2019 (3) TMI 1812

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....ated 02.03.2015 passed by the Income Tax Officer, Ward - 1(1)(2), Ahmedabad for the Assessment Year 2012-13. 2. The appellant company filed its return of income on 29.09.2012 declaring income at Rs. Nil, which was processed u/s 143(1) of the Act on 13.05.2013. Upon scrutiny assessment notice u/s 143(2) dated 19.09.2013 followed by a notice u/s 142(1) of the Act dated 09.04.2014 was served upon the assessee. Pursuant to the said notice, the appellant duly filed the audit report, return of income and other primary details on 21.04.2014. On 15.09.2014, a questionnaire was also served upon the assessee along with a notice u/s 142(1) of the Act.  During the course of assessment proceeding, the details of the interest free loans and advanc....

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....erest free fund A 231068588 Interest bearing fund     SECURED LOAN     Bank OD   67756949 Term Loan   8744200 Differed Payment (car loans)   215568 INTEREST BEARING Unsecured Loan   30331445 Total B 107048162 Gross Fund Employed in business   338116750 PERCENTAGE OF INTEREST BEARING FUND   31.66 PERCENTAGE OF NON INTEREST BEARING FUND   68.33 TOTAL INTEREST PAID DURING THE YEAR     BANK INTEREST ON OD EXP.   10895287 BANK INTEREST ON TERM LOAN   2202071 INTEREST ON UNSECURED LOAN   4419973 INTEREST ON CAR LOAN   26768 TOTAL INTEREST PAID   17544099 RATE OF INTEREST ON TOTAL FUND EMPLOYED IN BUSINESS &....

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....re, submitted that the interest bearing funds were utilized for other specific purpose and advances given to parties was out of the own funds of the appellant company. Since the interest on borrowed fund is allowable as business expenditure by virtue of income tax provision u/s 36(1)(iii) hence payment made for interest on borrowed fund should be allowed as interest expenses in its totality and interest free loans and advances granted out of the interest free own funds even not used for business and no actual interest is received by the assessee than notional interest on such fund cannot be disallowed by interest expenses. If that be so, disallowance of proportionate notional interest expenses of Rs. 20,78,380/- on the basis of interest fre....

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....submitted by the assessee is as follows: Sr. No. Name of the Party Amount in Rs. 1. Dineshchandra A Patel 14379486.00 2. Shree Balaji Corporation 70000.00 3. Subhaubhai M. Shah (Real Estate) 13791000.00 4. Subhaubhai M. Shah 1093660.00 5. Vibrat P Patel (Real Estate) 1000000.00 6. Shree Shyam Distributors (Real Estate) 4500000.00 7. Shakarbhai Chaturbhai Patel (Real Estate) 1000000.00   Total 35834146.00 Following details of interest free fund consisting of capital fund, free reserves, interest free unsecured loans, provision for deferred tax liabilities created out of surplus and accumulated depreciation reserve out of the company had given interest free loan and advances: Fund Amount Share Capital 1393....