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2013 (4) TMI 34 - ITAT AHMEDABADInterest u/s 36(1)(iii) - interest free loan to related parties - as per AO the interest bearing funds have been utilized by the assessee to give interest free loans and advance as the assessee has paid interest of 12% to other person on unsecured loan but no interest was charged on loans and advances which have been given to Amritlal R. Patel, Tarang Plast corporation and Security deposit-NL Account - Held that:- From the copy of the ledger account of security deposit placed on record it is seen that the assessee was entitled to receive incentive of Rs.13,97,394/- for the period April, 2006 to March, 2007 and the same was reflected in the security deposit account. The credit note of Nirma Ltd. also states that the amount is credited to the incentive deposit account. From these facts, it is clear that the amount appearing as security deposit is not in the nature of any amount advanced as loan or deposit by the assessee but is in the nature of receivable. In view of these facts, no disallowance on account of notional interest can be made as far as amount of security deposit is concerned. With respect of advance to Amritlal R. Patel (Rs. 150057/-) and Tarang Plast corporation (Rs.1,35,972) is concerned, the assessee has given a general statement that it is on account of business expediency but has not placed any evidence to substantiate it. The perusal of the ledger account in case of Tarang Plast reveals that the balance of Rs.1,35,972/- is an opening balance without any transactions during the year. In case of Amritlal Patel, the opening balance receivable at the beginning of the year was to the extent of Rs.4,58,000/- and on account of repayments made during the year, the balance as on 31st March, 2007 was of Rs.150057/-. Assessee could not substantiate its stand with respect to the commercial expediency nor could it demonstrate by means of any evidence that the amounts have been lent out of interest free funds. In view of these facts the A.O.'s action in making disallowance on account of interest in case of Amritlal Patel and Tarang Plast Corporation cannot be faulted - the addition on account of interest in case of security deposit is directed to be deleted. Assessee's appeal is partly allowed.
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