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TMI Blog2015 (10) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh, DR ORDER PER BENCH ; This appeal of the assessee arises from the order of the CIT(A), Jalandhar dated 25.04.2012 for the assessment year 2007-08.The assessee has raised following grounds of appeal: 1. That the order of the authorities below is against law and facts of the case. 2. That the worthy CIT(Appeals) has erred in concurring with the ld. ACIT Range-II, Jalandhar in confirming the addition of ₹ 3,43,673/- on account of interest allegedly chargeable on interest free advances aggregating to ₹ 28,63,942/- given to the family members. 3. Such other grounds as may be urged at the time of hearing. 2. The brief facts as emanating from the order of the Assessing Officer are reproduced for the sake of convenience as under: On the issue discussed with the assessee regarding the disallowance of interest @ 12% for the interest free advances given by the assessee of ₹ 21,56,664/- to Sh. Samir Choudhary and ₹ 7,08,278/- to Smt. Sunita Choudhary (total of ₹ 28,63,942/- to family members) in view of the Punjab Haryana High Court decision in the case of M/s. Abhishek Industries Ltd. ITA No.110 of 2005 dated 04.08.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 75 (P H), the AO had disallowed interest expenditure because the assessee had advanced an amount of ₹ 17,45,000 to the family members of its directors. No interest was charged from any of them, though the assesseecompany itself paid interest of ₹ 6,30,108/- on certain borrowings. The A.O. by calculating the interest on the aforesaid amount at 14 per cent, disallowed interest to the extent of ₹ 2,44,317/-, while holding that the advances made to those persons were for non-business purposes. On appeal the ld. CIT(Appeals) deleted the said addition by holding that AO could not establish any nexus between advances given to the directors and their family members and the CC limits availed of by the ssessee-company. The ITAT upheld the order of the CIT(A). On appeal by the Department, the Hon ble High Court held that it has been held in S.A. Builders Ltd. vs. CIT(Appeals) 288 ITR 1 (SC) that when the assessee borrowed the fund from the bank and lent some of it to its sister concern as an interest free loan, then the real test to allow the interest as deduction u/s 36(1)(iii) was whether this was done as a measure of commercial expediency. It was held that it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he debit balance in the account of SML varied from ₹ 12.63 lacs to ₹ 97.67 lacs during the period from Ist April, 1990 to 31st Marc, 1991. As against the same, the assessee had interest free advanced varying from ₹ 6.19 crores to ₹ 13.34 crores during the same period which far exceeded the amounts due from SML. The assessee had also furnished complete details before the CIT(A) to show that it had sufficient interest free advances. In order to disallow the interest, it was duty of the AO to controvert the factual submission by bringing further details or by calling further details from the assessee. Besides, the AO has also not established any direct nexus between the amounts borrowed on which interest was paid and amount given to SML. In the case of CIT vs. Ferozepur Finance (P) Ltd,(supra), the Hon ble High Court of Punjab Haryana has held that unless income accrues to the assessee, no tax can be levied. The mere fact that the assessee had not charged any interest on the amounts due from another concern would not itself justify in making the addition on notional basis. Having regard to these facts and circumstances of the case, we are of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan given by the assessee to sister concern went to advance the business interest of the assessee, there could not be any commercial expediency. For example, it was held that if a company or a firm supplying raw material for manufacture of products of the assessee went into financial crisis and if the assistance rendered by the assessee would retain their business which in turn helped the assessee to carry on business more successfully, commercial expediency could be canvassed. In the instance case the Hon ble High Court held that the company to which assessee had advanced interest free loans appeared to be an investment company probably engaged in finance and it was not clear what was the commercial expediency that the petitioner could canvass for advancing interest free loans to that concern. The disallowance of proportionate interest in the instant case was held to be justified. In the case of Punjab Stainless Steel Inds. vs. CIT [2011] 196 Taxman 404 (Delhi) the AO noted that the assessee had diverted its interest bearing funds, taken from its cash credit account with a bank, as interest free advances to one of its sister concerns. Accordingly, the AO disallowed a part of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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