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TMI Blog2009 (4) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer noticed that the assessee claimed deduction of hire-purchase charges of ₹ 7,11,029 towards amount payable to sister concern M/s. Samy Metal Tech Pvt. Ltd. The assessee submitted that the plant and machinery available with the assessee-company was originally intended to be sold to the sister concern. M/s. Samy Metal Tech Pvt. Ltd. with an understanding that the machinery sold to the sister concern would be given to the assessee on hire purchase basis. M/s. Samy Metal Tech Pvt. Ltd. had raised finance of more than ₹ 60 lakhs from M/s. Lloyd Finance Ltd. M/s. Lloyd Finance Ltd. has directly paid a sum of ₹ 60 lakhs to the assessee-company. However, M/s. Samy Metal Tech Pvt. Ltd. did not purchase the machinery from the assessee for some reason and thus the assessee had to repay the loan to M/s. Lloyd Finance. Since the assessee had no money to repay the financier, it continued to carry on the amount in its book as loan and continued to bear the interest and finance charges for this year. It was, therefore, submitted that the amount paid to the financier is allowable as deduction from its business income. 3. The Assessing Officer noticed that the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own fund and not as borrowed fund. Thus, there was no need to utilise the same exclusively for the purpose of business. However, due to certain technical problem M/s. Samy Metal Tech Pvt. Ltd. did not proceed further with the purchase of the machinery but in the meantime the assessee having utilised the fund for certain other purposes, it was unable to repay the financier and hence it continued to carry on the amount in its books as loan and continued to bear the interest and finance charges on the same. He further submitted that the amount received from Lloyd Finance was utilised for repayment to its customers and thus it cannot be said to be a non-business purpose. On the other hand, the ld. D.R. strongly relied upon the orders of the tax authorities. 6. I have carefully considered the rival submissions and perused the record. Admittedly the payment made by the assessee is referable to the amount of ₹ 60 lakhs taken from Lloyd Finance. Whatever may be the circumstances, after the cancellation of the deal between the assessee and its sister concern, the amount remained with the assessee as a loan repayable to M/s. Lloyd Finance. It is well-settled that under section 36(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad sufficient non-interest-bearing funds so as to advance ₹ 60 lakhs to its group concern. In fact, the very fact that on the date when ₹ 60 lakhs was received, the same was transferred to the group concerns, indicates that this amount was not utilised for the purpose of business. Under these circumstances, I do not find any infirmity in the order of the CIT(A) in confirming the addition of ₹ 7,11,029. 7. Ground No. 2 is with regard to the addition of ₹ 7,03,546 referable to the disallowance of Bank interest, bill discounting charges etc. paid by the assessee. The Assessing Officer noticed that the assessee borrowed funds either from the Bank or from other parties by way of bill discounting etc. and the said amount was utilised directly or indirectly for giving interest-free loan to its sister concerns without charging any interest. A show cause notice was issued to the assessee in this regard but the assessee-company has not replied to the show cause notice dated 4-1-1999. Therefore, the Assessing Officer concluded that the interest-bearing funds were diverted for non-business purposes and accordingly disallowed the claim of deduction of bill discounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, the ld. D.R. strongly relied on the observations of the Assessing Officer as well as the CIT(A) and also relied on the following decisions: (1)K. Somasundaram Bros. v. CIT [1999] 238 ITR 939 (Mad.), (2)Bennet Coleman Co. Ltd. v. Dy. CIT [1997] 60 ITD 527 1 (Bom.). 9. Joining the issue, the ld. counsel submitted that the issue needs to be considered in the light of the decision of the Hon ble Bombay High Court in the case of CIT v. Bombay Samachar Ltd. [1969] 74 ITR 723 . He also relied upon the decision of the Hon ble Madras High Court in the case of CIT v. Hotel Savera [1999] 239 ITR 7952 as well as on an unreported decision of the ITAT, Bombay Bench SMC-I, in the case of ITO v. Vardhman Financier [IT Appeal No. 8039 (Bom.) of 1993] wherein it was held that if there are sufficient funds with the assessee to cover this advance, disallowance is not permissible. 10. I have carefully considered the rival submissions and perused the record. The principles enunciated in the aforecited decisions are that if there are sufficient funds on a particular date to cover the advance, merely because the assessee has also taken some loan, it cannot be attributed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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