TMI Blog2012 (10) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to show that the amounts given by the assessee as loan were coming out of interest bearing funds. - Decided in favor of assessee. - I.T.A. No. 307/Mds/2012 - - - Dated:- 19-7-2012 - SHRI ABRAHAM P. GEORGE AND SHRI V. DURGA RAO, JJ. Revenue by : Shri Shaji P. Jacob, Addl. CIT Assessee by : Shri N. Devanathan, Advocate ORDER PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeal and cross-objection filed by the Revenue and assessee respectively, for the impugned assessment year, directed against order dated 28.11.2011 of Commissioner of Income Tax (Appeals)-IX, Chennai. Grievance of the Revenue in its appeal is that CIT(Appeals) deleted a disallowance of Rs.16,58,713/- made by the A.O. against the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance came to Rs.16,58,713/-. 3. In its appeal before CIT(Appeals), argument of the assessee was that A.O. had made a wrong comparison of interest receipts and payments. According to assessee, advances were purely based on commercial expediency, since assessee was having temporary surplus funds. By placing the money with unrelated parties, it could earn higher interest than what it would have earned had such funds been placed with banks or other financial institutions. Further, as per the assessee, the credits for which assessee paid 18% were more than seven years old in its books and interest paid was much less than what was generally charged by private parties. Again, according to assessee, Assessing Officer had not given any find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect that the interest given in excessive having regard to the fair market value of the services of facilities for which the payment is made no disallowance could be made and the disallowance of Rs.16,58,713/- is directed to be deleted. This ground of appeal is allowed. 4. Now before us, learned D.R. strongly assailing the order of CIT(Appeals), submitted that commercial expediency for giving loans to unrelated parties, mentioned by the CIT(Appeals) was never proved by the assessee. Further, according to him, just because there was no cash flow on account of interest dues, a claim made under mercantile system ought not have been allowed. Interest was charged by the assessee on mercantile system basis in its Profit Loss account and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est to its related parties on the loans received. There is also no dispute that assessee had received interest only at the rate of 11% from M/s Khivraj Motors and 10% from M/s Mardia Metal Industries. No interest whatsoever was received by the assessee on the loans given by it to Jethmull Chordia and Amitha Bhandari. Assessing Officer was thus of the opinion that disallowance of pro rata interest claim was called for. Learned A.R. has placed reliance on the balance sheet as on 31.3.2008 of the assessee placed at paper-book page 5. Capital account of the assessee as at the beginning of the year and as at the end of the year as appearing in the said balance sheet, read as under:- CAPITAL ACCOUNT At Beginning At End ..... X X X X Extracts X X X X X X X X Extracts X X X X
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