TMI Blog2010 (2) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... such advances are to associate concern, it will not alter the situation. Advances for the purpose out of borrowed funds will still be considered to be "Capital borrowed for the purpose of business" and hence interest payable on such borrowal are allowable as deduction under sec.36(1)(iii) of the Act while computing the business income. Therefore, there is no ground to disallow the interest payable by the assessee, appeal is dismissed. - I.T.A. No. 3753/Del/2008 - - - Dated:- 26-2-2010 - Deepak R. Shah, George Mathan, JJ. Vivek Kumar, Sr. DR., for the Appellant K. Sampath, Adv., for the Respondent ORDER Deepak R. Shah: This appeal by the revenue is directed against the order of the Commissioner of Income-tax (Appeals)-XXIII, New Delhi, dated 10th October, 2008 for the Assessment Year 2004-05 in an appeal against assessment order framed under section 143(3) of the Income-tax Act, 1961 (the Act). 2. The revenue has raised the following grounds before us:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.3,20,084/- made out of car expenses and depreciation. 2. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken of Rs.18.33 crore. The assessee explained the utilization of loan in the following manner:- 1) Rs.4,65,80,000 on 19.06.03:- Out of said amount Rs.4,50,00,000/- given to Ashok Mittal and Co. on 19.06.03 and said amount transferred by Ashok Mittal and Co. (Prop. Ashok Mittal) to Escrow A/c against purchase of land. 2) Rs.4,65,80,000/- on 26.06.03:- Out of said amount Rs.1,20,00,000/- given to Carrara Marble and Granite (Prop. Ashok Mittal) on 27.06.03 and on the same day Carrara Marble and Granite transferred the said amount to Ashok Mittal and Co. Ashok Mittal and Co. paid to Bank of Punjab against repayment of loan taken for purchase of land. 3) Rs.4,41,65,500 on 01.07.03:- Out of said amount Rs.4,40,00,000/- given to Ashok Mittal and Co. on 01.07.03 and the same was paid to Bank of Punjab against repayment of loan taken for purchase of land. 4) Rs.4,60,28,700 on 11.07.03:- Out of said amount Rs.3,80,00,000/- paid to Bank of Punjab against repayment of loan taken for purchase of land on behalf of Ashok Mittal and Co. 7. The Assessing Officer held that as per balance-sheet loans and advances to sister concern are Rs.21.72 crores. The amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th showroom space of about 10000 sq. ft. This showroom space was to be given to the assessee firm on lease and the assessee firm was also given the licence to use the brand name 'Litolier' for 3 years. Against this the assessee was to pay a security deposit of rs.20 crores and also to pay lease rent of Rs.20/- per sq. ft. per month to Shri Ashok Mittal. There is also not dispute that the MOU was to be followed by an agreement, which has not been executed till date. However, the MOU has been followed in letter and spirit. When specifically asked on the question on this issue, it was contended by the learned AR on 24.09.2008 that the MOU was a legal entity and therefore need not be converted into an agreement. 18. Therefore, it follows that it would make good business sense for the assessee which is already into manufacture and sale of marbles to use brand name of 'Litolier' and also to lease out a property. Therefore, it has to be held that this particular interest free advance to Shri Ashok Mital and his proprietary concerns was a business decision, which was likely to reap rich harvest. In other words, there was a direct nexus between the expenditure and the purpose of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the decision of the Punjab and Haryana High Court in S.A. Builders vs. ITO (supra) stands reversed by the decision of the Apex Court in S.A. Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC). In so far the decision of the Delhi High court in Motor General Finance Ltd. (Supra) is concerned, this decision has been set aside by the Supreme Court in Motor General Finance Ltd. vs. Commissioner of Income Tax (2004) 267 ITR 381. The Hon'ble Supreme Court remitted the matter back to the High Court for fresh disposal as their Lordships were of the opinion that the High Court proceeded on erroneous factual basis. Therefore, any reliance on these two decisions by the ld AO does not help the cause of the Revenue as they do not enunciate the correct position of law." 8. The learned DR Shri Vivek Kumar submitted that there is no dispute that the amount is advanced to Shri Ashok Mittal out of borrowed funds. Shri Ashok Mittal utilized the amount for his personal purposes. Therefore, it cannot be considered as advanced for the purpose of business and hence proportionate disallowance is called for. The learned counsel for the assessee Shri K. Sampath on the other hand, strongly relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness interest is well understood by the assessee and the Assessing Officer cannot step into the shoes of the businessman so as to determine how the business is to be conducted. Since the assessee was to acquire the premises from the concerns controlled by Shri Ashok Mittal who was given the right to develop the land agreed to be purchased by Bellamy Investment and Trading Co. Pvt. Ltd. and Chandler Investment and Trading Co. Pvt. Ltd. and such premises were to be used to open the showroom for sale of the marble and granite items held by the assessee and also for the use of brand name "Litolier" which was owned by Shri Ashok Mittal, it can be said that the amount was advanced for the purpose of business so as to acquire valuable right of occupancy in the premises and to use the brand name. Since the terms of MOU have been followed in letter and spirit, on the basis of which it can be said that the amount was borrowed for the purpose of business and hence interest paid on such borrowal are allowable. If by giving the advances the business interest of the assessee is served and even if such advances are without charging any interest or whether such advances are to associate concern, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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