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TMI Blog2017 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... should be drawn. The assessee is, therefore, able to explain that interest free loans have been advanced to sister concern for business expediency. The assessee also pleaded before authorities below that Assessing Officer has not proved any nexus that interest free advances were made out of borrowed funds. Disallowance of interest under section 36(1)(iii) of the Act is not justified. - Decided in favour of assessee Addition u/s 40A(2)(b) - Held that:- The assessee filed chart of interest paid to the same persons on unsecured loans to show that in preceding two assessment years, the rate of interest paid to them was at 8%. The ld. CIT(Appeals) confirmed the addition because assessee paid interest to the banks ranging between 12 to 15%. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,96,246/- under section 36(1)(iii) of the Income Tax Act. The Assessing Officer observed that assessee firm had given interest free advance to its sister concern M/s B.S.W. Tools Pvt. Ltd., Ludhiana and M/s Synergy Tooling Solution. The assessee was asked to explain why interest not charged from both the sister concerns to whom advance was given without any business expediency during the year while assessee has paid interest of ₹ 15,98,468/- on unsecured and secured loans during the year. The assessee submitted that advance have been given to the sister concern for business purposes. The Assessing Officer was not satisfied with the explanation of the assessee and held that expenditure was not for the purpose of earning Income but onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT Vs Glaxo Smithkline (Asia) Pvt. Ltd. 236 CTR 113 in which it was held that, Where there is a revenue neutral, no adverse inference should be drawn . The ld. CIT(Appeals), however, did not accept contention of the assessee and noted that advance was given to the sister concern who stood guarantee for the assessee. The assessee has failed to discharge the burden of proving commercial expediency. The ld. CIT(Appeals) also noted that assessee contended that Assessing Officer has not proved any nexus that interest free advances were made out of borrowed funds. The ld. CIT(Appeals) rejected this contention of the assessee in view of the judgement of the Hon'ble Punjab Haryana High Court in the case of CIT Vs Abhishek Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) in para 17 held as under : 17. The Assessing Officer's view that the advance was not for business purposes as the appellant had no business dealings with the sister company is erroneous. Commercial expediency in advancing loans does not arise only on account of there being transactions directly between the holding company and the subsidiary company or between the group companies inter se. The two companies may even be in a different line of business. It would make no difference. It would still be commercially expedient for one group company to advance amounts to another group company, if, for instance, as a result thereof the former benefits. In the present case, as we have already demonstrated, there would be a direct be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been over-ruled by Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. 379 ITR 347 in which it was held that, Advance given to sister concern for business expediency, no disallowance should be made under section 36(1)(iii) of the Act . 9. Considering above discussion, I am of the view disallowance of interest under section 36(1)(iii) of the Act is not justified. I, accordingly, set aside the orders of authorities below and delete the addition. This ground of appeal of the assessee is allowed. 10. On ground No. 2, assessee challenged addition of ₹ 2,29,863/-. The assessee is engaged in the business of dealing of tools. The Assessing Officer noted that assessee has debited to its Profit Loss Account and amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shall have to give securities to the satisfaction of the bank but in the case of unsecured loan, no such formality and guarantee/security shall have to be given. The Assessing Officer has also not make out a case of unreasonable payment of interest, as regards the facilities available to the assessee. Therefore, considering history of the assessee that assessee paid interest @ 18% to the same parties in preceding assessment years, I do not find it to be unreasonable or excessive interest paid. I, accordingly, set aside the orders of authorities below and delete the addition. 12. In the result, this ground of appeal of the assessee is allowed. 13. In the result, appeal of the assessee is allowed. Order pronounced in the Open Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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