallowance of the interest when in fact the recomputed the ITAT has itself given a finding that the A.O. has not established the nexus between the interest bearing funds with interest free loans. 2. Whether on the facts and circumstances of the case was the learned ITAT legally correct and justified in upholding the CIT(A)'s order partly when, admittedly the lower authorities including the ITAT accepted that the assessee had interest free funds available with it of Rs. 39,45,705/- and loans of Rs. 4 lakhs to M/s Venus Satiate Vehicle Service Pvt. Ltd. were interest free made for business purposes." The facts of the case briefly stated are that the assessee is engaged in trading in auto bikes. In the original assessment order for the assessment year 2010-11 dated 23.02.2013, the Assessing Officer disallowed, under section 36(1)(iii) of the Act, part expenditure claimed by the assessee, being interest paid on Rs. 58 lacs borrowed by it for business purpose. Thus, the Assessing Officer made an ad-hoc disallowance of Rs. 5,00,000/- under Section 36 (1) (iii) of the Act. According to the Assessing Officer the assessee was not eligible to c....
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....idual or the partner or to any relative. Since the advance is given by the assessee to a business concern, the commercial expediency is established. 2. Further, the judgment of Hon'ble Allahabad High Court passed in the case of CIT Vs. Sahu Enterprises (P) Ltd. [2013] 31 taxmann.com 270 (Allahabad) specifically deals with the situation when advance is given to relatives or the directors out of borrowed funds. Since, the appellant has not given advance to any relative or to its partner, the findings of judgment (supra) are not applicable. Findings in para 22 are relevant as the appellant has its own funds of Rs. 1.8 crore. For immediate consideration, the following details may kindly be appreciated- A.Y. 2009- 10 Particulars A.Y. 2010- 11 Sch. Particulars A.Y. 2010- 11 A.Y. 2009-10 13029838 Owned fund (Partner Capital) 15735250 Sch. 1 SNG Buildwell 2675000 2600000 1394374 Adv. From Customers (Intt. Free) 3945705 Sch. 6 Venus Auto Sales &Services 4750000 4750000 Sch. 2 Venus Satiate Vehicles (Share App.) 400000 400000 &n....
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....he assessee that it had also available to it by way of interest free funds in the shape of partners capital. This finding of the Tribunal has not been questioned by the assessee as such we are not examining its correctness in this appeal. Also, it appears that the Tribunal has considered the figure of total loan (given by the assessee) standing in the books of assessee being Rs. 92,75,000/- for the purpose of considering expenditure claim made under Section 36 (1) (iii) of the Act for the assessment year 2010-11 while it was the case of the assessee that it had advanced only Rs. 75,000/- in the previous year relevant to the assessment year 2010-11 and the balance of Rs. 92,00,000/- was the closing balance of the previous year relevant to the assessment year 2009-10. No finding has been recorded by the Tribunal on the total amount of interest free loan given by the assessee during the previous year relevant to A.Y. 2010-11. We have heard Sri Shambhu Chopra, learned counsel for the appellant-assessee and Sri Krishna Agarwal, learned counsel for the respondent-department as also perused the record. We find that there are two aspects in the matter. First, the quantum of intere....
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....t considered. In CIT Vs. M/s Radico Khaitan 1982 UPTC 82, in para 25, this court held as below: "25. In view of the findings recorded by the Tribunal that the assessee Company has sufficient fund other than the borrowed money for giving the amount in question as loan to its sister concern, which finding has not been specifically challenged in the present appeal, we are of the considered opinion that the conditions of Section 36 (1)(iii) of the Act have been complied with and, therefore, the assessee Company was entitled to full allowance of the amount of interest paid by it on borrowed capital. Moreover, the Assessing Officer himself had not allowed the proportionate amount of interest on the aforesaid loan during the relevant assessment year when the said loan had been advanced by the assessee Company to its sister concern. The Tribunal has rightly deleted the disallowance of proportionate interest on this count." Then in CIT, Agra Vs. Krishna Murari Lal Agarwal Surya Nagar Agra (supra) the appeal had been heard on question no.5 which is quoted herein below:- "5. Whether the Hon'ble ITAT was legally correct in deleting the addition of Rs. 1,34,794/- mad....
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....tors, commensurate to which amount, interest expenditure on borrowed funds had been disallowed by its Assessing Officer. In the above facts, the Supreme Court in para 16 of the judgment has held as under:- "16. Insofar as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of Rs. 34 lacs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilise those funds for giving advance to its Directors." Thus it is clear that the judgment of the three earlier division bench in the cases of CIT Vs. M/s Radico Khaitan 1982 UPTC 82; CIT, Agra Vs. Krishna Murari Lal Agarwal Surya Nagar Agra, and CIT, Lucknow Vs. M/S Appolo Trade Links, Moradabad discussed above are good law and the later division bench decision in the case of CIT Vs. Sahu Enterprises (P) Ltd. in so far as it holds that the test of business expediency must be satisfied by the assessee irrespective of the source of funds (from which it may have made interest free loans) is no....
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....s. 92 lacs in earlier years - all prior to previous year relevant to A.Y. 2010-11, the department could still disallow interest expenditure A.Y. 2010-11 for reason of the assessee not having sufficient interest free advances available with it in previous year relevant to A.Y. 2010-11 to cover the entire amount of interest free loans standing in its books at Rs. 92,75,000/-. This submission cannot be accepted. First, there is no statutory intention either express or implied available to advance or infer such intendment. Second, it would, if accepted, run contrary to the concept of each assessment year being an independent unit as the assessing authority would then be looking at facts occurring in two or more previous years relevant to two or more different assessment years to allow or disallow interest expenditure incurred in each year. Three, different conclusions as to allowability of interest expenditure on same interest free loan may then be recorded in different assessment years, depending on the quantum of interest free advance available in each year. Four, from a businessman's stand point it would introduce impracticality in his business and other dealings, for if in a....