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2014 (12) TMI 336 - AT - Income TaxDeletion of disallowance out of interest paid by assessee - Investment in shares – Held that:- There is investment in shares of sister concerns to the extent of ₹ 4,58,75,850/- including fresh investment in present year of ₹ 3,50,60,700 - there are advances recoverable in cash or in kind from sister concerns of ₹ 8,85,20,483/- including fresh advances in present year of ₹ 3,00,99,83 - even if any interest expenditure is incurred on borrowing utilized for making investment in shares, the same is allowable either u/s 36(1)(iii) of the Act, if making investment in shares is a business activity of the assessee and otherwise, the same is allowable as deduction u/s 57(iii) of the Act, because in that situation, the dividend income is taxable as income from other sources and accordingly, expenditure is allowable under section 57(iii) of the Act. Advances to sister concerns and partners – Held that:- It is noted by the AO in the assessment order hat on advances to sister concerns, interest has been charged by the assessee except advances to two sister concerns i.e. Kailash Auto Finance Ltd. and Kailash Moser Industries Pvt. Ltd. - The amount of advances to Kailash Auto Finance Ltd. was only ₹ 43.21 lakhs as noted by the AO and outstanding amount with other company i.e. Kailash Moser Industries Pvt. Ltd. was not indicated in the assessment order – the decision in Commissioner of Income-Tax, West Bengal III Versus Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME Court] supports assessee - interest expenditure for earning taxable dividend income has to be allowed irrespective of the fact that there was no dividend income earned during this year. The decision delivered by the SC in S. A. Builders Ltd. vs. CIT [2006 (12) TMI 82 - SUPREME COURT] stands applicable in present case - interest on such loan will be allowable as deduction u/s 36(1)(iii), only if such loan has been advanced for purpose of business as a measure of commercial expediency - money was advanced by the assessee firm to its sister concerns and it is not a case of the AO that such money advanced by the assessee firm to the sister concerns were used by the Directors of these two companies for their personal purposes – assessee claimed that money advanced by the assessee firm to these two sister concerns were used by these two companies for business purposes – thus, no disallowance of interest can be made for making such interest free advances to these two sister concerns – Decided against revenue. Addition of unexplained deposits u/s 68 – Held that:- Out of total four deposits, one deposit of ₹ 1.10 lakhs of Mr. Anand Saptak is on account of renewal of old FDRS and therefore, addition on account of this deposit is not justified at all – regarding other three deposits also, the assessee has filed confirmation of these three persons also and the AO has allowed interest expenditure incurred in respect of these four depositors - regarding deposit of ₹ 1 lakh by Mrs. Asha Agarwal, since reply received from Mrs. Asha Agarwal is for confirmation of ₹ 50,000/- only, excess claim of deposit of ₹ 50,000/- has to be held as not explained - addition made by the AO is justified because when the depositor is confirming only ₹ 50,000/- out of ₹ 100,000/- shown by the assessee, it has to be accepted that balance deposit was not explained. Regarding deposit of ₹ 1.01 lakhs from Smt. Satyawati Sanghi, addition made by the AO is justified because when the depositor is confirming only ₹ 31,000/- out of ₹ 101,000/- shown by the assessee, it has to be accepted that balance deposit was not explained - in respect of Smt. Smita Agarwal of ₹ 20,000/-, AO noted that this bank certificate shows the repayment of ₹ 11,090/- against the deposit of ₹ 20,000/- claimed by the assessee - no nexus is proved between the two transactions – thus, the additions made are partly upheld – Decided partly in favour of assessee.
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