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TMI Blog2010 (5) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... - Revenue could not point out how the advances given to different persons were not business advances of the assessee. In absence of any material brought on record, tribunal confirmed CIT order that the above advances were for the business purpose of the assessee and no disallowance of interest in respect of such interest free business advances can legally be made - interest free funds available with the assessee company was much more than interest free advance given to Karnataka Jewels Ltd. and no material on record to show that there was a nexus between interest bearing funds and interest free advance to the said Karnataka jewels Ltd.- the order of CIT(A) upheld - Decided against revenue. - ITA No. 90/AHD/2008 - - - Dated:- 21-5-2010 - Shri N. S. Saini And Shri Mahavir Singh,JJ. For the Appellant : Dr. Jayant Javeri Sr. D.R For the Respondent : Shri Bandish Soparkar C.A. ORDER Per N. S. Saini , Accountant Member :- This is an appeal filed by the Revenue against the order of the ld.CIT(Appeals)-VIII, Ahmedabad dated 03.10.2007. 2. Ground No.1 of the appeal reads as under:- 1. The Ld. CIT(A) erred in law and on the facts in directing to delete the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y undergone by them. The assessee has claimed the above payment as deductable expense, whereas the Learned Assessing Officer disallowed the same by observing that the payments were personal in nature, not as per the terms of employment and Directors have not shown such receipts as taxable perquisite in their return of income. 5. The Learned Commissioner of Income Tax(Appeals) deleted the above disallowance by observing that the payments were made in pursuance to the board resolution and similar payments of Rs.71,717/- incurred by the assessee company in the immediately preceding year was allowed to the assessee company. 6. Before us, the Learned Departmental Representative relied upon the order of the Learned Assessing Officer and the Learned Authorised Representative of the assessee supported the order of the Learned Commissioner of Income Tax(Appeals). 7. We find that the assessee is a company and the expenditure was reimbursed to the Directors for surgery to whom the salary was paid by the assessee company. Thus, the assessee being a company, the expenditure could not be held as personal expenses of the company as Directors were appointed for the business purposes of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the borrowed funds and the advances given as above. It was submitted that deposit of Rs.5,59,792/- was made with Karanataka Electricity Board, which is Government body and such deposit was made in connection with the business of the appellant. The advance of Rs.60,00,000/- was on account of advance money paid for purchase of the machinery for the purpose of the business. Advance of Rs.10,50,000/- was on account of rent paid in advance as per the requirement of the owner of the property whose building was used by the appellant company for its business. Therefore, there was no question of charging any interest on the above said advances. With regard to advance of Rs.1,07,77,310/- to Karnataka Jewels Ltd. it was submitted that there was opening balance of Rs.64,66,410/- and advance given to this party during the year under appeal was of Rs.43,10,900/-. Out of the said advance of Rs.43.10 lacs given to the above party, an amount of Rs.33,06,600/- was advanced on 29/3/2004 and a further sum of Rs.8,75,000/- was advanced on 29/3/2004. No interest was charged or received on the above advances. The break up of expenditure of interest and financial charges of Rs.11,47,249/- is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g borrowed fund have been diverted to make interest free advance to Karnataka Jewels Ltd. the Assessing Officer was not justified in disallowing the appellant's claim for deduction of interest of Rs.10,25,400/- under section 36 (1) (iii) of the Income Tax Act. The ld. A.R. submitted that interest of Rs.4,86,000/- was paid on term loan from Vysha Co.Op. Bank Ltd., Tumkur which has been exclusively used for the purpose of business. Interest of Rs.1,18,329/- is paid on hire purchase loans i.e. vehicle loans. Interest of Rs.3,96,000/- is paid on bill discounting and amount of Rs.1,21,849/- relates to bank charges. Only an amount of Rs.21,465/- pertains to other interest. Thus, the entire amount of expenditure under the head interest and financial charges has been incurred wholly and exclusively for the purpose of business and no interest bearing borrowed fund has been diverted for non business purposes. Therefore, it was submitted that the disallowance of Rs.10,25,400/- made by the AO be deleted. The A.R, relied upon the following decisions:- (1) Malwa Cotton Spinning Mills vs. ACIT (89ITD 65) (Chd) (2) Shree Digvijay Cement Co. Ltd. vs. CIT -138ITR 45(Guj) (3) CIT VS. South Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was given to Karnataka Jewels for commercial consideration because the said company became sick and advances earlier given had no chance of recovery and to recover the bad recovery the appellant had to make further advance of good money and this was for commercial expediency to enable the said company to start giving back the appellant's funds. Thus, relying on the decision of Hon'ble S.C. in S.A. Builders vs. CIT 288 ITR 1 (SC) as there was commercial expediency no part of interest needs to be disallowed. Accordingly the interest disallowance is deleted. 10. We have heard the rival submissions and perused the materials available on record. In the instant case, the Learned Assessing Officer disallowed out of interest expenditure Rs.10,25,400/- by observing that interest free advance was given by the assessee to the following persons:- Deposit KEB Rs. 5,59,792 Deposit machinery Rs. 60,00,000 Rent Advance Rs. 10,50,000 Karnataka Jewels Ltd. Rs. 1,07,77,310 According to the Learned Assessing Officer, the above advances were not for the business purposes and assessee company was incurring interest expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax(Appeals) which was after going through the balance sheet of the assessee as on 31.03.2002 could be pointed out by the Learned Departmental Representative. Thus, it is observed that no part of interest bearing fund was utilised for giving advance Rs.64,66,410/- to Karnataka Jewels Ltd.. In respect of balance advance of Rs.43,10,900/- to Karnataka Jewels Ltd., the Learned Commissioner of Income Tax(Appeals) after going through the ledger account of the said party, found that advance was given on 29.3.2004 only. No error in this finding of ht Learned Commissioner of Income Tax(Appeals)also could be brought on record by the Learned Departmental Representative. Further, it is not in dispute that interest free funds available with the assessee company was much more than interest free advance given to Karnataka Jewels Ltd. and in absence of any material on record to show that there was a nexus between interest bearing funds and interest free advance to the said Karnataka jewels Ltd., we do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals) in respect of this part of the issue also. We therefore, do not find any merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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