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TMI Blog2014 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... PUNJAB AND HARYANA High Court] - Interest has to be disallowed under section 36(1)(iii) in case advances have no direct nexus of the funds between borrowings of the funds and diversion thereof for non-business - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... e the firm running into huge losses and bad financial position. After obtaining a mortgage loan of Rs. 100 lakhs from bank, an amount of Rs. 1,23,55,787 was advanced by the assessee to its sister concern, M/s. Luxmi Engineering Works, as interest-free loan in the last week of March, 2004. The Assessing Officer, vide order dated May 10, 2007, annexure A. 2, disallowed interest to the tune of Rs. 14,82,695 under section 36(1)(iii) of the Act being the proportionate interest which worked on interest-free loan given by the assessee to its sister concern, M/s. Luxmi Engineering Works, out of borrowed funds. Aggrieved by the order dated May 10, 2007, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) ("the CIT(A)"). Vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) and S. A. Builders Ltd. v. CIT [2007] 288 ITR 1 (SC). It was argued that the findings recorded by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) and the Tribunal were against the record. On the other hand, learned counsel for the Revenue supported the order passed by the Tribunal. After hearing leaned counsel for the parties, we do not find any merit in the appeal. The Assessing Officer, after appreciating the material, came to the conclusion that there was no commercial expediency in advancing the loan by the assessee to its sister concern, M/s. Luxmi Engineering Works. The relevant finding recorded by the Assessing Officer in that behalf is as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have been equally eager to extend the same as has been done by the assessee-company but that has not been in the case. It's only the profit-making concern, i.e., M/s. C. R. Auluck and Sons Pvt. Ltd. which has extended this advance rather than any other guarantor making the intention of reducing the profits very clear. Profit making concern G Interest-free loan extended U C. R. Auluck and Sons Pvt. Ltd. A Reduction in profits R J. C. Auluck Inv. Pvt. Ltd. AN Luxmi Engineering Works T No interest loan extended O Loss making concern R J. C. Auluck Inv. Pvt. Ltd. No interest-free loan extended The contentions of the counsel for the assessee are not acceptable in the light of above discussion from which it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd advanced the same to its sister concern, M/s Luxmi Engineering Works. The finding of the Assessing Officer that the advancing of loan was not for commercial expediency and it was a device to divert the income by transferring the funds by way of interest-free loan to its sister concern was upheld on appeal by the Commissioner of Income-tax (Appeals) with the following observations : "7. I have carefully considered the contention of the learned counsel for the appellant and perused the relevant record. In the written submissions reproduced above the learned counsel has taken up the same arguments as taken before the Assessing Officer. However, as already discussed the Assessing Officer has duly discussed in detail in the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of the ratio of the decision of S. A. Builders Ltd. (supra), has to be seen with the reference to the loan giver and not the loan receiver. As already discussed, no such business expediency is revealed as far as the case of the appellant is concerned. 7.1 In view of the above discussed facts and the legal position, I agree with the Assessing Officer that the ratio of the decision of the hon'ble jurisdictional High Court, i.e., the hon'ble Punjab and Haryana High Court in the case of CIT v. Abhishek Industries Ltd. (supra), is very much applicable in the case of the appellant. Admittedly, the appellant has borrowed funds on which interest had been paid and, on the other hand, amounts having been advanced to the sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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