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TMI Blog2011 (3) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 - - - Dated:- 14-3-2011 - CHITRA VENKATARAMAN MRS., JANARTHANA RAJA P. P. S., JJ. JUDGMENT P. P. S. Janarthana Raja J.- The Revenue has come on appeal as against the order of the Income-tax Appellate Tribunal, Madras "B" Bench, dated June 24, 2004 made in I. T. A. Nos. 79 and 80/Mds/1998, dated April 6, 2004 for the assessment years 1991-92 and 1992-93 respectively, raising the following substantial question of law. "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the interest paid on the loan availed of from bank can be allowed as a deduction, when the said loan was advanced to the managing director without charging any interest ?" 2. The assessee is a company in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a deduction. Therefore, the Assessing Officer was of the view that the assessee has not proved that the amount given as advance was out of its own surplus funds. Therefore, the Assessing Officer disallowed the interest to the extent of 18 per cent. on the advance of Rs. 20,00,000 and the same worked out to Rs. 3,60,000. 3. For the assessment year 1992-93, the return was filed on December 28, 1992 claiming net loss of Rs. 13,30,487. The return was processed under section 143(1)(a) and the Assessing Officer also made certain prima facie adjustments and determined the tax to the extent of Rs. 5,18,492. Later, the assessment was taken for scrutiny and he completed the assessment under section 143(3) and determined the total income at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Income-tax Appellate Tribunal is not in accordance with law and the same has to be set aside. 5. In spite of notice having been served on the assessee, there is no representation on behalf of the assessee and his name has also appeared in the cause list. 6. Heard the learned counsel appearing for the Revenue and perused the documents available on record. The assessee-company entered into an agreement for purchase of land owned jointly by P. Govindasamy, managing director of the assessee-company and N. Chockalingam as per the agreement of sale dated October 26, 1983. As per the agreement, a sum of Rs. 20,00,000 was given as advance to the managing director during the previous year relevant to the assessment year 1984-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials available on record, the Tribunal in paragraph 5 held as follows : "We have heard the submissions of both the parties and gone through the case law cited by the assessee's counsel. It is seen that the Assessing Officer has made the additions without going into the facts of the case. He has never tried to connect or prove the nexus with the borrowed funds and the advanced funds. In earlier years in the assessee's own case no disallowance was made. This is a good basis for not making the disallowance for these years also. The principle of opportunity cost as enumerated by the Commissioner of Income-tax (Appeals) has not relevance when there is no nexus between the borrowed funds and advanced funds. Following the case law cited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the proportionate interest payment in respect of the amounts so advanced by the assessee in computing its profits. Further, it is clear from that case that the assessee had not derived any benefit out of the advances to the partners, their relatives and the sister concerns and the assessee was not the beneficiary of the investments made by the partners and their relatives. Therefore, the Kerala High Court rightly held that since the assessee was not the beneficiary of the investments made by the partners and their relatives and the advance money was interest free, the Assessing Officer was justified in disallowing the interest. In the present case, the facts are factually different and distinguished from the Kerala High Court judgment. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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