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TMI Blog2008 (4) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... . A. Builders Ltd. ‘s case - 296, 341, 342 and 553 of 2007 - - - Dated:- 10-4-2008 - SATISH KUMAR MITTAL and RAKESH KUMAR GARG JJ. Yogesh Putney for the appellant-Revenue in I. T. A. Nos. 296, 341 and 342 of 2007. Ms. Radhika Suri for the respondent-assessee in I. T. A. No. 553 of 2007. Anurag Bansal for the respondent-assessee in I. T- A. Nos. 341 and 342 of 2007. Sanjiv Bansal for the appellant-Revenue in I. T. A. No. 553 of 2007. JUDGMENT The judgment of the court was delivered by 1. SATISH KUMAR MITTAL J.- This order shall dispose of Income Appeals Nos. 296, 341, 342 and 553 of 2007. In these appeals, the common questions of law and fact are involved. Out of these four appeals, three appeals, i.e., I. T. As. Nos. 296, 341 and 342 of 2007 have been filed by Revenue, in which the following substantial question of law has been raised: "Whether, on the facts and circumstances of the case, the Income tax Appellate Tribunal is right in law m upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition made by the Assessing Officer on account of notional interest on the money advanced by the assessee to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan of Rs. one crore to M/s. Panipat Co-operative Sugar Mills Ltd., a sister concern, for a short period and no interest was charged on the said amount. It was also noticed that the assessee, by following the judgment of Abhishek Industries Ltd.'s case [2006] 286 ITR 1 (P H), borrowed a fund or raised loan on interest from financial institutions. The Assessing Officer held that the assessee-company has not given any reason for non-charging of an interest on the aforesaid advance to its sister concern, therefore, the proportionate amount of interest on the said amount was disallowed out of interest charges claimed by the assessee and, consequently, an addition of Rs. 4,66,666 was made for the assessment year 1996-97. On the same reasoning, an addition of Rs. 8 lakhs was made for the assessment year 1997-98. The Commissioner of Income-tax (Appeals), Faridabad, deleted these additions while holding that the Assessing Officer was not correct in attributing interest income merely on notional basis to the assessee and it was incumbent upon him to establish income, substantially. It was further held that the Assessing Officer had not examined details of borrowed funds, the purpose f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come- tax Appellate Tribunal, Chandigarh Bench, Chandigarh, has set aside the order of the Commissioner of Income-tax (Appeals), Ludhiana, while observing as under: "4. Before us it was a common ground between the parties that the issue in question is liable to be decided in the light of the binding decision of the hon'ble jurisdictional High Court in the case of CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1 (P H). In this case, as is evident from the extract of the assessment order reproduced above, the assessee has not been able to substantiate that the amounts advanced free of interest were out of non-interest beating funds. The hon'ble High Court in the Case of Abhishek Industries Ltd. 's case [2006] 286 ITR 1 has held that once it is borne out from the record that the assessee had borrowed certain funds on which liability of interest is incurred and on the other hand, certain amounts had been advanced to sister concern or others without carrying any interest and without any business purpose, the interest to the extent of interest free advance is disallowable under section 36(1)(iii) of the Act. The said ratio is squarely applicable to the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablish nexus of the funds advanced to the sister concerns with the borrowed funds, is not correct. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay interest is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under section 36(1) (iii) of the Act." 12. In view of the aforesaid observations, learned counsel for the Revenue submitted that in all these four cases it has been established from the record that the assessee had borrowed certain funds from the financial institutions on which they were incurring liability of interest and on the other hand, they have made advances to their sister concerns or their directors, without carrying any interest. The assessees have failed to establish that those advances were made to the sister concerns or their directors for any business purpose, therefore, the interest to the extent of advances without carrying any interest made to the sister concerns or to their directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to direct and immediate benefit, but voluntarily and on account Of commercial expediency and in order to indirectly to facilitate the carrying on the business. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. In S. A. Builders LtcL's case [2007] 288 ITR 1, it was held that in order to decide whether it was for commercial expediency, the authorities and the courts should have examined the purpose for which the assessee advanced money to its sister concern and what the sister concern did with the money. It was further held that it is not relevant whether the assessee has utilized the borrowed amount in its own business or has advanced the same as interest free loan to its sister concern. What is relevant is whether the amount so advanced was as a measure of commercial expediency or not. It is not necessary that the amount so advanced is earning profit or not but there must be some nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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