9911796707
TMI Blog2019 (12) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... er-concerns has an impact on the business / goodwill of the assessee. The assessee in this case has not been able to prove with necessary evidence that the failure of the business of the sister concern has an impact on the assessee. The assessee has not been able to prove that there is commercial expediency in diverting interest free funds to the sisterconcerns when assessee was paying huge interest on its borrowings - Therefore, the interest expenditure to the extent of funds diverted to sister concerns has been rightly disallowed by the A.O. Disallowance of interest by invoking the provisions of section 40(a)(ia) of the I.T.Act - HELD THAT:- Admittedly, the loans were advanced by the Directors of the assessee-company. As per the assesseec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 20,90,000 u/s 36(1)(iii) and ₹ 25,25,000 u/s 40(a)(ia) of the I.T.Act. 3. Aggrieved by the order of assessment, the assessee filed an appeal before the first appellate authority. The CIT(A) dismissed the appeal of the assessee vide impugned order dated 15.03.2019. 4. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal, raising following grounds:- "1. The order of the Commissioner of Income Tax (Appeals) is against law. 2. Commissioner of Income tax (Appeals) erred in disallowing interest on borrowings amounting to ₹ 20,90,000 as incurred towards non business purposes. The Commissioner of Income Tax (Appeals) failed to appreciate the fact that the appellant had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as on 31.03.2012 and audited accounts of various sister concerns etc. We shall adjudicate the issues raised as under: Disallowance of interest paid amounting to ₹ 20,90,000 on account of diversion of funds to sister-concern. 6. The only contention raised before us is that the advances were made to sister-concern out of commercial expediency and hence no disallowances can be made for the interest expenditure. The Assessing Officer had rejected the claim of the assessee by observing as under:- "Now, the question of "commercial expediency". The test of commercial expediency is not whether the property of sister concerns will be attached, thereby damaging the goodwill of the group. Instead, the test of commercial expedienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant on the issue of "commercial expediency" and hence, the ground raised on this issue is dismissed." 6.2 The contentions raised before the Tribunal by the assessee read as follows:- "The advance to sister concern was out of commercial expediency. The assets of the company and guarantee of the directors for common for all the concerns including sister concerns. The advances were on account of transfer by the bank to clear the loan outstanding of the sister concern. The AO as well as CIT(A) failed to appreciate that the failure of the sister concerns to pay the bank dues would have affected the goodwill of the whole group and thus the commercial expediency was clearly established. The disallowance of ₹ 20,90,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that there is commercial expediency in diverting interest free funds to the sisterconcerns when assessee was paying huge interest on its borrowings. Therefore, the interest expenditure to the extent of funds diverted to sister concerns has been rightly disallowed by the A.O. Therefore, Ground No.2 raised is rejected. Disallowance of ₹ 25,25,000 u/s 40(a)(ia) of the I.T.Act. 7. The Assessing Officer disallowed interest of ₹ 25,25,000 by invoking the provisions of section 40(a)(ia) of the I.T.Act. It was noticed by the Assessing Officer that the assessee had taken loan from its Directors amounting to ₹ 2.03 crore and interest on such loans was ₹ 25.25 lakh. On the interest paid amounting to ₹ 25.25 lakh, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised this issue before the Tribunal. In the brief written submission, the assessee has contended as follows:- "The Commissioner of Income tax(Appeals) went wrong in disallowing interest paid to banks amounting to ₹ 25,25,000 for non-deduction of tax at source. The Commissioner of Income tax (Appeals) failed to appreciate the fact that the though the loans were granted in the names of directors, the funds were immediately transferred to the assessee company and the interest and repayments were also made by the company directly into the loan account with the bank. Banks were not able to extend further loans in the name of the company due to various restrictions and hence the loans were granted in the names of the directors. The loan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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