2019 (5) TMI 343

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....ircle -12, Ahmedabad for the Assessment Years 2011-12 & 2012-13. Ground No.1 2. At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee did not press this ground. Hence, the same is dismissed as not pressed. Ground No.2 3. The second ground relates to confirming the addition of Rs. 2,58,906/- u/s 36(1)(iii) of the Act on the ground that the assessee has not able to proved the nexus between interest free funds and interest free advances. 4. During the financial year under consideration, the assessee has advanced Rs. 25,89,060/- interest fee for land. A show-cause notice dated 21.10.2013 was issued as to why the amount of Rs. 2,58,906/- i.e. 10% of the above interest should not be added to the total i....

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....s taken and given during the year. Whatever loans we have given are out of our own fund which is interest free. Over and above, we have also taken Rs. 1,35,00,000/- as interest free loans along with opening Balance Rs. 5,99,85,074/-. Out of which we had re-paid Rs. 77,00,000/- lacs balance remaining at the year end Rs. 6,57,85,074/-. During the Fin. year 2011-12, we have not given any advance to the land lords, but in earlier years, we have made advance of Rs. 25,89,060/- i.e. out of total Interest free funds. So question of charging any notional interest thereon is not arise. (PL Ref. Gauhati High Court in the case of Highways Construction Company Limited Vs. CIT reported at 199 UK 702 has held that there is no compulsion that one must....

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.... to tax. Ref -2 CIT Vs. Chelladurai reported at 204 Taxmann 258 (Mad). (Copy of Case Laws are attached). Hence disallowance of Inerest exp byAO have not direct nexus and is illegal. We have enough interest free funds inform of Unsecured Loans and we have received Rs. 2,70,72,093/- as advance for assets in preceding years. Out of which we have given advance on for Rs. 25,89,060/- Looking to above, we have not made any addition to advance for land; hence we have not used any fund for advance for land during the year. We have made used funds for Adv. for agriculture land Rs. 25,89,060/- in preceding financial years out of balance of Rs. 2,70,72,093/- as advance received for assets and out of balance interest free loans in interest free u....

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....al of Rs. 87,84,446/- as profit and Rs. 7,62,94,157/- by way of depreciation during the year under consideration is also evident on record. During the assessment year 2011-12, the assessee has not given any advance to the land lords but in the earlier years advance of Rs. 25,89,060/- was paid out of the total interest free funds available with the assessee. Further the entire borrowing is term loan against capital assets, thus, the borrowing is used for the purpose of business and therefore, the question of disallowance does not arise in term of the ratio laid down by the Hon'ble Apex Court in the matter of Taparia Tools Ltd-vs-CIT reported in 372 ITR 605. In that view of the matter, we find no justification of the addition made by the auth....