9911796707
TMI Blog2024 (12) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed by the act and the deeming fiction of section 68 have been invoked only on the basis of non-furnishing of tax returns and bank statement of lenders. 2. Whether on the facts and circumstances of the case, the learned First Appellate Authority was justified in endorsing disallowing of interest income of Rs. 74,32,292/-. 3. Whether on the facts and circumstances of the case, the learned First Appellate Authority was justified in endorsing disallowing on interest expenses of Rs. 97,66,208/-. 4. Appellant craves leave to add or alter any other ground that may be taken at the time of hearing." 3. Ground no.1, relates to unexplained cash credits amounting to Rs. 5,20,84,000. 4. During the scrutiny assessment, the Assessing Officer noted that the assessee is in receipt of new unsecured loans from various individuals and entities which were reflected in the books of the assessee. Hence, the Assessing Officer sought to verify the genuineness, creditworthiness, and identity of the creditors from whom these loans were reportedly received. The Assessing Officer had directed the assessee to provide comprehensive documentation for all creditors. This included detailed contact inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was unable to discharge this burden satisfactorily. Therefore, the addition of Rs. 5,20,84,000, as unexplained cash credit under Section 68 of the Act was upheld by dismissing the ground raised by the assessee. 7. Ground no.2, relates to disallowance on account of interest amounting to Rs. 97,66,308. 8. The Assessing Officer noticed that the assessee failed to provide adequate documentation to prove that the interest expenses were incurred solely for the purpose of business. The linkage between the borrowed funds and their utilization in business activities was not substantiated satisfactorily. The interest expenses might not have been wholly for the purpose of business. For the reasons, the addition of Rs. 97,66,308, was made to the total income of the assessee. 9. The learned CIT(A) observed that the borrowed funds were used for non-business purposes, such as providing interest-free loans to related parties weakens the case for a business deduction as per income tax laws. The learned CIT(A), based on the examination of the documents furnished and the legal framework, the Assessing Officer's decision to disallow the interest expenses totalling to Rs. 97,66,308, was upheld, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed. The burden of proof to establish a direct and justifiable link between the expenditure and the income purportedly earned was not adequately met by the appellant. The importance of maintaining meticulous and compliant accounting records is reiterated to uphold the integrity of tax claims." In effect, all the three grounds were dismissed. 12. The learned Counsel, Shri Mahavir Atal, appearing for the assessee, furnished a detailed written submissions contained in Paper Book from Page-221 to 242, which are reproduced below:- "The Assessee is an individual running a jewellery business under the proprietorship concern M/s Khandelwal Jewellers. The assessee is engaged in this line of business for 5 decades. 1. Addition of Rs. 5,20,84,000 as unexplained cash credit under section 68 1.1. The assessee's proprietorship concern is almost 5 decades old concern. Considering the new model of business, it was decided to incorporate a new private limited company. Accordingly, a new private limited concern, named M/s Khandelwal Jewellers Akola Private Limited ("KJAPL") was formed, wherein all the shares are held by the assessee's family. Therefore, gradually from 2012, the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans were taken for the purpose of business. Your kindness may appreciate that the said loans were advanced to Flagship Company of the group, KJAPL, where most of the business is done. The assessee has submitted requisite ledgers and scan copy of the bank statements to substantiate that the said funds were indeed advanced to the private limited company which was further used for the business purpose. g) Copy of bank statements of lenders:- The assessee had humbly submitted before the AO that these details being personal details, the lenders are not ready to provide their personal and financial details to us. In this regard, we humbly wish to submit that your kindness has a right to issue summon and enforce the attendance of the parties. As far as bank statements of the assessee is concerned, the assessee has submitted the bank account statements of the assessee's both business and personal accounts highlighting the loans received from these parties and also the loans repaid back to the parties. h) Copy of ITRs of lenders of last 3 years:- Time and again it has been held by the courts that the tax returns are in the realm of personal details of the tax payer and same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and TDS returns are enclosed for your kind perusal. These parties have also reported income and claimed benefit of TDS credit. The assessee had discharged his onus with respect to proving the identity and genuineness of the transaction. With respect to the creditworthiness, the assessee has had also submitted all the details available