9911796707
TMI Blog2013 (11) TMI 1661X X X X Extracts X X X X X X X X Extracts X X X X ..... Int erest-free loan to its sister-concern - Interest-free loans have been diverted for giving advantage to related persons/concerns to reduce the income of the assessee - It is an admitted fact that the assessee had received more than ₹ 60 lacs as advance from the customers on which no interest was paid. When to this magnitude on which no interest was payable, the AO was not justified in disallowing interest. HELD THAT - The interest was rightly allowable on the basis of the facts found in the case. Referring the case [ 2008 (2) TMI 19 - SUPREME COURT] , the Tribunal held that the loans given to the sister-concerns were out of the firm's funds and that they were advanced for business purposes. Decision in favor of assessee. - AJAY RASTOGI AND J.K. RANKA, JJ. Nikhil Simlote and R.B. Mathur for the Appellant. JUDGMENT J.K. Ranka, J. This income-tax appeal under s. 260A is directed against the order of Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as Tribunal) dt. 8th July, 2010 and relates to the asst. yr. 2006-07. 2. The brief facts emerging on the face of record are that the assessee is carrying on business of manufacturing and trading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are excluded as mentioned in the bills of M/s N.K. Industries then consumption of electricity per unit will come to 20.5 kgs. vis-a-vis 21.49 kgs. in the immediately preceding year, whereas the consumption per unit including the units of electricity will come to 15.5 kgs. vis-a-vis 17.3 per unit kg. After analysing the evidence on record, it was also observed by the Tribunal that the premises has been used by the assessee actually and no rent has been paid and for actual user of electricity, payment has been made. Accordingly, the disallowance of electricity amounting to ₹ 8,16,115 was deleted. It is this finding of the Tribunal, which has been assailed before us. 6. Mr. Nikhil Simlote, learned counsel appearing on behalf of the Revenue, submitted that there was no evidence led by the assessee that he was actually using the premises of M/s N.K. Industries and merely because the assessee had higher income, the claim was made. He would further contend that had the assessee been using the premises of M/s N.K. industries, it would have certainly informed the various government authorities namely, District Supply Officer, Commercial Taxes Department, insurance company etc. etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on different dates and it is claim of the AO that interest had not been charged on the amounts having been advanced and thus after analysing the facts and circumstances of the case came to the conclusion that interest-free loans have been diverted for giving advantage to related persons/concerns so as to reduce the income of the assessee and they have been advanced for extra commercial consideration and there was no business expediency. Accordingly, disallowed the said amount referred to hereinabove. 9. Dissatisfied with the said disallowance, an appeal was preferred before the CIT(A), who after analysing the facts and record came to the conclusion that the assessee was able to prove that on account of commercial/business expediency amounts were advanced and it was also proved that the AO was not able to come to a correct conclusion in above cases that interest-free loans had been diverted to these persons. On the contrary, the assessee was able to justify that he had huge surplus capital of his own and to that extent, he could have easily diverted. It was also submitted by the assessee that the assessee had received advance of ₹ 60,51,559 from the customers on which no int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s advanced by the learned counsel for the Revenue and in our view this is also a finding of fact as recorded by the Tribunal as well as CIT(A). It is not disputed that the assessee had an opening capital of ₹ 1.42 crores at the beginning of the year and ₹ 1.88 crores at the end of the year. It is also an admitted fact that the assessee had trade credits to the extent of ₹ 1.57 crores on which no interest was being paid. It is also an admitted fact that the assessee had received more than ₹ 60 lacs as advance from the customers on which no interest was paid. Therefore, when to this magnitude on which no interest was payable, the AO was not justified in disallowing interest. Further apart from it the assessee has been able to prove that the assessee had trade dealings with M/s Tirupati Pulses (P) Ltd. to whom it is alleged by the AO that the assessee advanced more than ₹ 80 lacs. It is an admitted position that the assessee made purchases to the tune of ₹ 21,24,06,662 from M/s Tirupati Pules (P) Ltd., which is based on the audit report and advances, if any, were towards the aforesaid purchases made by the respondent/assessee. So there was no occasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should examine the purpose for which the assessee advanced the money and what the sister-concern did with the money. That the borrowed amount is not utilized by the assessee in its own business but had been advanced as interest-free loan to its sister-concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits. 16. The Delhi High Court in the case of CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377 (Delhi) has held that once it is established that there was nexus between the expenditure and the purpose of the business, Revenue cannot justifiably claim to put itself in the armchair of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving paid interest on overdraft facilities, it should not make any interest-free advances to its sister-concern. However, it was found as a finding of fact that the assessee had got interest-free advances from its customers and had reserve and share capital sufficient to cover the advances to the sister-concern and accordingly held that the assessee had sufficient amount of money towards share capital, surplus and reserve as also interest-free advances by the two companies, thus the interest-free advances made to the sister-concern were fully covered from the interest-free advances which were share capital, surplus and reserve with the respondent-assessee. 20. The Madras High Court (sic) Supreme Court in the case of Munjal Sales Corpn. v. CIT [2008] 298 ITR 298 (SC) held as under : As stated above, for the asst. yr. 1992-93 and the asst. yr. 1993-94, the Tribunal held that the loans given to the sister-concerns were out of the firm's funds and that they were advanced for business purposes. Once it is found that the loans granted in August/September, 1991 continued upto the asst. yr. 1997-98 and that the said loans were advanced for business purposes and that interest paid there ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
