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TMI Blog2014 (5) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 22.8.2012, Annexure A.3 in ITA No.109/CHD/2012, claiming following substantial questions of law:- "i) Whether on facts and in law, the Hon'ble ITAT was right in holding that provisions under section 2(22) (e) of the Income Tax Act, 1961 are not attracted in this case? ii) Whether the Hon'ble ITAT was right in law in holding that the transactions of advancing of money by the assessee to the company and earning interest on it amounted to business transactions? iii) Whether, the Hon'ble ITAT was right in law in holding that no disallowance under Section 36(1) (iii) is called for in this case, failing to appreciate that the assessee has not been able to establish that the initial purpose of advancing amount to M/s Nalanda Spin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to M/s Dada Motors Pvt. Limited was rightly disallowed by the Assessing Officer under Section 36(1) (iii) of the Act. Reference was made to the judgment of the Apex Court in S.A.Builders Limited v. CIT(Appeals) and another, (2007) 288 ITR 1. 5. On the other hand, learned counsel for the assessee supported the orders passed by the CIT(A) and the Tribunal. 6. Taking up question no.(iii), it would be apposite to notice the observations of the CIT(A) who vide order dated 30.11.2011, Annexure A.2 recorded as under:- "8. I have gone through the contention of the appellant's counsel and also perused the relevant assessment order and rival submissions of the appellant. The AO disallowed interest of Rs. 3,50,000/- on notional basis on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as in law, has erred in deleting the disallowance of Rs.3,60,000/- made under section 36(1) (iii) of the Income Tax Act, 1961. (b) The learned CIT(A) II, Ludhaina has erred in deleting the above disallowance despite the fact that the assessee has been unable to explain the purpose of giving the advance of M/s Nalanda Spinners. 14. The relevant and operative part of the decision of the tribunal, as recorded in para 13 of the order, is reproduced hereunder:- '1. We have considered the rival submissions and have perused the materials available on record. We find that the reply filed by the assessee before the Assessing Officer is self-explanatory. The Assessing Officer charged interest of Rs.2,60,000/- on notional basis on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed." 8. In view of the findings recorded by the CIT(A) as well as the Tribunal, there was no justification for making an addition of Rs. 3,50,000/- under Section 36(1)(iii) of the Act. The assessee had not charged any interest on the amount advanced to M/s Nalanda Spinners as the amount advanced to Nalanda Spinners was not returned for which a civil suit was filed and with the assistance of influential people, the same was recovered. Moreover, for the assessment years 2006-07 and 2007-08, similar additions had been deleted which has attained finality.The judgment in S.A.Builders's case (supra), thus, does not help the revenue. 9. Incidentally it may be noticed that on 18.3.2013, notice of motion was issued on question no. (iii) only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only for 55 days in between the year that balance of appellant in books of accounts turned credit. It is beyond doubt that this section can be invoked to curtail the misuse of the funds belonging to a private limited company by its shareholders but not when there is running current account of appellant with the company and appellant has infact for most the time lent the money to the company. This section had been inserted to stop the misuse of the taxing provisions by the assessees by taking the funds out of the company by way of loans or advances instead of dividends and thus avoid tax. But in this case where there is no such intention of the appellant and he had infact advanced money to the company, credit in that account for some da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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