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TMI Blog2022 (2) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... business purposes. Payment of interest on the loans which have not been proved to be for business purpose and the waiver of the loan are not interrelated but are mutually exclusive In the instant case, the expenditure of interest for which the loan has been received has not been shown to be for the purpose of the business. We are not swayed by the observation of the Assessing Officer that earlier year, no interest has been paid but interest has been paid in the current year only. Even, before us, no evidences have been provided to prove that the loan received earlier was utilized for the business purpose which makes the interest paid or payable allowable under the provisions of Section 36(1)(vii). The arguments that there was no outgoing fund on the contrary, the assessee was a net gainer in form of waiver cannot be considered as a tenable claim.- Decided against assessee. - ITA No. 5846/Del/2018 - - - Dated:- 8-2-2022 - A. D. Jain , Vice President And Dr. B. R. R. Kumar , Member ( A ) For the Appellant : A. K. Khanna , CA For the Respondents : Alka Gautam , Sr. DR ORDER Per Dr. B. R. R. Kumar , Accountant Member The present appeal has been filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15 when loan was already with the company from previous year as well and whether interest was actually paid or not. The assessee was also asked to explain why the provision of the agreement specifically contained interest payment only for assessment year 2015-16. In response, it was submitted that interest at the rate of 10% was charged on outstanding balance after waiving of loan of ₹ 6,61,33,424/-. Since, the assessee did not have any income in the last four years, no interest was charged by Matrix Cellular Services International and that the assessee paid interest of ₹ 96.98 lakhs settlement account with Matrix Cellular Services International. It was also submitted that interest was legitimately paid for business purpose and tax was deducted at source. The AO noted that the assessee had not shown any revenue from operations even for the present assessment year and thus there was no change of circumstances with respect to earlier years. 5. The Assessing Officer observed that the contention of the assessee was not substantiated as assessee had failed to furnish justification as to on which account the interest was actually incurred in the year and also failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r working viability of Domestic business it was decided to form separate company Matrix Cellular International Services Pvt. Ltd. to exclusively do the business of foreign network SIM card thus Matrix cellular International Services Pvt. Ltd. was formed on 17.11.2005 to do business of International SIM cards for travelers outside India. The Company Matrix Cellular (International) Services Pvt. Ltd. in short MCIS Was Utilizing infrastructure and brand image of Matrix Cellular and started making good profits from very 1st year itself. In the mean while the profit liabilities of Matrix Cellular Services Pvt. Ltd. in short MCS started going down due to cut in the commission and down ward charges of Domestic cell phone. Since the infrastructure was common MCS could not reduce overhead as it would have affected the business of MCIS. This could be verified with MOU between MCS MCIS Matrix Cellular. International Services Pvt. Ltd. and Matrix Cellular Services Pvt. Ltd. entered into a MOU on 1st April 2008 for sharing of expenses for utilization of common premises, services and manpower infrastructure. In the processed MCIS advanced money to MCS for meeting business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest of the assessee. The learned Assessing Officer has failed to appreciate note 29 to the Balance Sheet of Matrix Cellular International Services Ltd. which reads as under the company has in financial year March 2012 created a provision of ₹ 66.13 million towards loan considered doubtful of recovery. The Company in financial year ended 31st March 2014 had received ₹ 70 million from MCS (assessee). Further during the year financial year ended 31st March 2015, the company received ₹ 112.10 million towards repayment of loans and interest for the period 1st April 2014 to 31st March 2015 and has written off the provision of ₹ 66.13 million made during financial year 2011-12 also shares held under escrow have been released. The Interest amounts till 31st March 2014 have been waived off by the Board of Directors. Thus, the interest upto 31st March 2014 have been waived off by MCIS the same was not claimed as expenditure by the assessee. As per MOU between assesses and matrix Cellular International Services Ltd. dated 5th June, 2013, it was clearly mentioned that the assesses had to pay compound interest of 10% on outstanding, loan of ₹ 17,70,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,25,64,553/-. It is to be noted that the interest on such loans and advances is less than 5%, whereas interest has been paid almost @10% on the loan taken. Further, the assessee has also failed to demonstrate the fund flow for paying of the loan on taking the loan from director. No cogent evidence has been submitted as to how the loan taken as well as the loan given was for business purposes. 13. The assessee relied on the case of CIT Vs. Dhanrajgirji Raja Narasinghgirji 91 ITR 544 (SC) wherein it was held that the department cannot prescribe what the expenditure assessee should incur. In the instant involves the issue whether the expenditure incurred was for business purpose or not, which has not been proved by the assessee. The decision of the Hon'ble High court in the case of Dalmia Cement 254 ITR 377 dealing with the issue of Section 37(1) allowances held that there was a nexus between expenditure and the purpose of the business. In the instant case, the expenditure of interest for which the loan has been received has not been shown to be for the purpose of the business. We are not swayed by the observation of the Assessing Officer that earlier year, no interest ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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