2019 (1) TMI 931

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....rounds: 1. Whether the Ld. CIT(A) has erred both in law and on fact s in deleting the addition made by Assessing Officer under section 36.(i)(iii) of the I.T.Act, 1961 without considering the fact that the assessee has diverted its interest bearing funds to the sister / associate concerns without any business consideration or commercial expediency and on the other hand claimed huge amount of interest expenditure in the P&L Account. 2. Whether the ld. CIT(A) has erred both in law and on facts by allowing interest under section 36(i)(iii)n of the I.T. Act, 1961 without appreciating the fact that the impugned interest claimed was clearly for non business purpose. 3. Brief facts of the case are that the Assessing Officer has disallowed the....

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....le including bank charges. v. The assessee company is a manufacturing unit having a turnover of Rs. 3,44,77,68,347.8 l/-(Rs.344 crores) for this huge turnover the assessee company has raised some term loans, working capital loans and some amount from the family members in the shape of unsecured loans. The whole amount raised for business of manufacturing only. vi. The breakup of the interest claimed is as under: 1. Bank charges Rs. 20,97,08,007.58 2 Interest on unsecured loans Rs. 20,34,196.37 3. Interest on term loans Rs. 1,50,21,866.92 4 Interest in working capital Rs. 50,17,75,596.00   Total Rs. 7,18,09,666.87 The Assessing Officer has disallowed this expenditure in toto. vii. The bare perusal of the balance s....

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....t expenses of Rs. 7,18,09,666 in the P&L account. It was held by the' AO that appellant is paying interest on the bank loans and unsecured loans raised from the family members and related parties and at the same time has given interest loans and advances to other sister companies. It is seen from the order that AO has placed reliance on the judgement of honourable Punjab and Haryana High Court given in the case of Abhishek Industries. Accordingly, it was held that interest-bearing funds have been diverted and have not been used for business purposes and therefore, interest expenditure cannot be allowed under section 36(l)(iii) of the IT act. 4.3 The appellant has submitted that AO was not justified in making a disallowance on account ....

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....ans, working capital loans and other unsecured loans have been raised for the purposes of the business. It is also stated that AO has failed to consider the breakup of total financial expenses of Rs. 7.18 crore given in the financial statements, which has been disallowed by the AO. It is submitted that this amount consists of Rs. 2.09 crore of bank charges also, which could not have been disallowed by the AO. It is stated that AO was not justified in making the disallowance without establishing any linkage as to how these funds were diverted. 4.6 The appellant has submitted that sufficient interest free funds were available . business and advances have been given to Genex Polyfab Private Limited out of these funds. The appellant has also ....