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TMI Blog2014 (4) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Sri C. Amarnath For the Respondent : Sri Solgy Jose T. Kottaram ORDER Per Chandra Poojari, AM: This appeal by the assessee is directed against the order of the CIT-VI, Hyderabad dated 28.12.2012 for assessment year 2009-10. 2. The assessee raised the following grounds: (1) The learned CIT(A) having held at the concluding paragraph of 8.5 that there was a faint angle of commercial expediency/business connection, ought to have deleted the interest disallowance of Rs. 28,93,009/-. (2) The learned CIT(A) erred in restricting the allowance of interest on advances for period of less than 10 days. The disallowance of interest ought to have been deleted in entirety. (3) The learned CIT(A) failed to note that the individuals to whom advances were made had offered their immovable properties as security for obtaining loan facility from the bank. 3. Brief facts of the case are that the assessee is engaged in the business of trading in bullion (gold and silver) in the HUF status. During the course of assessment proceedings, it has been observed by the A.O. that the accounts of members of the HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and as per the fund flow statement furnished before the AO, the assessee had interest free funds of Rs. 5.95 Cr. in the form of capital (Rs. 3.85 Cr) and interest free unsecured loans (Rs. 2.08 Cr) and interest free advances of Rs. 2.64 crores were made out of such interest free funds. The assessee also relied upon the following judicial decisions to substantiate his stand on the issue: (1) Munjal Sales Corporation vs. CIT Anr. [298 ITR 298] (SC) (2) Bharat Tubes Tin Printers vs. ITO in ITA No.808/Hyd/2004 (3) Maheshwari Handling Agency Pvt. Ltd. vs. ACIT in ITA No. 854/2009 (Rajkot) 5. It was also submitted by the assessee that major payments to the individual entities are on account of opening debit balances in SB accounts at the yearend as per the request of the bank which provided the CC facilities to the assessee and the said amounts were shown to have squared up within few days of the transfer. It was also argued by the assessee that most of the funds were transferred to the 5B accounts of the individuals to oblige the request of the banks and the assessing officer has agreed in principle for not charging the interest on the balances kept for a short period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free loans and worked out the proportionate interest entity wise as under: i. Chanda Parameshwar Rs. 13,99,256 ii. Chanda Venkatesh Rs. 12,03,945 iii. Chanda Sudheer Rs. 23,145 iv. Chanda Meena Kumari Rs. 133012 v. Chanda Kalpana Rs. 76451 vi. Chanda Neelima Rs. 57261 Total Rs. 28,93,009 8. The CIT(A) observed that the assessee's objection on such disallowance was on more than one count. As per the assessee, the amounts were diverted to the individual accounts to maintain certain balances in the SB account maintained, as per the request of the bank and has been done to oblige the bank on commercial expediency. The assessee pointed out that except on few occasions, such amounts were kept in SB accounts for very short period of 1 to 9 days and on exceptional occasions, the duration of such debit balances were in the range of 13 to 61 days in the case of Chanda Parameshwar and in the case of Chanda Venkatesh, the maximum period is in the range of 58 to 100 days. Similarly, in the case of Meena Kumari, the duration of the debit balances was 103 days and in the case of C. Kalpana the same is in the range of 13 and 90 days, and the duration of 11 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under reference. The assessee's contention was that the AO failed to take note of such submissions in making the disallowance which is contrary to the facts and law. In this regard, the assessee has fallen on the judicial decisions referred above. During the course of the appellate proceedings, the assessee has further furnished the details of sources and application of funds as per which the total sources were shown at 30.52 Crores including the secured loan of Rs. 20.00 crores and capital of 3.85 crores and unsecured loans of 2.08 crores. On the other hand, the major application of the funds were shown to have been made towards interest bearing deposits of 9.05 crores, closing stock of 11. 73 crores, bank balances 2.02 crores and interest free loans of 11.11 crores. Thus, there is a variation in the figures of sources and application of funds for the assessee as indicated by the assessee at the time of scrutiny proceedings and the appellate proceedings. 10. The CIT(A) observed that the assessee is that when enough funds are available to the assessee which are interest free, there is no liability or obligation on the part of the assessee to charge interest on the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riods. To oblige the banks for the request may not be a business connection but a personal obligation. The assessee is into the business for which the amounts were borrowed in spite of having certain interest free funds available to him in the form of capital as well as interest free secured loans and apparently the funds are borrowed keeping the requirements of the business in mind. Further, as per the observation made by the AO, the funds from the cash credit account were directly transferred to the SB accounts which is not completely denied by the assessee thereby indicating the diversion of the funds for the non-business purposes. In light of the ratios of the decisions referred supra, there is no angle of charging the interest on the amounts diverted for non-business purposes, where the assessee have more than required funds for advancing such amounts in the form of interest free funds. However, in this context, it is relevant to refer to the decision of ITAT, Delhi in the case of ACIT Vs. Punjab Stainless Steel industries (128 ITD 12) wherein against the claims of the assessee that it gave interest free advances from its own funds and then borrowed funds from the banks on int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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