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TMI Blog2009 (6) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... Key Alloy Conductors (P.) Ltd. In the ground No. 2, the assessee has cited various case laws in support of ground No. 1. 4. The facts of the case are that the assessee is engaged in the business of sales and service of vehicles, auto parts and accessories. The relevant return of income was filed on 31-10-2004 at a total income of Rs. 2,47,150. The Assessing Officer, as per order dated 26-12-2006, determined the total income at Rs. 10,73,450. The Assessing Officer made addition of Rs. 8,07,549 disallowing the interest paid to M/s. Vee Key Alloy Conductors (P.) Ltd. for the reasons that the interest payment was not for the purpose of business, that the payment was made to a related concern and the expenditure on interest amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd., without any business need and the payment of interest of Rs. 8,07,549 was not admissible under section 36(1)( iii ) of the Act because the deduction was to be allowed only for the amount of interest paid in respect of the capital borrowed for the purpose of the business of the assessee. The Assessing Officer also observed that no evidence was filed to show that the funds borrowed from the sister concern, as discussed above, were in fact utilised for the purpose of the business. He also observed that the assessee had admitted that the cash balance available in the Tejori account and the books of account of the assessee as on 31-3-2004 was used for the purpose of business in the subsequent year and thus, there was no scarcity of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is to hold that the impugned loans were raised not for the purposes of the business but to compensate the cash-in-hand which actually was not available for some reason or the other. The interest expenditure thus cannot be held to be incurred for the purposes of the business and hence is not allowable as deduction under section 37. This disallowance therefore is confirmed." 6. During the course of hearing before us, learned counsel for the assessee relied upon the documents filed in paper books submitted on 19-8-2008, 21-5-2008 and 13-5-2009. The paper book dated 19-8-2008 consists of copy of audited balance sheet of the assessee as on 31-3-2004 and copy of ledger account of M/s. Vee Key Alloy Conductors (P.) Ltd. In the paper book fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts against purchases were made. (4)The decision to keep the cash in Tejori for future possible expansion of business was taken by the Directors of the company and its prudence cannot be challenged by the I.T. authorities as held by Hon ble Supreme Court in the case of S.A. Builders Ltd. ( supra ). (5)The cases relied upon by the Assessing Officer were not applicable to the facts and circumstances of the case of the assessee because in the case of Triveni Engg. Works Ltd. ( supra ), the assessee could not prove that the disputed part of the amount taken as loan from the bank was used for the purpose of the business. In the case of H.R. Sugar Factory ( supra ), the assessee had utilised the borrowed funds for giving huge loans to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, the funds borrowed were not required for carrying on the business and the interest was, therefore, rightly disallowed by the Assessing Officer and confirmed by the learned CIT(A). 9. We have carefully considered the issue in the light of orders of the lower authorities, material placed on record and rival submissions. It is very clear that the assessee had retained the funds as per its balance sheet and there was no necessity for taking the loan from the sister concern, because sufficient funds were available with it for making the payment of outstanding liability on account of purchases. Its own funds available with the assessee were admittedly not utilised during the relevant account period and the case laws relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the sister concern in order to decide whether it was for commercial expediency. With due respect, in the case of the assessee the borrowed funds were not diverted to sister concern but the funds borrowed by the sister concern from the Indian Overseas Bank were taken by the assessee without any business requirement in view of the admitted fact that it was having sufficient funds of its own even in preceding year because the cash and bank balance as on 31-3-2003 is also Rs. 91,41,334 as can be seen from the balance sheet as on 31-3-2004, placed on record at page 32 of the paper book and the interest payment on the loan taken from sister concern was held not for the purpose of business by the learned CIT(A). The other cases relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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