9911796707
TMI Blog2022 (4) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... assed u/s 250 on 29-06-2018 for A.Y.2014-15 by CIT(A)-10, Abad, upholding the disallowance of interest expenses of Rs. 18, 84,000/- is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding that the amount of Rs. 1,76,78,048/- due from Kadamb was not outstanding sale price but loans & advances so that interest to the extent of Rs. 18,84,000/- was incurred for non-business purposes and as such it was not admissible. 2.2 That in the facts and circumstances of the case as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of which, the assessee received Rs. 20 lakhs only but the assessee has not received the balance amount and the sale agreement is pending. The assessee further submitted that this amount actually represents 'debtor' but inadvertently shown as 'loan and advances' and hence the assessee did not charge any interest. The ld. Assessing Officer noted that assessee has not submitted that any supporting evidence in this regard to show that the above amount shown as 'loans and advances' to Kadam is actually a 'debtor' towards sale of Kadam Residency and inadvertently shown under the head 'loans and advances' and therefore the claim of the assessee cannot be accepted. The ld. Assessing Officer accordingly held that assessee has diverted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h flow in this year, the question of charging interest did not arise. The ld. CIT(A) dismissed the appeal of the assessee holding that the expenditure u/s. 36(1)(iii) of the Act is allowable if the borrowed fund is utilized for the purpose of business. In the present facts, since the assessee has been paying interest @ 12% on loans accepted, interest expenses in proportion to the funds diverted for non-business purposes amounting to Rs. 18,84,000/- was correctly disallowed and added to the income of the assessee by the Assessing Officer u/s. 36(1)(iii) of the Act since the same is not incurred wholly and exclusively for the purpose of business. While dismissing assessee's appeal, Ld. CIT(A) observed as below: "3.4. The appellant has state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been given from the interest free surpluses. Where the money borrowed was diverted for giving interest free loans, the proportionate interest attributable to such loans could be legitimately disallowed by the Assessing Officer. It was so held in S.A. Builders Ltd. v. CIT(2004) 269 ITR 535 (P&H). Further, this view was accepted in CIT v. H.R. Sugar Factory Pvt. Ltd. [1971] 187 ITR 363 (All) in a case, where money was borrowed for purposes of business, but advanced at a concessional rate to its directors, so that the High Court upheld the inference of the Revenue to disallow the amount to the extent of difference in interest rates, though the Revenue was not able to establish the identity of the funds allegedly diverted. This aspect is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receivables". Further, the appellant had received only Rs. 20 lakhs through cheque and the balance was debited to his account being sale proceeds of land followed by expenses towards hardware, steel, electricity etc. In brief, there was no cash outflow, inter alia, to that extent and there was mere journal entry passed. Ld. Counsel for the assessee invited our attention to pages page 39, 50 and 53 of the Paper-Book in support of his contention that the said amount was a mere journal entry and further subsequently, the said property was sold to third parties since Kadam could not pay the balance agreed consideration and initial sale arrangement had to be recalled. In response, Ld. Departmental Representative relied on the observations of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head "loans and advances" instead of "trade receivables", section 36(1)(iii) of the Act cannot be invoked. We note that Ld. CIT(A) has not at all discussed or analyzed on this aspect of the issue in his order, despite the assessee having argued on these lines. However, we also note that the Ld. Counsel for the assessee has not been able to bring any evidence on record to substantiate that the earlier sum of Rs. 20,0,000/- was received on account of sale of Kadam Residency (either before us or before the Ld. Assessing Officer or Ld. CIT(A) during the course of assessment / appellate proceedings). The Ld. Counsel for the assessee has only relied on the ledger account of Kadam in the assessee's books to explain the entire transaction with K ..... X X X X Extracts X X X X X X X X Extracts X X X X
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