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TMI Blog2015 (6) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... d loan from D.S. Construction Company has reduced from ₹ 1,64,56,230/- to ₹ 57,230/-. Therefore, in fact, the entire loan of ₹ 3.76 crores has been utilized to repay the debts raised by assessee for construction of property the income of which was offered under the head ‘income from house property’. Ld. CIT (A) while granting partial relief to the assessee only considered the amount of outstanding as on 31.03.2004 of ₹ 1.64 crores due to M/s. D. S. Construction Company. However, he misdirected himself in not considering the amount of ₹ 2 crores which was raised by assessee as a short term liability to reduce the loan component of M/s. D.S. Construction Company and also ignored the other transactions entered during financial year 2004- 05. The transactions entered into by assessee in 2004-05 also relate to acquisition of property. Therefore in all, the entire interest on the term loan from bank should have been considered by Ld. CIT(A) for allowing relief to the assessee. Circular 28 as relied upon by Ld. A.R. and as noted by Ld. CIT(A), clearly state that if the interest free loan is repaid by interest bearing loan funds, the interest on such loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of interest expenses and to justify claim of interest made against rental income. In reply, vide letter dated 30.10.2008, the assessee stated that during financial year 1997-98, the assessee company had obtained a loan of ₹ 18.80 lacs from M/s. D. S. Construction Ltd. which was increased to ₹ 16456230/- up to financial year 2003-04. This loan amount was used for the purpose of construction of building. It was further submitted that during the year 2004-05, the assessee had obtained loan of ₹ 3.76 crores from M/s. Lord Krishna Bank which was used for the purpose of repayment of loan taken by the company. Thus, it was submitted that in fact, new loan was for the purpose of construction of building and obviously, the assessee company had claimed interest on borrowed capital as deduction u/s 24(b) of the I. T. Act, 1961. The A.O., however did not agree with the submissions of the assessee company and disallowed the interest by holding as under: I have considered the reply furnished by the assessee. However, the assessee had obtained interest free loans from its associated concern several years ago for the purpose of its business. These were not interest bearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of loan taken to repay the loan utilized in the construction of the building. Therefore the sum of ₹ 2 crores cannot be added back to the loan amount of ₹ 3,16,95,184/- taken from D.S. Constructions for construction of property. Nor can it be treated as a part of the original amount of ₹ 3, 16,95,184/-. Furthermore as per Ld. Counsel's submissions, of the sum of ₹ 2 crores taken from ERHL in F.Y. 2003-04 only ₹ 1,52,38,954/- was utilized for repaying the construction loan taken from D.S. Construction- balance amount was put to some other use- which remains unstated so far. 6.6 The above details clearly indicate that out of the loan of ₹ 3,76,00,000/- taken from Lord Krishna Bank in actual terms only ₹ 1,64,56,230/- was utilized for returning the remaining construction loan - as only ₹ 1,64,56,2301- pertaining to the original loan remained to be repaid (to MIs. D.S. Construction) during the P. Yr. relevant to A.Y. 2006- 07). No explanation has been provided as to how the loan repaid is being claimed at ₹ 3,76,00,000/-. Appellant's submissions as evidenced by the balance sheet for various years shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on page 52, an amount of ₹ 1,64,56,230/- was outstanding under the head unsecured loan which was payable to M/s. D. S. Construction company. He submitted that immediately before the close of the year, amount outstanding to M/s. D. S. Construction Company was ₹ 3,72,56,230/-/- out of which ₹ 2.08 crores was repaid to the above loanee by borrowing an amount of ₹ 2 crores form M/s. ERHL which is the company under the same management and in this respect, he invited our attention to paper book page 53 where the amount of ₹ 2 crores was reflected as current liability. Ld. A.R. also invited our attention to paper book page 12 to demonstrate that as on 01.04.2003, the amount due to M/s. D.S. Construction Co. was ₹ 3,72,56,230/- and during the year ₹ 2,08,00,000/- was repaid. Ld. A.R. submitted that the findings of Ld. CIT(A) are not correct to the extent that he had held that amount due to M/s. D. S. Construction company as on 31.03.2004 was only ₹ 1,64,56,230/- and he has ignored an important fact that an amount of ₹ 2 crores was repaid to it by borrowing from a sister concern an amount of ₹ 2 crores. He submitted that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om M/s. ERHL which has been reflected as a current liability in the balance sheet as on 31.03.2004 which is apparent from paper book page 53. Therefore, in all, the assessee had repaid to M/s. D.S. Construction Company an amount of ₹ 3,72,56,230/-, which included ₹ 2.08 crores repaid in financial year 2003-04 and ₹ 1,63,99,000/- in financial year 2004-05. However, the fact remains that in financial year 2003-04, out of repayment of ₹ 2.08 crores, ₹ 2 crores was borrowed as a short term loan from ERHL ( a group company of assessee). This short term loan of ₹ 2 crores was repaid to ERHL in financial year 2004-05 by again borrowing ₹ 2 crores from D. S. Construction Company. These facts are verifiable from paper book page 8, where these entries are recorded. There is one more entry of ₹ 12.96 lacs as received from D. S. Construction Company and further, there is another entry of ₹ 9,500/-, which was paid to D S Construction Company. Therefore, in all, the balance due to D S Construction Company was ₹ 3,77,52,230/- out of which ₹ 3,76,00,000/- was paid after borrowing from Lord Krishna Bank. The above facts are verifiabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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