TMI Blog2012 (9) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No.50(BNG.)/2011 - - - Dated:- 29-6-2012 - SHRI N.V.VASUDEVAN, AND SHRI JASON P BOAZ, JJ. Assessee by : Shri Raghavendra R Chakravarthy, CA Revenue by : Smt. Susan Thomas Jose, JCIT O R D E R PER SHRI N.V.VASUDEVAN, JM: This is an appeal by the assessee against the order dated 12- 10-2010 of CIT(A)-II, Bangalore relating to AY: 2007-08. 2. The only issue that arises for consideration in this appeal by the assessee is as to whether the CIT(A) was justified in upholding the disallowance of interest of Rs.9,99,525/- made by the AO. The assessee is an individual and he is engaged in the business of trading in sanitary ware, pipes and fittings. On perusal of the Profit Loss account the AO noticed that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.2,54,65,206 Application : Closing stock as on 31-03-2007 Rs.2,63,07,533 Sundry Debtors as on 31-07-2007 Rs.1,66,51,765 Less: Sundry Creditors for goods Rs.4,29,59,298 Rs.1,51,75,010 Borrowings utilized for working capital Rs.2,77,84,288 It was thus submitted that the money borrowed from the bank have been utilized only for the purpose of the business of the assessee. In this regard, the assessee submitted that as can be seen from the records that the amounts that have been given as loan or out of own funds and borrowings from various parties. Unsecured loans from Banks and Fin. Institutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the loan given to M/s M.S.Marketing Enterprises Pvt.Ltd., a sister company wherein the assessee is a Director, advanced loan of Rs.90,56,510/- this year against Rs.48,77,810/- last year. In fact, the advance given to the aforesaid company has been shown as other loan . The assessee has also given loan during the year to M/s Mehra Sons and Shri Shravan Mehra of Rs.15,00,000/- and Rs.9,00,000/- respectively. These concerns and individuals are closely associated with the assessee. 3.6. Further, it is also seen that the assessee claimed interest totaling Rs.29,32,184/- on loans, which includes interest of Rs.21,19,255/- on overdraft account and interest of Rs.2,01,055/- on unsecured loans. On the contrary, interest received against loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine. Thus, the interest claimed is also not genuine. On close analysis of the statement of accounts, the following mismatch appears in the relevant accounts; i) As per ledger a/c with M/s Marketing Enterpises Pvt.Ltd. Opening balance as on 1/4/2006 Rs.65,53,474 As per Balance sheet as on 31/3/2006 Closing balance would be Rs.48,77,810 ii) In the capital account for the year ending 31/3/2006 the closing balance would be Rs.65,18,407 In the capital account for the year ending 31/3/2006 opening balance would be Rs.76,75,346 iii) As per statement of account in the books of M/s MS Marketing Enterprises Pvt.Ltd., balance as on 31/3/2007 Rs.53,73,358 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency and there was business transaction justifying interest free loans. It was also submitted that on his funds, out of which the interest free loan were given to the sister concern. Our attention was drawn to the decision of the Hon ble Bombay High Court in the case of CIT Vs Reliance Utilities Power Ltd., 313 ITR 340(Bom.) wherein the Hon ble Bombay High Court has held that if there were funds available both interest free and over draft/loans are taken, then a presumption would arise that investment would be out of the interest free funds generated or available with the assessee, if the interest free funds were sufficient to meet the investment. It was further submitted that one has to see the overall funds position to find out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to find out the availability of funds both interest free and interest bearing funds and appropriate interest from borrowed funds to the interest free loans to the sister concern. We are of the view, that it would be just and proper to remand the issue to the AO for fresh consideration in the light of the decision of the Hon ble Bombay High Court referred to above. We are also of the view that the plea with regard to the interest free funds having been given owing to commercial expediency also requires examination. In this regard, we find that the assessee has given a copy of the accounts of M/s Marketing which shows the purchases of material from the aforesaid company by the assessee. We are also of the view that the assessee should be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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