with the assessee. However, the assessee was not in a position to submit the personal details of the lenders as they were not ready to share the same. k) Copy of ledger accounts of all the lenders and copy of confirmations of transactions by the lenders:- In this regard we humbly wish to submit that the assessee had submitted the ledger account of almost all the lenders of loans from the date of receipt of loan till its repayment and the confirmations of these parties also before the AO. 1.2. Even after the submission of the above extensive documentation, the AO has not accepted the reply of the assessee. The fact which deserves to be appreciated is that the AO has disputed assessee's submission that these transactions are in the realm of loan. 1.3. In para 6.7 of the assessment order, the AO has mentioned that the assessee had not submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter deducing TDS on interest. 1.8. Moreover, the assessee had duly deducted and paid TDS on the interest amount. During the year under consideration, the assessee has neither purchased any capital asset nor undertook any big expenditure, like marriage, house construction or foreign trips. The borrowed funds were utilized in Khandelwal Jewelers Akola Private Limited, as the jewelry is a very capital-intensive business and the business man has to invest a majority of its funds, in the stocks of jewelry. 1.9. The assessee had discharged his onus by submitting the requisite documents available with the assessee. It is a well settled Law that assessee need not prove source of the source. For this jurisprudence we rely upon the Judgment of the Hon'ble Delhi High Court in the case of CIT vs., Dwarkadhish Investment Pvt. Ltd., [2011] 330 ITR 298 (Del.) and Judgment of Hon'ble Gujrat High Court in the case of DCIT vs., Rohini Builders [2002] 256 ITR 360 (Guj.). 1.10. In a recent similar case before Ahmedabad Tribunal in the case of M/S Hindon Forge Ltd Vs DCIT (Del) (Trib) dated 03/12/20, the Hon'ble tribunal has relied on the case laws relied upon by the assessee and allowed the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthiness of sub-creditors for these aspects may not be within special knowledge of assessee." 1.14. In a case before Hon'ble Delhi High Court in the case of CIT vs. Mod Creations Pvt. Ltd., (2013) 354 ITR 282 (Del.) it was held as under : 1.15. The Hon'ble Delhi High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR 220 (Del.) held that - "The Tribunal has adopted an erroneous approach on the aspects of genuineness of the transactions in issue and the creditworthiness of the persons/creditors who lent money to the assessee. The first aspect, i.e., identity of the creditors was established before any of the authorities below. It will have to be kept in mind that section 68 only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. It cannot but be again said that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income directly. The AO has also stated that no evidences have been furnished in order to prove that the loans claimed to be received in individual capacity were used for business purpose. 2.4. With all humbleness we wish to submit that the assessee, maintains two set of accounts, one is for the proprietary concern (Khandelwal Jewelers) and the other is for the individual personal account. As already mentioned above the assessee has formed a new private limited company named as M/s Khandewal Jewellers (Akola) Private Limited. As and when there is an urgent requirement of funds to the company, funds were transferred to the aforementioned company from the CC Account of M/s Khandelwal Jewelers (proprietorship Concern). However, when CC is utilized, the assessee borrowed in his personal capacity from the market and then same is advanced to the aforementioned private limited company. This fact can be verified from the bank statement of the assessee, KJAPL and the ledger of the assessee in the books of KJAPL. 2.5. As your kindness can figure out that the assessee is already under lot of debt, sometimes, to honor the old repayment of loans, which were earlier advanced to KJA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,000 22 Pranita N Khandelwal 207,785 20,779 23 Pratik R Khandelwal 130,592 13,059 24 Pushpa M Rathi 67,513 6,751 25 Radheshyam M Chandak 30,417 3,042 26 Rajshree Anil Chandak 24,333 2,433 27 Ravindra M Khandelwal (HUF) 2,192,604 219,260 28 Sau. Asha A Agrawal 84,000 8,400 29 Sau. Rupa P Agrawal 15,600 1,560 30 Sudhir M Rathi (HUF) 67,920 6,792 31 Tisha Anand Manwani 10,333 1,033 32 Veena R Chandak 30,417 3,042 33 Interest on Late Payment of TDS 24,711 - Total 7,432,291 740,352 2.9. Since, the finds borrowed have been used for the purpose of business and the assessee has duly complied with requirements of deducting TDS. We humbly request your kindness to please delete the disallowance made by the AO. 3. Disallowance of interest to the tune of Rs. 97,66,308/- 3.1 In this regard we humbly wish to submit that the assessee has debited an amount of Rs. 97,80,891/- towards interest paid account for the year under consideration in the profit and loss account. Out of this interest amount, interest of Rs. 53,23,055/- is the interest paid by assessee towards the Cash Credit Limit availed by the assessee and the remaining interest of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goenka & Co 1,23,450 12,345 49 Tulsiram R Goenka 87,667 8,767 50 Uday Traders 71,300 7,130 51 Umesh Laxmikant Agrawal 14,408 1,441 52 Vimlabai R Khandelwal 31,867 3,187 53 Vinodkumar Nathmal Goenka HUF 15,333 1,533 54 Khandelwal and Agrawal Jewellers 13,04,345 1,30,435 55 TJSB Saharaki Bank Ltd 53,23,055 - Total 97,80,891 4,44,698 3.2 The AO has disallowed the entire expenses by stating that interest bearing funds was used for non-business activity. In this regard we humbly wish to submit that the interest-bearing funds i.e., secured as well as unsecured are used for business of the related concern (i.e.) private limited company Khandelwal Jewellers Akola Private Limited. 