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TMI Blog2001 (6) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted along with the return of income. It has been noticed by the AO that the assessee-firm has not charged interest on loans/advances to Torrent Investment (P) Ltd. and Shri Kumar V. Parikh and hence interest at the rate of 12 per cent was disallowed last year. The assessee has not charged interest from Torrent Investment (P) Ltd. in the current year (year under appeal) and hence the question of disallowance of interest does not arise. As regards interest in respect of Shri Kumar V. Parikh, it is stated that he was absent from India and the firm was not able to make any contact with him. The AO did not accept the argument of the assessee for detailed reasons given in earlier order for asst. yr. 1989-90. The AO noted certain loans and advances on which interest was not charged by the assessee. It was explained by the assessee before the AO that advances noted by him were of the nature of funds provides to the family members and it was the usual practice to provide such funds as and when necessary without charging interest. The AO rejected the argument of the assessee on following reasoning: "(i) The business of the assessee is financing i.e. to take deposits from the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 12,394 5,000 300 12,694 2. Anita S. Mehta 1,44,555 23,841 (-)15,000 - 23,842 3. U.N. Mehta 23,040 - - HUF No. 2 1,92,000 23,040 4. U.N. Mehta HUF 1,133 136 22,702 2,589 2,725 5. Samir Printers 3,03,705 32,154 2,75,000 15,000 47,154 -------------------------------------------------------- Total A 7,44,673 91,565 3,02,702 17,889 109,455 -------------------------------------------------------- 6. Sapanaben S. Mehta - - 50,000 3,863 3,863 7. M.S. International - - 1,14,200 1,206 1,206 8. Kumar B. Parikh 5,34,549 59,600 - - 59,600 -------------------------------------------------------- Total B 5,34,549 59,600 1,64,200 5,069 64,669 Total A+B 12,79,222 1,51,165 4,66,902 22,958 1,74,123 ---------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 165 (Kar) "Assessment-Consistency and definiteness of approach by Revenue necessary-Nature of account of assessee-Assessee advancing certain sums to another firm having common partners free of interest-Assessee paying interest on money borrowed-In past years assessee's claim for deduction of interest paid allowed on the assumption that those advances were not out of borrowed funds-Advance to firm shown on first day of accounting year excluded for purpose of computing disallowance of deduction-Justified." 8. The first contention of the learned authorised representative will not help the assessee as the issue under consideration is that interest bearing borrowed funds have been diverted partly for non-business purposes. In respect of second contention, it is relevant to refer the judgment of Madras High Court, K. Somasundaram Bros. vs. CIT (1999) 153 CTR (Mad) 153 : (1999) 230 ITR 939 (Mad). It has been held in that case that interest on borrowings is allowable as deduction only when the borrowings are used for the purpose of business, and continue as such. Where the assessee paid interest on borrowings for use in his business but later on interest-free advances are given to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year under appeal. Under the circumstances the AO rightly disallowed Rs. 1,74,123 as fund borrowed on which interest paid was not for the purpose of business of the assessee. The learned Departmental Representative vehemently argued that the case of assessee under appeal is not a case of taxing of notional income but it is a case of accrual of interest. He relied on the order of AO and referred two judgments CIT vs. H.R. Sugar Factory Ltd. (1990) 87 CTR (All) 132 : (1991) 187 ITR 363 (All) and Triveni Engg. Works Ltd. vs. CIT (1987) 167 ITR 742 (All). The brief notes of these judgments are as under: (1990) 87 CTR (All) 132 : (1990) 187 ITR 363 (All). "Interest on borrowed capital-Loans taken from banks by private limited company carrying on business of sugar manufacture-Huge amounts advanced to directors at very low rate, of interest-Difference between interest paid to banks and interest recovered from directors not allowable under s. 36(1)(iii)-IT Act, 1961, s. 36(1)(iii)." (1987) 167 ITR 742 (All). "(iv) that the assessee had not been able to prove that the disputed part of the amount taken as a loan from the bank was used for business purposes or that the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it had remitted profits from time to time to the United Kingdom for the purpose of declaration of dividends to its shareholders and the surplus balance, after paying dividends, was kept with the bank in the United Kingdom as deposits. During the relevant accounting years the assessee-company paid interest accruing on its overdrafts to the banks in India and the assessee claimed deduction of the amounts paid, as interest paid on money borrowed for the purpose of its business. The ITO rejected the claim for each of the aforesaid years on the ground that the overdrafts from the banks were not incurred wholly and exclusively for the assessee's business. The AAC found that the assessee-company made remittances to the United Kingdom by taking overdrafts from the banks in India and the borrowings from the banks in India were partly invested in earning interest income in the United Kingdom. He sustained a disallowance of Rs. 18,920 for the asst. yr. 1958-59 and also maintained in full the disallowance by the ITO of the claims for interest for the other years. The Tribunal was of the opinion that, on the facts, the correct way to interpret the transaction would be that the remittances to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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