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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 ..... the same to the interest free advances made by the assessee. Following the abovesaid proposition, we direct the Assessing Officer to recompute the disallowance under section 36(1)(iii) 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 - Decided in favour of assessee for statistical purposes. Salary paid to Shri G.S. Saluja, father of one of the partners - AO disallowed claim under section 40A(2)(b) - CIT(A) deleted the addition - Held that:- From the perusal of the assessment order, we find that the Assessing Officer except for doubting genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrarily uphold the disallowance of ₹ 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. That the ld. CIT(Appeals) has erred in law and on facts in deleting the addition of ₹ 18,00,000/- made by the Assessing Officer on account of excess salary paid to Shri R.S.Saluja, who is father of one of the partner and covered under section 40A(2)(b) of the I.T.Act, 1961. 2. That the order of the ld. CIT(Appeals) be set aside and that of Assessing Officer be restored. 5. The appeal filed by the assessee is delayed by two days. 6. The ld. AR for the assessee submitted that because of calculation error, there was a delay of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance 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 corresponding to the interest free advances made for non-business purposes was to be disallowed on proportionate basis as the funds of the assessee were under common kitty and it was not possible to separate the borrowed funds from own funds. Disallowance of interest accrued on the interest free advance to Smt. Ritu Saluja and M/s Shiv Narain Investment Pvt. Ltd. was made by the Assessing Officer at ₹ 43,53,601/- as per the tabulated details under para 6 of the assessment order. 10. The CIT(Appeals) upheld the said disallowance in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest 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 it had interest free funds available with it by way of capital contribution by the partners totaling ₹ 50.62 Cr. In view thereof, it was pleaded by the ld. AR for the assessee that in such cases, average cost of debt to the assessee be applied to work out the disallowance, if any. 14. The Hon'ble Punjab Haryana High Court in CIT Vs Abhishek Industries Ltd. (supra) have laid down the ratio that in cases of mixed funds available with the assessee and where interest free advances have been made out of such mixed fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 ₹ 24 lacs to Shri R.S.Saluja as salary who was the father of one of the partners. The total salary expenditure of the assessee for the year under consideration was ₹ 51,10,016/-. The assessee was asked to justify the payment of the salary to Shri R.S.Saluja as he was a person covered under section 40A(2)(b) of the Act. The reply of the assessee before the Assessing Officer is reproduced under para 5 of the assessment order in which it was pointed out that the said Shri R.S.Saluja was engaged in the business of hosiery products and knitted fabrics for the past 40 years a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 basic thrust in the AO's conclusion is found lacking. Secondly it has not been denied that Sh. R.S. Saluja has been the promoter of SEL group of concerns and the appellant firm happens to be a new acquisition of the group and therefore would logically require the enormous experience and expertise of Sh. R.S. Saluja to take the business of the firm to greater heights. In this scenario remuneration of the key personnel could surely be disproportionate in the short run, but such amounts have to be absorbed so as to reap th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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