3.3 The term for business purpose, used in the section 36(1)(iii) & Section 37 have been interpreted by the Hon'ble Supreme Court in the landmark judgment of SA Builders 288 ITR 1 (SC). "In Madhav Prasad Jatia v. CIT AIR 1979 SC 1291, the Supreme Court held that the expression 'for the purpose of business' occurring under the provision of section 36(1)(iii) is wider in scope than the expression 'for the purpose of earning income, profits or gains', an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,80,891/- and Rs. 74,32,292/-on the grounds of commercial expediency:- 4.1 With all humbleness we wish to submit that -"the expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it is incurred on grounds of commercial expediency." This was observed by the Hon'ble Supreme Court in case of C.R. Auluck & Sons Pvt. Ltd. (ITA No.915/Chd/2008). 4.2 In the present case, M/s Khandelwal Jewellers Akola Private Limited is engaged in the retail trade of jewellery business. The Assessee is a director and shareholder in M/s KJAPL and derives dividend, salary and commission income from such company. As the company is in a dire need of funds, no dividend is declared during the year. 4.3 The assessee has made investment in the company for the purpose of earning the income from the investment either in the form of interest or in the form of dividend or capital gain. Therefore such an advance was clearly given by the assessee for the purpose of commercial expediency. * 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made profit out of such expenditure or not. For claiming deduction u/s 57(iii) of the income tax act it would be sufficient to prove that there is nexus between the income which will be earned and amount expended. Therefore, here in the case of the assessee as all the requirements for claiming deduction u/s 57(iii) of the income tax act, 1961 are fulfilled, assessee has legally claimed deduction u/s 57(iii). 4.7 Further, I humbly wish to submit the fact that any advance made to the related/sister concern out of commercial expediency is also allowable under section 36(1)(iii), section 37 and section 57(iii) of the income tax act, 1961. The landmark judgment on this issue, which explains the entire gamut of provisions is that of the Hon'ble Supreme Court in SA Builders Limited's case 288 ITR 1 (SC). 4.8 In the above-mentioned case, the issue was whether an assessee, who had borrowed funds carrying interest and advanced part thereof to its sister concern on interest free basis, can claim deduction to that extent. In the aforesaid case, Hon'ble the Supreme Court opined that the tax authorities must not look at the matter from their own view point but that of a prudent b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad))." 4.10 This year our company has already witness lockdowns for almost 6 months. Because of cash crunch and being a non-essential item, the general public has refrained from purchasing and investing in gold. With the business being highly under debt stress and lockdowns, it is becoming very difficult to even fulfill daily fixed cost like EMI, salaries and therefore, it is our humble request that any further tax demand will certainly push assessee in a deeper financial trouble as the business is already on the brink of closure. We are ready to co-operate and furnish all the possible documents for your kind perusal. We humbly request a practical and pragmatic stand may be taken." 13. On the other hand, the learned Departmental Representative, Shri Sandipkumar Salunke, appearing on behalf of the Revenue prayed that the authorities below have correctly came to the conclusion which need not be interfered with as the assessee miserably failed to prove the creditworthiness. 14. We have heard the arguments of rival parties, perused the material available on record and gone through the orders of the authorities below. As regard the issue of cash credit, it is on record that the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the Revenue observing, inter alia, as under "15. We find that the Ld. CIT(A) after considering the submission of assessee further noted that all the advances were repaid by assessee within the same financial year ie, most of the case within 30 days. The repayment was verified from the ledger account and the bank statement. The Ld. CIT(A) on relying on the decision of Jurisdictional High Court in Ayachi Chandrasekhar Narsangji (supra). wherein it was held that when loan amount has been repaid by the assessee in the immediately next year and the Department has accepted the repayment of such loan without proving it, no addition can under section 68 can be made, deleted the entire additions. During the hearing, the L.d. AR for the assessee vehemently argued that the assessee received the said amount during the course of its business activities and the amount was return either within one or two days or in a span of very short period, for which the provisions of section 68 cannot be invoked. We find the Ld. AR for the assessee filed following summary of impugned deposits and refunds; Sr. no. Details of payers Details of trade advance received Details of trade advance repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Heard learned advocate Mr.Karan Sanghani for learned advocate Ms. Kalpana Raval for the appellant and learned advocate Mr. Tej Shah for the respondent. 