9911796707
TMI Blog2012 (9) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(Appeals) has erred in deleting the addition made by the Assessing Officer on account of disallowance of interest amounting to Rs.6,65,673/- being the difference of interest charged at only 5% on the advance made to the sister concern and the interest calculated at the rate of 8.51% payable on borrowed funds, only on the ground that advance was made in the usual course of business. 3. The learned CIT(Appeals) has erred in deleting the addition of Rs.34,02,550/- made by the A.O., u/s. 14A of the I.T. Act on account of disallowance of interest paid on borrowed funds utilized for making interest free advance to the subsidiary company, without examining the relevant facts in detail." 3. The assessee is a company engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed average rate of interest paid by the assessee computed a sum of Rs.6,65,673 being the difference of interest i.e., interest paid by the assessee to the financial institution on its borrowings and the interest charged by it on advance given to the sister concern and added the same to the total income of the assessee. 5. The AO also noticed that the assessee had invested a sum of Rs.1,99,99,300 for purchase of shares in one of its subsidiary company, M/s. JKM Research Farm Ltd. It is not in dispute that the investment had been made in the earlier years and as on 01.04.2005 a sum of Rs. 1,99,83,661 was shown as advance to the sister concern. As on 31.03.2005 the same was Rs.1,82,12,553. In other words there was no money advanced to the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had huge borrowed loans to the extent of Rs.15,27,28,740/- as on 31.03.2004 and Rs.14,53,17,525/- as on 31.03.2005. Similarly the unsecured loans held by the assessee company were to the tune of Rs.5,17,06.031 and Rs.6,40,60,391 for the period ended 31.03.2004 and 31.03.2005 respectively. From these huge secured borrowed loans and unsecured loans it is very clear that the assessee company did not have sufficient funds for investments in its subsidiary concerns. iv. On the asset side of the balance sheet the major items of the advances shown under the head are loans and advances of Rs.7,63,17,230/- and Rs.8,45,92,135/- as on 31.03.2004 and 31.03.2005 respectively. These are the major loans and advances given by the assessee for business pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO by invoking the provisions of section 14A of the Act is concerned, the ld. CIT(A) accepted that the advances were given to sister concern owing to commercial expediency and that there was no material on record to suggest that the borrowed funds were used for making investments in the sister concern. 10. Aggrieved by the relief granted by the ld. CIT(A), the revenue has preferred the present appeal before the Tribunal. The ld. DR on the issue of disallowance of interest on loans to GEBL submitted that there was no evidence on record to show any commercial expediency which prompted the assessee to give loans to the sister concern at a concessional rate of interest. He also relied upon the decision of the Hon'ble Punjab & Haryana Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned, the loans had been given in the past and they have been accepted as owing to commercial expediency or out of own funds and no interest disallowance was made in the past. Similar submissions were made with regard to the disallowance u/s. 14A of the Act also. Further reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) wherein it has been laid down that the overall availability of funds should be seen. In this regard, the ld. counsel for the assessee drew our attention to the fund position of the assessee as on 01.04.2004 and 31.03.2005 as under:- Transactions and dues from Subsidiary Opening 01.04.04 Closing 31.03.05 (Rs. in lakhs) Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, however, of the view that the plea of commercial expediency though has been pleaded by the assessee, but has not been properly examined by the revenue authorities. The assessee had pleaded that JMK Research Farm Ltd. in which the assessee had made advances for purchase of shares, was claimed by the assessee to be a subsidiary company, which had the facility for testing and validating products developed for the assessee's customer. However, in the case of GEBL, the assessee's plea of commercial expediency has been quite vague. We are also of the view that the ld. CIT(A) while deleting the addition made by the AO on account of interest disallowance in the case of GEBL, has merely stated that the advances were given in the normal course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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