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TMI Blog2017 (5) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... f facts of the case are that the assessee has paid interest amounting to Rs. 37,53,220/- to the bank on the borrowed capital. In the profit and loss account, the assessee has debited net interest of Rs. 33,87,491/- and shown the interest received amounting to Rs. 3,65,729/-. The assessee has given interest free advances to the persons referred u/s.40A(2)(b) of the Act for which the list has been reproduced by the Assessing Officer at page 2 of his order and accordingly the interest attributable to such advances @12% per annum which worked out to Rs. 21,30,898/- has been disallowed by the Assessing Officer. 4. Learned CIT(A) confirmed the action of the Assessing Officer by holding as under: "4.4 I have carefully considered the appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the present case the issue is to be looked into in view of the ratio laid down by the Jurisdictional High Court in CIT Vs. Abhishek Industries Ltd. (supra). The plea of the learned A.R. for the assessee was that some of the said advances were made in the earlier years, against which no interest was disallowed in the aforesaid years, though the assessments were completed under section 143(3) of the Act, hold no force. Even where the interest free advances were made in the earlier year and the assessee incurs the liability of interest expenditure on secured loans in the later years, the interest relatable to such interest freee advances is to be disallowed in view of the principle laid down by the Hon'ble Punjab & Haryana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 04.08.2006]. On that basis, it has held that when loans were taken from the banks at which interest was paid for the purposes of business, the interest thereon could not be claimed as business expenditure. We are of the opinion that such an approach is clearly faulty in law and cannot be countenanced. Insofar as loans to the sister concern/ subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of 'S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) and Another' [2007 (288) ITR 1 (SC)]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner:- "26. The expression "commercial expediency" is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is wider in scope than the expression "for the purpose of earning profits" vide CITv.Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd. '[2002 (254) ITR 377] wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-1994 was Rs. 1.91 crores whereas the loan given to the sister concern was a small amount of Rs. 5 lakhs. In our view, the profits earned by the assessee during the relevant year were sufficient to cover the impugned loan of Rs. 5 lakhs." 7. From the facts of the present case and the decisions of Hon'ble Supreme Court referred to hereinabove essentially there has to be a commercial expediency or there has to be interest free funds with the assessee and the decision of Abhishek Industries is not a good law in view of the decision of Hon'ble Apex Court referred to hereinabove. Since, the earlier year advances have been accepted in the preceding years and no interest on the same has been disallowed, therefore, no disallowance in the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the Revenue as a good debt in a particular year cannot subsequent be held by it have become bad prior to that year." 8. The said decision has also been followed by Hon'ble Jurisdictional High Court in the case of CIT vs. Givo Ltd in ITA No.941/2010 (Del) dated 27.7.2010 and the relevant decision is reproduced hereinbelow: "4. We are of the opinion that as in past assessment years, the interest expenditure had been allowed, it was not open to the Assessing Officer to disallow the said expenditure in the year under consideration. The Karnataka High Court in Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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