9. Having considered the submissions advanced by learned advocates for the respective parties and the orders impugned in this appeal, what is evident is that the amount of loan received by the assessee was returned within the same financial year and in most of the cases within 30 days. The said repayment was also verified from the Ledger Account and the Bank Statement. 10. In view of aforesaid undisputed fact with regard to repayment of loan, at this juncture, it would be pertinent to take note of decision of this Court in case of Dy CIT v. Rohini Builders [2003] 127 Taxman 523/120021 256 ITR 360 (Guj.), wherein it is held as under: "We have considered the rival submissions and have also gone through the order passed by the Assessing Officer. the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 [TR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non- compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, conveniently ignoring the fact that majority of loans were repaid during the current year and subsequent year and the assessee has duly paid interest and complied with TDS provisions. The A.O. erred in drawing negative inference based on non-response from few parties. Moreover, the A.O. only enquired from 10 parties out of 43. It was least expected from the Assessing Officer to at least verify the return of income of the lenders from their own database. Needless to say that in case of non-response, the Assessing Officer has all the powers to issue summons under section 133 of the Act and enforce attendance of the lenders. However, the said exercise was also not conducted by the Assessing Officer. 16. No enquiry was made by the Assessing Officer by issuing summons. Further, no incriminating evidences were brought on record to dislodge the materials relied upon by the assessee to prove the ingredients of section 68 of the Act. We are also fortified by the judgment of the Hon'ble Jurisdictional High Court in Gaurav Triyugi Singh v/s ITO, [2020] 423 ITR 531 (Bom.), wherein on similar issue the Hon'ble Court has observed as under:- "9. Though a number of questions have been propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cash with her since several years." 12. At this stage, it would be apposite to advert to section 68 of the Act, relevant portion of which reads as under: "68. Where any sum is found credited in the books of an assessee maintained from any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year........ 12.1 From a reading of section 68, as extracted above, it is seen that if an amount is credited in the books of an assessee maintained from any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer. satisfactory, the sum so credited may be charged to income tax, as the income of the assessee of the relevant previous year. 13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid discussion, we deem it fit in deleting the addition made by the Assessing Officer on account of cash credit to the extent of repayment of loans made by the assessee either in the same year or succeeding years. The Assessing Officer is directed to verify Identity, Genuineness and creditworthiness of the lenders for the balance loans. 18. The loans repaid subsequently cannot be treated as unexplained cash credit under section 68 of the Act following the ratio of above legal proposition. However, exact quantification of amount repaid is subject to factual verification. The Assessing Officer is directed to examine the summary as contained in Page-244 to 246 of the Paper Book furnished by the assessee, which is also reproduced below to easy accessibility:- RAVINDRA M KHANDELWAL ASSESSMENT YEAR 2018-19 DETAILS OF UNSECURED LOANS Sr.No Name PAN Loan Received Interest paid/payable during the year Received on Paid to Received in Bank A/c Remarks Paid in Next Year Paid From 1 Amarchand Omprakash Kasat ACZPK2356C 1,000,000.00 4,200.00 10.07.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India As per notice it is written as Rs. 1 Crores. This is repaid during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.07.17 & 09.11.17 Khandelwal Jewellers (Akola) Pvt Ltd & Nitin Khandelwal (5.00 L) Bank of India Repaid during the year 17 RG Udyog AAEFR2686M 5,500,000.00 144,767.00 10.07.17, 13.09.17 & 10.01.18 Khandelwal Jewellers (Akola) Pvt Ltd & RG Udyog (Repayment of Loan Rs. 10,00,000/-) Bank of India Repaid during the year Rs. 35,00,000 Repaid on 10-04-18 Bank of India 18 Radheshyam Biharilal Khandelwal ACDPK2000K 600,000.00 47,800.00 05.08.17 Shah Brothers (Repayment of Loan) TJSB Bank As per notice it is written as Rs. 60 Lakhs. - 19 Ravindra Gopidasji Mohata ABNPM3048C 500,000.00 14,250.00 14.07.17 R.G. Udyog (Repayment of Loan) Bank of India Repaid during the year 20 Ravindrakumar Harikisanji Chandak AEGP5407H 500,000.00 5,167.00 17.10.