TaxTMI 
TaxTMI 
2018 (4) TMI 1796
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....olidated order for the sake of convenience. 3. The only issue in these appeals is with regard to disallowance of portion of the interest paid on secured loans from banks as proportionate interest pertaining to personal drawings made by the partners. 4. Since the facts are common in all these appeals, we consider the facts as emanating from the appeal for the assessment year 2009-10. The Assessing Officer while making the assessment had gone into the details of drawings made by various partners from the firm and the secured loan taken by the assessee by bringing out the working of interest on debit balance and drawings in respect of three partners. Interest chargeable on their withdrawals was worked out by the Assessing Officer as:- ....
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.... was asked to show that such payments were made from the surplus funds available with the assessee as contended in the submissions made. 5.1 In this connection, the CIT(A) observed that the assessee furnished a copy of its bank statement to show that the various payments were made from the credit balance received from sales etc., which were received just before making these advances to the partners. However, the CIT(A) did not justify the explanation of the assessee as it was seen that the bank statement of assessee is a continuous over draft facility where balance on any particular day in the whole year in the bank statement was more than a 2 crores debit figure. Thus according to the CIT(A), even if a payment is received from the busin....
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....though assessee tried to explain that payment of Rs. 7,00,000/- was made from Rs. 10,00,000/- credit coming on the same day, but the fact remains that the credit of Rs. 10,00,000/- only had the effect of reducing overdraft facility of more than 2 crores, and hence for the payment of Rs. 7,00,000/- to Shri Fisel, interest bearing funds was utilized. The CIT(A) found that it was exactly the same pattern that was repeated for all the payments to these partners. Thus according to the CIT(A) it was established that the payments to the partners have been made for non-business purposes from interest bearing funds. Hence, according to the CIT(A), the assessing officer was right in working out the interest on debit balances and total drawings in res....
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....6,40,000/- in the sundry creditors accounts and the profitability of the current year. It was submitted that the statement that interest free funds exceeded interest bearing funds in the relevant year was not controverted by the authorities below. 6.1 The Ld. AR relied on the judgments of the Supreme Court to contravene the disallowance: 1) S.A. Builders vs. CIT (288 ITR 1) (SC) 2) CIT vs. Hotel Savera (239 ITR 795) (Mad.) 3) Chanchal Katyal vs. CIT (298 ITR 182) (All) 4) CIT vs. Prem heavy Engineering Works (P) Ltd. (285 ITR 554) (All) 5) ONGC vs. DCIT (262 ITR 648) (Uttaranchal) 6) CIT vs. Raghuvir Sythetics Ltd. (36 Taxman.com 275) (Guj) 7) CIT vs. Reliance Utilities & Pow....
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....he following judgments: i) Madhav Prasad Jatia vs. CIT (118 ITR 200 (SC) ii) CIT vs. V.I. Baby (254 ITR 248 (Ker.) iii) Somasundaram & Brothers vs. CIT (239 ITR 795) (Mds.) 7.1 The Ld. DR distinguished the judgments relied upon by the assessee. The Ld. DR submitted that the facts in the case of CIT vs. Hotel Savera (supra) are that the advance was made with assessee-firm's own funds and interest paid on borrowed capital was deductible. Similarly, according to the Ld. DR, the facts in the case of Chanchal Katyal vs. CIT (supra) is different since the assessee in that case had sufficient funds other than borrowed money. The facts in the case of CIT vs. Prem Heavy Engineering Works (P) Ltd. (supra), according to t....