TMI Blog1998 (7) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... advances made have jumped from Rs. 55,97,055 to Rs. 1,32,52,585. These advances were made to the shareholders and other concerns where such shareholders were having interest. The Assessing Officer disallowed the entire interest of Rs. 16,37,881 by holding that on one hand the assessee is paving interest on borrowings and on the other hand advancing money to the parties having substantial interest in the business of the assessee without charging any interest from them. The Ld. CIT(A) treated the amount of interest that has been paid in proportion to interest-free advances made by the assessee as non-business expenses. Accordingly, he directed the Assessing Officer to disallow the interest for the period for which the amount was actually advanced interest free. 3. The Ld. A.R. placed reliance on the written submissions made before the CIT(A), copy filed with the paper book. Details of Plant Machinery sold and interest payment have also been placed on record. It was contended that the revenue has not established any nexus between the moneys borrowed and moneys advanced. Reliance was placed on the decision of CIT v. Bombay Samachar Ltd. [1969] 74 ITR 723 (Bom.) according to which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reserves also as referred by the CIT(A) at para 4(c) of her order as Rs. 37,01,210. Thus the total interest-free funds which could be said as available with the appellant are Rs. 49,97,442 i.e., (Rs. 37.01,210 + Rs. 12,96,232). The appellant has shown as brought forward losses of Rs. 75,37,041, out of which accumulated losses at the end of the relevant year are Rs. 57,37,374. Thus the interest-free funds of Rs. 49,97,442 get wiped out, by virtue of business loss of Rs. 57,37,374, where as the interest-free advances made by the appellant to the shareholders, their relatives and associate concern made during the relevant period are Rs. 1,04,80,210 besides brought forward advances also. Nothing thus can be said as having been advanced out of interest free funds available with the appellant-company. Secured loans outstanding as at the close of the relevant year show that Rs. 47,83,957 are payable on account of principal and interest for hypothecation of plant and machinery and stocks etc. to New Bank ofIndiaand Rs. 13,91,500 payable for deferred payment guarantee loan under IDBI Scheme. There is a liability of New Bank ofIndiafor Rs. 47,83,957 and the appellant has got meagre stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exus as pointed out and satisfying of conditions as laid down in section 36 by relying on the decisions of Bombay Samachar Ltd.'s case and Regal Theatre's case could be relevant only when the business is continued and loans taken continue as business borrowings and moneys have been diverted out of such borrowings. On facts the decision of the Hon'ble Madras High Court in the case of Coimbatore Salem Transport (P.) Ltd. is also distinguishable with the case of the appellant. The appellant's borrowings in the year under appeal are only as a loan simplicitor and no business is continuing and also the appellant has sold its assets and current assets substantially. The appellant also does not have any interest-free capital and creditors to cover the interest-free advances made to the shareholders and to their relatives and their interested companies. The borrowings of the appellant do not remain for the business purposes. Any interest paid on such borrowings shall not be deductible as business expenditure. We, therefore, uphold the order of the CIT(A) in treating the amount of interest that has been paid in proportion to the interest-free advances made by the assessee as non-business ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) of section 43B. Written submissions made before the CIT(A) have also been filed along with the paper book for claiming the deduction. 8. On the other hand, theLd. DR.has contended that the appellant has not carried out any manufacturing activity in the relevant year. There is no power connection with the appellant. The liability thus cannot be said to be relating to the previous year. The appellant has not demonstrated as to what is the actual liability at the time when it has been claimed. The appellants have moved to the court for quantification of the liability. Furthermore the appellant has not brought any material to show that it has continued the business and in the relevant year it was temporarily suspended or closed. The assets have been sold and it is not possible to carry the business with the left over plant and machinery. There is no staff also nor the power connection has been revived till date. The contingent liability does not constitute expenditure. Reliance has been placed on the following decisions : (i) Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC). (ii) Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC). (iii) Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record have also carefully been considered. From record we find that the appellant was sanctioned a load of 2012 KW. for running an induction furnace by categorising as a large industrial power consumers. Joint inspection with the officials of CBI was conducted by the team of DESU employees on22-7-1988. The connected load was found to be 3520 KW besides other anomalies. According to DESU the appellant was found indulging in fraudulent abstraction of energy which constituted an offence undersections 39 44 of the Indian Electricity Act, 1910. A letter dated 12/14-9-1990 written by the Legal Cell of DESU and placed at paper book 205 to 209 contains the brief facts of the case. In this letter grounds for raising of bill for the period from16-10-1987to22-7-1988and a notice for disconnection of supply has also been given. These grounds read as under : "A. That as stated above, a joint inspection by the officials of DESU was held on22-7-1988during which the following anomalies were discovered : (i) That against the sanctioned load of 2012 KW (2000 I.P) + 5 KW (C.P) + 7 KW (L.P.) the connected load on the site was round to be 3520 KW. (ii) The inspection of the seals fixed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant is that as there was no power supply in the factory he was entitled to full rebate on the minimum guarantee charges. For this rebate he has quoted clause No. 15(b) of the agreement with DESU. Accordingly in this suit the appellant has submitted that a difference and dispute had arisen between the parties and reference had been demanded to be made to the Arbitrator to determine and adjudicate various issues including the following:--- "Whether the plaintiff is liable to pay the bills for the months of April to October 1991 when admittedly there was no power supply in the factory of the plaintiff in view of clauses 5 and 15B of the Agreement." Since the appellant himself is denying the liability, there remains no case for allowing deduction to the appellant. 11. We also find that the appellant has made the entries of the whole amount of Rs. 96,70,827 only on31-3-1992by debiting it to power expenses account and showing the liability as sundry creditor in the balance sheet which is placed at paper book page 68. In fact this liability cannot be treated as a creditor of the appellant company as no electricity has been consumed by the appellant nor any purchase has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges which are for the period after the disconnection of the meter but not for the loss on account of pilferage. 14. All other case laws relied upon or referred have also been considered. In the case of Bihar Slate Electricity Board, the assessee has himself applied to the State Electricity Board for disconnection of power under the minimum guarantee period and accordingly he was held to be liable for payment of minimum guaranteed charges. Moreover that case did not pertain to allowability of expenses under the Income-tax Act. In Cap Steel Ltd.'s case, the demand of minimum guaranteed power charges was made from the beginning of grant of the power connection but the assessee could not consume power from beginning due to his own reasons and for no fault of electricity board. Ultimately he was granted partial exemption from payment of such charges. In ACIT v. Rathi Alloys Steels Ltd. (ITAT-Delhi) the assessee has been actually consuming power regularly and the demand raised by electricity board " as for revision of power tariff only and the dispute was under the provisions of section 43B of the Act. Similarly in Andhra Ferro Alloys (P.) Ltd. v. DCIT (ITAT- Hyd.) the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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