TaxTMI 
TaxTMI 
2021 (7) TMI 710
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....IL'. In the Profit & Loss Account filed along with the said return, a sum of Rs. 7,32,36,558/- was debited by the assessee on account of interest paid on the funds borrowed from M/s. ISG Traders Limited. As noted by the Assessing Officer during the course of assessment proceedings, the said interest to the extent of Rs. 4,06,16,220/- was related to the period from 01.04.2010 to 31.03.2011. He, therefore, required the assessee-company to explain as to why the interest expenditure to that extent should not be treated as prior period expenses and should not be disallowed as was not related to the year under consideration. In reply, the following submission was filed by the assessee in writing:- "From the past assessment records you would note that we had obtained interest bearing loan from M/s. ISG Traders Ltd. At the time of taking the loan, the contracted rate of interest was 15% In view of the continuous losses incurred we were facing considerable financial constraints and we were not only defaulting in repaying the principal loan amount but we were also unable to pay interest at the contracted rate. Considering the estimated cash flow position of F.Y. 2010-11 we were envisag....
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....erest waiver was under their active consideration. The decision about the non-waiver of interest effective from 01.04.2011 was taken and communicated to us only in the month of September 2011 and simultaneously the said lender also raised demand for interest payable for the F. Y 2010-11 by serving debit note in the month of September 2011. Your goodself will thus note that our liability to pay interest on loan granted by ISG Traders Ltd. accrued & crystallized only during the F.Y. 2011-12 when we finally received the demand for interest from ISG Traders Ltd. For your kind perusal & record, we enclose herewith copy of the Debit Note raised by ISG Traders from which it will be evident that the demand for interest for the FY 2010-11 was raised on us by the said lender for the first time only in the month of September 2011. This fact proves beyond doubt that our liability to pay interest accrued & got crystallized only in the 1170nth of September 2011 and not before. It is only on the receipt of the said Debit Note in the F.Y. 2011-12 we could recognize the liability to pay interest in our financial books for the FY. 2011-12 and accordingly claim deduction therefor in A. Y 2012-13. Mer....
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.... 36(1)(iii) of the Income Tax Act, 1961. He accordingly proceeded to examine the same under section 36(1)(iii) and confirmed the disallowance made by the Assessing Officer on account of interest expenses under section 36(1)(iii) for the following reasons given in his impugned order:- "On perusal of section 36(1)(iii), it is observed that the deduction is with respect to the interest paid for capital borrowed for purpose of business and profession. The sine qua non for allowability of interest expenses u/s. 36(1)(iii) is that the capital borrowed must be utilized for the purpose of business. In this regard the contention of the appellant is examined whether the advances given to NRC Ltd. for the purposes of business or not. The advances to NRC Ltd. have been given as follows:- M/s. Agraganya Tradeco Pvt. Ltd. Financial year Amount (Rs.) 2008-09 6,75,00,000 2009-10 9,15,31,882 2010-11 3,45,00,000 2011-12 50,50,000 19,85,81,882 It has been submitted that these advances were given for purchase of chemical and therefore no interest was charged. The veracity of this explanation is, therefore, examined hereinafter. In this context it is observed that during t....
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....llowable u/s. 36(1)(iii). Therefore, the addition on this issue made by the Assessing Officer is hereby confirmed". 6. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As submitted on behalf of the assessee-company before the authorities below as well as before us, the liability on account of interest expenses payable to M/s. ISG Traders Limited for the period 01.04.2010 to 31.03.2011 was in dispute at the relevant time, inasmuch as, waiver of the said liability was sought by the assessee-company on the basis of its adverse financial position. As per the submission made on behalf of the assessee-company, the said dispute was finally settled in the year under consideration and a debit note was issued by M/s. ISG Traders Limited on 12.09.2011 (copy placed at page no. 20 of the paper book) claiming the interest of Rs. 4,06,16,220/- from the assessee-company for the period 01.04.2010 to 31.03.2011. The ld. Counsel for the assessee has contended that the said liability on account of interest related to the period from 01.04.2010 to 31.03.2011 thus was crystallized during the year under consideration and the same was....
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.... were utilized for giving interest-free advance to M/s. NRC Limited, which was not for the purpose of its business, the ld. Counsel for the assessee has made an attempt to contend that M/s. NRC Limited was the regular supplier of raw material of the assessee-company and, therefore, the interest-free advance given to them was for the purpose of its business. 9. As noted by the ld. CIT(Appeals) in this regard, only one purchase made by the assessee-company from the said party was on 09.09.2009 and that too for a small amount of Rs. 3,78,035/-. The interest-free advance to the said party, however, was given by the assessee-company in the financial year 2008-09 to 2011-12 and that too to the tune of Rs. 19,85,81,882/-. The said advance thus had nothing to do with the small amount of purchase made by the assessee from M/s. NRC Limited and there being no other reason advanced on behalf of the assessee-company to prove that the said advance was given for the purpose of its business, we find no merit in the contention of the ld. Counsel for the assessee that the interest-free advance given by the assessee-company to M/s. NRC Limited was for the purpose of its business. We, however, find m....