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TMI Blog2006 (4) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... ses at Rs. 1,62,957 and depreciation at Rs. 1,55,479. The Assessing Officer disallowance 1/6th of the same for the reason that no log book was maintained and the personal use of the motor car could not be ruled out. On appeal, the learned CIT(A) held that the possibility of the personal user of the motor car of the assessee could not be ruled out and provisions of section 38(2) of the Act were clearly applicable. The learned CIT(A) also rejected the contention for the assessee that after merger of the motor car in the block assets, no partial disallowance could be made on account of depreciation on the ground that the concept of block assets was only for the purpose of calculation of depreciation allowance on a consolidated basis and for no other purposes. The learned CIT(A) accordingly confirmed the action of the Assessing Officer. 6. The learned counsel appearing on behalf of the assessee reiterated the submissions made before the revenue authorities. 7. The learned Departmental Representative, on the other hand, strongly supported the order of revenue authorities. 8. We have considered the submissions of both sides, material on record and orders of authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a sum of Rs. 71,60,717. Aggrieved by the decision of the Assessing Officer, the assessee preferred an appeal before the learned CIT(A). In the appellate proceedings, the assessee contended that the Assessing Officer s finding regarding assessee was either transferring shares or his own profit to the HUF were not correct. It was also contended that the debit balance in the account of HUF had substantially came down and the HUF filed it s return of income independently. The assessee further contended that average rate of interest on borrowed funds was 19 per cent and not 24 per cent per annum. It was also contended that the amount outstanding in HUF account was in the nature of business debt and the assessee did not charge any interest from any of sundry debtors nor paid interest to its sundry creditors. It was also contended that the provisions of section 40A(2) of the Act were not applicable as no interest was paid to the persons as referred therein. It was also contended that if the debit balance in the account of HUF was treated as loan, no part of the interest paid on borrowed funds could be disallowed under section 36(1)( iii ) of the Act as the interest bearing funds were us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his borrowed funds for the purpose of business and as such interest paid on funds borrowed for the purpose of business, but utilized for the purpose of purchase of shares for the HUF would not be allowable as deduction under section 36(1)( iii ). One may refer in this regard to the decision of Supreme Court in the case of Madhav Prasad Jatia ( 118 ITR 200) and the decision of Bombay High Court in the case of Kishinchand Chellaram ( 114 ITR 654). However the other contention of the appellant that the average rate of interest paid by the appellant on borrowed funds during the previous year was lesser than the rate of 24 per cent adopted by the Assessing Officer would need consideration. On prima facie examination of the balance sheet of the appellant it is seen that the outstanding loan as on 31-3-1997 was Rs. 521.75 lakhs and total interest paid during the previous year on borrowed funds was Rs. 111.80 lakhs approximately. The above figures prima facie gives rise to an average rate of interest of 21.43 per cent per annum which however is an approximate figure. The Assessing Officer may give another opportunity to the appellant to prove the average rate of interest of borrowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Bombay High Court in the case of Phaltan Sugar Works Ltd. v CWT [1994] 208 ITR 989 2 ( v )Hon ble Mysore High Court in the case of CIT v. United Breweries [1973] 89 ITR 17. ( vi )Hon ble Madras High Court in the case of Milapshand R. Shah v. CIT [1965] 58 ITR 525. ( vii )Hon ble Bombay High Court in the case of CIT v. Doctor Co. [1989] 180 ITR 627. ( viii )Hon ble Allahabad High Court in the case of Saraya Sugar Mills (P.) Ltd. v. CIT [1993] 201 ITR 711 3 ( ix )Hon ble Allahabad High Court in the case of Marolia Sons v. CIT [1981] 129 ITR 475. ( x )Hon ble Supreme Court in the case of Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 4 ( xi )The Hon ble Delhi High Court in the case of R. Dalmia v. CIT [1982] 133 ITR 169 5 . ( xii )Hon ble Delhi High Court in the case of CIT v. Motor General Finance Ltd. [2002] 254 ITR 449 6 ( xiii )Hon ble Madras High Court in the case of K. Somasundaram Bros. v. CIT [1999] 238 ITR 939 . ( xiv )Hon ble Allahabad High Court in the case of CIT v. Saraya Sugar Mills (P.) Ltd. v. CIT [2000] 246 ITR 509. ( xv )Hon ble Madras High Court in the case of CIT v. Indian Expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, the only aspect which the Assessing Authority are required to take into consideration in taking different view in respect of any claim is that such different view should be based upon the proper analysis of facts of that particular year. Therefore, the contention of the assessee that no disallowance would be made in this year because no such disallowance was made earlier is rejected. The assessee further contended that there was a substantial reduction in the outstanding amount in HUF account but that fact by itself does not lead to any conclusion unless it is shown that the amount outstanding was out of interest free funds. It is also a settled judicial proposition that the assessee has to approve the nexus between the interest free funds and deployment thereof and there is no presumption in law that availability of interest free funds would be attributable to interest free advances/business debts which yield on no interest income to assessee. The onus to prove the claim of allowability of expenditure lies on the assessee. We are also of the view that it is not necessary that for considering the disallowance under section 36(1)( iii ) there must always be a interest free loan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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