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India Repaid during the year - 21 SK Udyog ABIPA6090K 2,500,000.00 10,920.00 09.03.18 Ravindra M Khandelwal TJSB Bank Repaid during the year - 22 Sandip Tejpalji Shah AWDPS0483Q 500,000.00 27,191.00 16.10.17 Ravindra M Khandelwal Bank of India - Repaid on 18-06-18 TJSB Sahakari Bank Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 36 Vimlabai R Khandelwal BMVPK 6868 G 400,000.00 31,867.00 05.08.17 Khandelwal Jewellers (Akola) Pvt Ltd & Shah Brothers (2.00L) ((Repayment of Loan) TJSB Bank - - 37 Vinodkumar Nathmal Goenka HUF AAAHV6671C 500,000.00 15,333.00 18.10.17 Umesh L Agrawal (Repayment of Loan Rs. 5,00,000) TJSB Bank Repaid during the year - 38 JS Corporation AAAFJ8805E 2,000,000.00 8,167.00 30.08.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India Repaid during the year - 39 Ku. Shruti Ravi Khandelwal ECKPK8618C 35,000.00 19,470.00 06.07.17 - Bank of India Repaid during the year Rs. 85,500 - 40 Nitin M Khandelwal ACDPK2014R 565,000.00 3,602,112.00 28.02.18 Buldhana Urban Credit Co-op Society (Repayment of Loan) TJSB Bank Repaid during the year Rs. 1,44,35,000/- - 41 Prabla Manoj Shah AECPS 6991 Q 1,500,000.00 61,000.00 06.09.17 Khandelwal Jewellers (Akola) Pvt Ltd Bank of India Repaid during the year - 42 Pratik R Khandelwal HGBPK2211M 540,000.00 130,592.00 08.03.18 Vishwa Automotive Sales and Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity is As under:- Interest paid to parties 7427850 Interest paid to LIC 37517 Interest paid to Buldhana Urban Co-operative Credit Society 2726565 Total Interest Paid 10191932 Interest received from Khandelwal Jewellers (Akola) Pvt. Ltd. 545243 Interest received from Pawankumar Jagdishprasad Bachhuka 32200 Interest received from Prakash Narayandas Lodhiya 18133 Total Interest Received 595576 Balance interest paid in personal Books 9596356 Out of the above Rs. 74,32,292 has been claimed as interest paid for the purpose of business." 22. It is observed that the assessee has claimed an interest expenses of Rs. 74,32,292, over and above the interest claimed under section 36(1)(iii) of the Act. It was explained before the authorities below as well as before us that the said interest is allowable under section 57, as the borrowed funds have been transferred to the business concern for business exigencies. It was also explained that the borrowed fund were transferred to the related concern, who is also in the same line of business. However, related concern being a private limited company, as per the Companies Act, cannot borrow funds from the outsiders excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. One has to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount is advanced for earning profits. 25. It is not correct that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of commercial expediency even if the same is interest free, the deduction claimed by the assessee cannot be disallowed. Thus, ground no. 2, raised by the assessee is allowed. It is reiterated that the allowance of any expenditure is within the judicial periphery laid in the Act and mere non-recording in the books of account can hardly negate the claim. 27. Ground no3, relates to disallowance of interest expenses of Rs. 97,66,208, claimed under section 36(1)(iii) in the books of accounts. 28. It is important to appreciate the financial statements, wherein the application of funds, as contained in Page-27 of the Paper Book is also reproduced below for ready reference:- Particulars No. of Schedule Figures at the end of Current Financial year SOURCE OF FUNDS:- Promoter's Fund A Promotor's Capital A/c A 19405970.01 B Reserve & Surplus B 00 19405970.01 Loan Funds A Secured Loans C 9529106.16 B Unsecured Loans D 24746174.00 34275280.15 Current Liabilities & Provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the learned CIT(A) cannot be sustained because he has failed to highlighted about how the submissions of the assessee is fallacious. He failed to advert about the financial affairs which clearly demonstrates that the assessee has own funds to the extent of Rs. 1.25 crore. Thus, it is beyond any logic as to how the entire interest can be disallowed straightway. Moreover, out of the total interest of Rs. 0.97 crore, the interest paid by the assessee on cash credit of Rs. 0.53 crore is availed from Bank, which is undisputedly loan taken for business, which fact is examined and is not in dispute. Even for the balance interest, not even single instance of diversion of funds have been brought by the Assessing Officer. In the absence of any instance of diversion of funds, the interest claimed under section 36(1)(iii), which are part of audited books of account, cannot be disallowed. Thus the Assessing Officer is directed to delete the disallowance. Thus, ground no. 3, raised by the assessee is allowed. 31. As a result of the forgoing discussion, the appeal of the assessee is summarised below:- 32. Ground no.1, is allowed for statistical purposes. The Assessing Officer is directed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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