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TMI Blog2015 (7) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... d order for the sake of convenience. 3. The assessee has raised the following grounds of appeal : "1. That order passed under section 250(6) of the Income Tax Act,1961 by the ld. CIT(Appeals)-I Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the disallowance of Rs. 1,52,309/- out of interest account on the ground that the same required to be capitalized as the machinery had not been put to use. 2. That he was further not justified to arbitrarily uphold the disallowance of Rs. 43,53,601/- out of interest account by resort to provisions of section 36(1)(iii). 4. The revenue has raised the following grounds of appeal : "1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to various parties, which included advances to suppliers, advances to employees, pre-paid insurance and other advances except the advance to M/s Shiv Narain Investment Pvt. Ltd. and Smt. Ritu Saluja which were advances on which no interest was charged. All the other advances were claimed to have been given in normal course of business for business consideration and the advances to M/s Shiv Narain Investment Pvt. Ltd. and Smt. Ritu Saluja were given for their temporary requirement and Shri Rajesh Kumar was an employee to whom the advance was given. The Assessing Officer applying the ratio laid down by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Abhishek Industries Ltd. 286 ITR 1 (P&H) held that the interest correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration, the assessee on the one hand had debited interest expenditure and on the other hand, had made interest free advances to Mrs. Ritu Saluja and M/s Shiv Narain Investment Pvt. Ltd. As per the reply dated 09.12.2011 filed by the assessee before the Assessing Officer, the said advances were made to the said parties for their temporary requirements. The issue arising in the present appeal is in relation to the allowance of the interest expenditure in the hands of the assessee being attributable to the interest free advances made by the assessee. The plea of the assessee against the said disallowance is that the interest expenditure booked during the year on term loan is utilized for specific purpose and also further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act by adopting the average cost of debt for the year under appeal and applying the same to the interest free advances made by the assessee. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer. The ground of appeal No. 2 raised by the assessee is thus, allowed for statistical purposes. 16. The only issue raised by the revenue in the cross appeal is against the allowance of salary paid to Shri G.S. Saluja, father of one of the partners, which was disallowed by the Assessing Officer in view of the person being covered under section 40A(2)(b) of the Act. 17. The facts relating to the issue are that the assessee had paid a sum of Rs. 24 lacs to Shri R.S.Saluja as salary who was the fat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er month and the balance salary of Rs. 18 lacs was disallowed under section 40A(2)(a) of the Act. 18. The CIT(Appeals) vide para 7 held as under : "7. I have considered the basis of AO's conclusion and the arguments of the AR during assessment as well as appellate proceedings. In order to hold that there was an element of unreasonableness in remunerating Sh. R.S. Saluja by the firm, the important thing to find out is whether Sh. Saluja is being taxed at lower rate then that of the appellant firm. The AR of the appellant has clearly brought on record that both the assessee firms as well as Sh. R.S. Saluja are in the same tax bracket and there is no purpose served by debiting unreasonable salary. This being so, the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be seen vis-à-vis the legitimate needs of the business or profession of the assessee or the benefits derived or accruing to the assessee. Wherever the expenditure is found to be unreasonable, then so much of the expenditure as is considered to be excessive or unreasonable, shall not be allowed as a deduction by the Assessing Officer under the said provisions of the Act. From the perusal of the assessment order, we find that the Assessing Officer except for doubting genuineness of the said expenditure, has not given a finding that the expenditure was excessive or unreasonable, having regard to the fair market value of goods, services or facilities provided. The excessiveness or unreasonableness of the expenditure cannot be seen apar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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