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2011 (12) TMI 410 - ITAT, MUMBAIDisallowance of Rs.12,46,272/- made by the Learned Assessing Officer on interest free advances made to sister concerns - According to AO the assessee diverted interest bearing funds towards interest free advances to sister concerns for non-business purposes. Had the assessee not advanced interest free advances, the funds would have been available to the assessee and its interest cost would have been reduced - The company has got own capital of Rs.37.40 crores as against outstanding loan of Rs.3.63 crores (excluding Rs.20 lacs given as deposit to Palss Properties) given to the sister concern as on 30.3.2006. - in the instant case the assessee has conclusively proved that the amount has been paid to subsidiary companies for the purpose of business and no part of the amount of advance has been utilized by the Directors for their personal purpose and the entire amount has been utilized for the purpose of business, therefore, no proportionate disallowance of interest, in our opinion, can be made in the instant case - Decided in favor of the assessee Regarding disallowance of Rs.22,28,082/- pertaining to the assessment year 2006-07 claimed by the appellant during the course of assessment proceedings - Held that: the assessee has filed a letter before the A.O. giving details of the prior period expenses to be considered in A.Y. 2006-07 which the assessee has suo motu disallowed in A.Y. 2007-08 - assessee in the impugned case has made a claim for the deduction of expenditure by way of submitting written submission before the A.O. which has not been adjudicated by the A.O. A specific ground taken before the ld. CIT(A) has not been adjudicated by him - Decided in favor of the assessee by way of remand to AO Regarding 'punitive charges' as payments and not an offence or prohibited by law - According to the A.O., as per the provisions of Explanation to Sec. 37 any expenditure incurred by an assessee for any purpose which is an offence or prohibited by law shall not be deemed to have been incurred for the purposes of business and no deduction shall be allowed - It is the case of the Revenue that the same being a penalty paid to the Railways for violation of the rules and regulations, explanation to section 37(1) is attracted and therefore the same should be disallowed - Held that: the punitive charges paid by the assessee to Railways for overloading of the wagons is compensatory in nature, therefore, the same cannot be disallowed by invoking the provisions of Explanation to section 37(1) - Decided in favor of the assessee
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