TMI Blog2003 (1) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... , were connected with the group to whom the interest was paid and also connected with the assessee. The AO further noticed that substantial amount of interest has also been paid to the persons connected with the same group. The assessee explained that the interest-free advances had been given by the assessee out of its own funds and the borrowings have not been utilised for the said purpose and there was no nexus between the interest-free advances and interest-free loans taken by the assessee. 2.1. The AO rejected the Explanation of the assessee and observed that had these funds (not) been diverted by giving interest-free advances, the same would have been available to the assessee for repayment of loan and to that extent the assessee's liability to pay interest would have been reduced. The AO worked out the interest disallowance @ 15 per cent and thus calculated the disallowance of interest at Rs. 1,91,975 as detailed in his order. 2.2. Before the CIT(A), the assessee reiterated the submissions which he made before the AO and the CIT(A) upheld the disallowance of interest as made by the AO in principle but also directed the AO to workout the correct amount of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR (MP) 41 : (1983) 142 ITR 528 (MP), B A Plantations Industries Ltd. vs. CIT (2000) 242 ITR 22 (Gau), CIT vs. Hotel Savera (1998) 148 CTR (Mad) 585 : (1999) 239 ITR 795 (Mad), United Agencies vs. ITO (1990) 37 TTJ (Ahd) 374, Gujarat Narmada Valley Fertilizers Co. Ltd. vs. Dy. CIT (2001) 73 TTJ (Ahd) 787 : (2000) 108 Taxman 213 (Ahd)(Mag) and also distinguished the judgment of Allahabad High Court in the case of CIT vs. H.R. Sugar Factory (P) Ltd. (1990) 87 CTR (All) 132 : (1991) 187 ITR 363 (All) relying on which the CIT(A) upheld the disallowance made by the AO. 2.4. Learned Departmental Representative for the Revenue has not disputed the factual position narrated by the assessee in this case with regard to the fact that neither the AO nor the CIT(A) in their order were able to find any nexus between the interest bearing funds borrowed by the assessee and the interest-free advances given to the parties. Whereas, on the other hand from the documents placed on record, the assessee has established that it has given interest-free advances to the parties from its own funds and has not given the same from the interest bearing loans taken by the assessee. In this view of the matter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the current accounting period and as such cannot be allowed to the assessee in the current assessment year. Accordingly, the CIT(A) discussing the provisions of s. 80VV in the case of Indian Oxygen Ltd. vs. CIT (1986) 56 CTR (Cal) 185 : (1987) 164 ITR 466 (Cal) and also provisions of s. 40A(12) of the IT Act, confirmed the disallowance of Rs. 16,000 made by the AO. In appeal before us, the learned counsel for the assessee submitted that since the assessee was following hybrid system of accounting, so he has claimed the same in the accounting year under consideration. In support of his contention, learned counsel relied upon the judgment of Hon'ble Gujarat High Court in case of Saurashtra Cement Chemical Industries Ltd. vs. CIT (1994) 122 CTR (Guj) 329 : (1995) 213 ITR 523 (Guj). Learned counsel further contended that as the payment of Rs. 10,000 in each asst. yrs. 1990-91 and 1991-92 was made to M/s B.D. Bansal Co. so, it was within the limit of payment of amount of Rs. 10,000 in each assessment year. So, it was not covered within the provisions of s. 40A(12), hence no disallowance could be made under s. 40A(12) of the IT Act. 3.3. Similar submissions were made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he experts out of pocket expenses incurred by consultation firm and discharge of liability on account of demmurrage claimed by the port authorities. Such items without investigation into the facts about the crystallization of such dues could not be disallowed merely on the ground that they related to transactions pertaining to an earlier accounting year." 3.7. From the ratio of the decision of Hon'ble Gujarat High Court, it is clear that the unit of determination of liability under the Act is the assessment year relevant to previous year, while deduction of such expenditure is allowable in the previous year in which the same has been incurred by the assessee. But it is not essential that such expenditure must be related to the determination of the liability for the previous year in question. The expenditure incurred by the assessee in any previous year may relate to any other one or more previous year or years and in such case determination of liability may be separate under the Act. It means that if the expenditure relating to the asst. yrs. 1990-91 and 1991-92 in case of M/s B.D. Bansal Co. is paid in the accounting year relevant to the assessment year under question, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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