TMI Blog1997 (6) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the assessee firm was claiming huge interest year after year and no interest was charged on advances made to other concerns owned by the close relatives of its partners by diverting the loans raised by it. The Assessing Officer therefore, disallowed interest payments to the tune of Rs. 57,348 in the assessment year 1981-82 and interest of Rs. 1,01,466 in assessment year 1982-83 under consideration, considered as not relating to the assessee's business. In appeal, the CIT(Appeals) came to the conclusion that there is no direct nexus between the funds diverted to the non-business purposes, and the funds borrowed on interest, and therefore, the interest disallowances were deleted. The CIT(Appeals) followed the decision of the Bombay Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee paid interest on borrowed funds. Such interest was disallowed by the Assessing Officer on the ground that if the assessee had collected the outstandings which were due to it from others, it would have been able to reduce its indebtedness and thus save a part of the interest which it had to pay on its own borrowings. The facts in the present assessee's case before us are admittedly different. The assessee had borrowed money from banks and others and according to the Assessing Officer such borrowed funds were diverted by it to other sister concerns. Therefore, the facts in the assessee's case are different from the case of Bombay Samachar Ltd. decided by the Bombay High Court. In the case of Madhav Prasad Jatia referred to by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The High Court confirmed the decision of the Tribunal and on further appeal the Supreme Court affirmed the decisions of the High Court and the Tribunal. Therefore, this decision also is not helpful to the assessee in any manner. 5. In the case of R. Dalmia relied on by the ld. D.R. the interest claimed by the assessee on borrowals was disallowed. The disallowance of interest was confirmed by the Delhi High Court and it was held that interest claimed by the assessee on borrowings was rightly disallowed because there was no adequate material to determine how the interest was to be spread over business expenditure and the other expenditure of the assessee. In the case of Triveni Engg. Works Ltd. cited by the ld. D.R. the Allahabad High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital of the partners in the business of the firm and withdrawal by the partners is more than their capital, then the loans and advances made by the firm and withdrawal by the partners in excess of their capital account is only out of the loan taken from banks and others. It is not the case of the assessee that loans and other advances were for the purposes of its business because, since the assessee did not have its own funds in the business and if loans and advances which are not for the purposes of its business and are taken out, then the liability of the assessee exceeds its assets, in the assessment year 1981-82. Similarly, in 1982-83 the assessee firm has taken loan of Rs. 28,17,165. Partners' capital account shows Rs. 2 lakhs but th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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