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2014 (8) TMI 1219 - ITAT HYDERABADAccrual of income - Assessment of accrued interest brought to tax - A.O. calculated interest on the advances given for the year on the number of days for which the temporary advance was given and brought such amounts to tax on accrual basis - A.O. computed interest on these advances at 18% because the company made a claim on M/s. SCSL for repayment of these advances along with damages claimed at 18% p.a. from the date of advance - HELD THAT:- As in assessee’s own group of cases for the A.Y. 2010-2011 unless and until the liability to pay the advances and the rate of interest at which the temporary advances are to be repaid is determined by the Civil Court, it cannot be said that the same has accrued or arisen to the assessees. However, if the assessees had advanced interest bearing funds as interest free advances, the interest paid by the assessees towards such borrowed funds would have to be disallowed and treated as the income of the respective assessees. The Hon’ble Punjab and Haryana High Court in the case of Abhishek Industries [2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] has held that the nexus between the interest bearing funds and the interest free advances will have to be proved before making the disallowance of interest and bringing it to tax. We find that neither the Assessing Officer nor the CIT(A) has examined the issue from this angle. Therefore, the orders of the CIT(A) and the Assessing Officers are set aside and the issue is remitted to the file of the Assessing Officer of the respective assessees for de novo consideration in the light of our observations above - if the amounts advanced to M/s. SCSL by the respective assessees are from their own funds, then the interest expenditure cannot be disallowed and brought to tax. Thus we remit the matter back to the file of the A.O. to decide it denovo. Appeals of the Revenue are allowed for statistical purposes.
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