9911796707
TMI Blog1983 (4) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... d advanced moneys to a concern by the name of M.P. Spinning Weaving Mills P. Ltd. in which the directors of the assessee-company were interested, i.e., they were directors in the M.P. Spinning Weaving Mills P. Ltd. The ITO found that the account of M.P. Spinning Weaving Pvt. Ltd. in the books of the assessee was as under: Month Date Particulars V. No CBF. No Amount April 1 To Bal b/f . . 762000 Aug. 10 To Bank 503 67 30000 Aug. 25 To Bank 566 74 25000 Sept. 8 To Bank 618 81 26000 Sept. 11 To Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished with the object of manufacturing yarn among other objects. This company was under the same management as that of the assessee. The company was Promoted by the facilitate its own business of manufacturing art silk fabrics. The basic raw-material for this activity being yarn, the assessee had to depend on the yarn manufactures and traders for the supply. The supply being totally undependable in the open market, the assessee had considered necessary to set up a company for its own business. In the circumstances, it was submitted that the moneys advanced to the company were entirely for the purposes of the assessee s own business and the interest there on should, therefore have been allowed under the IT Act. After considering the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to manufacture yarn which was the raw material for the assessee. The assessee was trying to assist the borrower to set up its business. In this connection, it was brought to our notice that M.P. Spinning Weaving Mills P. Ltd. was not finally commissioned and the assessee never got any yarn from this concern. As further explained by the assessee in its letter dt. 19th July, 1981 before the CIT(A), as the project was subsequently found not viable, the borrower company could not take up the manufacture of the yarn. Our attention was also invited to the resources available at the disposal of the assessee during the year, such as the net profit, depreciation fund, sale proceeds of the investment, increase in the secured loans and its applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the copy of the account of M.P. Spinning Weaving Mills P. Ltd. reproduced above, there was an opening debit balance of Rs. 7,62,000 which the borrower repaid on 17th August 1976. Thereafter, the assessee made advances of Rs. 4,14,500 by drawing on overdraft account. The money have straight moved from the assessee s bank overdraft account to the borrower. In the circumstances, it is difficult to day that the money was required by the assessee for its own business. As to the assessee s argument that originally it was the intention that M.P. Spinning Weaving Mills P. Ltd. was being promoted for the purpose of manufacturing yarn for supplying to the assessee, in our opinion, the Mysore High Court decision in the case of CIT vs. United Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. If no interest was payable on the borrowings, in fact there is no borrowing after the overdraft account is squared out, there is no question of any disallowance being made. The disallowance can be made of the interest on the moneys borrowed but not utilised for the purpose of the business. If no interest was paid on such borrowing there cannot be any question of disallowance. In the circumstances, the ITO should re-examine the assessee s overdraft account with the bank and find out the actual interest for advancing loan to the M.P. Spinning Weaving Mills P. Ltd. The disallowance will be restricted to this amount. The balance of the disallowance is hereby vacated. 7. The next ground in appeal is concerning the assessee s claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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