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2010 (4) TMI 387 - HC - Income TaxInterest on borrowed capital- the assessee is engaged in manufacturing of different types of equipment and spare parts mainly for steel and power sector, railways and cement plants and execution of turnkey projects. The assessee filed its return of income for the assessment year under consideration declaring a total income of Rs. 2,64,42,974. The Assessing Officer (AO) on examination of the account books of the assessee noticed that the assessee made an advance of Rs. 50 lakhs to Air Construction Consultant Pvt. Ltd., Calcutta and during the year, the debit balance was transferred to the account of Smt. Shashi Gupta and Master Nitin Gupta at Rs. 25 lakhs each. The explanation of the assessee before the Assessing Officer was that Shri Vijay Kumar is a partner in the assessee-firm in his capacity as karta of Vijay Kumar (HUF). There was credit balance of Rs. 1,80,25,443 for which no interest is being paid and since the above two persons were members of the Hindu undivided family, the firm had given interest free advances to them because of substantial credit balance in the account of the Hindu undivided family. The Assessing Officer rejected the explanation and calculated the interest at the market rate at 18 per cent. at Rs. 15,44,754 disallowed the interest equal to this amount out of the interest claimed by the assessee. Commissioner(Appeals) confirm the demand. Tribunal accept the appeal of the assessee on the ground that, no evidence has been brought on record to prove that the amounts borrowed by the assessee were not utilized by the assessee for its own business but were diverted as advance to members of the Hindu undivided family free of interest. Held that- Tribunal was justified in deleting the addition.
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