TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 418
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....d that the assessee firm has given interest free loan of Rs. 1,12,00,000/- to Praveenbhai R Khatri HUF. Hence a show cause notice was issued as to explain why proportionate interest paid by the firm should not be disallowed for non utilization of loan funds for business purposes. The assessee explained that interest free funds available of Rs. 3,02,20,000/- being customer advance as well as Rs. 8,03,91,852/- being sundry creditors both totaling to Rs. 11,06,11,852/-. Since there is surplus funds available with the Firm, therefore there is no question charging proportionate interest. 3. The above reply was considered by the A.O. and held that the advance amounts received for flat booking cannot be accepted as interest free advance and the sundry creditors referred to are for materials purchased and labour employed which had also been reflected in the Work-In-Progress (WIP) meaning thereby that the amount had been utilized in the construction activity. Therefore it is clear that interest bearing funds had been diverted by the Firm for non-business activity. Therefore proportionate interest at 12% namely Rs. 13,44,000/- in respect of interest free loans/advance was added to the inc....
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....s. 81,71,351/- in the name of Shri Harsangbhai Rajendrakumar Dalwadi is outstanding since 01.04.2019, thus, how this loan taken earlier can be related to interest free advance given. Any prudent businessman raises the loan on the need of business requirement and always uses the same for the business activity. The appellant has not put forth any evidence which shows that the amount was parked by the loan creditors for securities of their money with the appellant. In fact, the amount of unsecured loan has been also utilized by the appellant in the construction activity. which is evident from inventories (work in progress) at Rs. 24,34,54,000/- as on 01.04.2022 (opening stock) and inventories (work in progress) at Rs. 24,48,51,000/-on 31.03.2023 (closing stock). Thus, so called interest free fund of Rs. 3,02,20,000/-being customer advance and Rs. 8.03.91.852/-being sundry creditors could not cover the closing work in progress. Thus, the explanation of appellant is not acceptable. The advance of Rs. 1,12,00,000/- is not related to the business activity of the appellant and interest bearing funds has been diverted by the appellant for other than business activities. Accordingly....
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....justified in confirming the disallowance of proportionate interest expenses of Rs. 13,44,000/- ignoring the fact that appellant had sufficient interest free funds & out of which, the interest free loan was given to Pravinbhai Khatri HUF. Therefore, the AO may kindly be directed to delete the addition of Rs. 13,44,000/-. 3. On the facts and in the circumstances of the case, the ld. CIT(A) is not justified in confirming the addition of Rs. 2,14,000/- u/s 68 on the ground that creditor has not filed the return of income. The AO may kindly be directed to delete the addition of Rs. 2,14,000/-. 4. On the facts and in the circumstances of the case, the ld. CIT(A) is not justified in confirming the addition of Rs. 30,83,406/ on account of remuneration to partners disbelieving the Supplementary Partnership Deed (with amended clause) wherein all the partners are entitled for remuneration. The AO may kindly be directed to delete the addition of Rs. 30,83,406/-. 5. The appellant craves leave to add, alter, amend or withdraw any ground/s of appeal on or before hearing of the appeal. 6. Ld. Counsel appearing for the assessee reiterated the same arguments made before....
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....e advance of Rs. 1.12 crores is not related to the business activity of the appellant firm and the interest bearing funds has been diverted for other than the business activities. Therefore the interest expenses of Rs. 13,44,000/- made by the A.O. does not require any interference. Thus Ground No. 1 raised by the assessee is hereby dismissed. 6.2. The assessee also relied upon the case following case laws: (i) ACIT Vs. Dr. Seethalakshmi (JP. ITAT) 173. Taxmann.com 351 (ii) ACIT Vs. Haresh M Sakariya (Surat ITAT) 148. Taxmann.com 115 (iii) United Agency Vs. ITO (Ahd.ITAT) 37. TTJ 374 [1990] 6.3. The case laws relied upon by the assessee are factually distinguishable and not applicable to the facts of the present case. Further the first citation 173 Taxmann.com 351 is relating to M/s. Ahluwalia Erectors & Fabrications Pvt. Ltd. Vs. ACIT and not as mentioned the Ld. A.R. 7. Ground No. 2: Addition of unsecured loan of Rs. 2,14,000/- u/s. 68 from Ranjanaben A. Barot. Ld. Counsel submitted before us confirmation of accounts, PAN card and State Bank of India bank account in the name of Dharmeshkumar Ashokbhai Barot and stated that Rs. 2.14 lakhs was iss....