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2019 (12) TMI 408 - ITAT COCHINDisallowance of interest on borrowings - account of diversion of funds to sister-concern - no tax deducted at source - only contention raised is that the advances were made to sister-concern out of commercial expediency and hence no disallowances can be made for the interest expenditure - HELD THAT:- The financial constraints of the sister-concerns and damage to goodwill cannot be accepted as deciding factors of commercial expediency unless the assessee proves that failure of business of sister-concerns has an impact on the business / goodwill of the assessee. The assessee in this case has not been able to prove with necessary evidence that the failure of the business of the sister concern has an impact on the assessee. The assessee has not been able to prove that there is commercial expediency in diverting interest free funds to the sisterconcerns when assessee was paying huge interest on its borrowings - Therefore, the interest expenditure to the extent of funds diverted to sister concerns has been rightly disallowed by the A.O. Disallowance of interest by invoking the provisions of section 40(a)(ia) of the I.T.Act - HELD THAT:- Admittedly, the loans were advanced by the Directors of the assessee-company. As per the assesseecompany’s audited balance sheet, the loans in question are standing against the Directors (and not in the name of the banks). Once it is admitted that the loans are from Directors, the interest on such loans have to be paid to the Directors. Therefore, undoubtedly, tax ought to have been deducted at source on such interest payment by the assessee-company under the provisions of section 194A of the I.T.Act - In the instant case, since there is no deduction of tax at source u/s 194A of the I.T.Act, the Assessing Officer has correctly invoked the provisions of section 40(a)(ia) of the I.T.Act and disallowed interest payment. The appeal filed by the assessee is dismissed.
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