TMI Blog2014 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the funds between borrowings of the funds and diversion thereof for non-business - Decided against assessee. - I. T. A. No 128 of 2011(O&M). - - - Dated:- 23-10-2013 - AJAY KUMAR MITTAL, JASPAL SINGH, JJ. JUDGEMENT Ajay Kumar Mittal J.- This appeal has been preferred by the assessee under section 260A of the Income-tax Act, 1961 (in short, "the Act"), against the order dated June 30, 2010, annexure A. 12, passed by the Income-tax Appellate Tribunal, Chandigarh "B" Bench in I. T. A. No. 915/ Chd/2008, for the assessment year 2005-06, claiming the following substantial question of law : "Whether, under the facts and in the circumstances of the case, under section 36(1)(iii), the interest paid 'for the purpose of business' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition. After obtaining a mortgage loan of Rs. 100 lakhs from bank, an amount of Rs. 1,23,55,787 was advanced by the assessee to its sister concern, M/s. Luxmi Engineering Works, as interest-free loan in the last week of March, 2004. The Assessing Officer, vide order dated May 10, 2007, annexure A. 2, disallowed interest to the tune of Rs. 14,82,695 under section 36(1)(iii) of the Act being the proportionate interest which worked on interest-free loan given by the assessee to its sister concern, M/s. Luxmi Engineering Works, out of borrowed funds. Aggrieved by the order dated May 10, 2007, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) ("the CIT(A)"). Vide order dated August 29, 2008, annenxure A. 5, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) and S. A. Builders Ltd. v. CIT [2007] 288 ITR 1 (SC). It was argued that the findings recorded by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) and the Tribunal were against the record. On the other hand, learned counsel for the Revenue supported the order passed by the Tribunal. After hearing leaned counsel for the parties, we do not find any merit in the appeal. The Assessing Officer, after appreciating the material, came to the conclusion that there was no commercial expediency in advancing the loan by the assessee to its sister concern, M/s. Luxmi Engineering Works. The relevant finding recorded by the Assessing Officer in that behalf is as under : "The assessee-company itself has a profitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance to the sister concern, the other guarantors should have been equally eager to extend the same as has been done by the assessee-company but that has not been in the case. It's only the profit-making concern, i.e., M/s. C. R. Auluck and Sons Pvt. Ltd. which has extended this advance rather than any other guarantor making the intention of reducing the profits very clear. Profit making concern G Interest-free loan extended U C. R. Auluck and Sons Pvt. Ltd. A Reduction in profits R J. C. Auluck Inv. Pvt. Ltd. AN Luxmi Engineering Works T No interest loan extended O Loss making concern R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being paid by the assessee to the extent the amounts were diverted to the sister concern on interest-free basis were to be disallowed." The assessee had taken a loan of Rs. 100 lakhs from the bank at the rate of 12 per cent. and advanced the same to its sister concern, M/s Luxmi Engineering Works. The finding of the Assessing Officer that the advancing of loan was not for commercial expediency and it was a device to divert the income by transferring the funds by way of interest-free loan to its sister concern was upheld on appeal by the Commissioner of Income-tax (Appeals) with the following observations : "7. I have carefully considered the contention of the learned counsel for the appellant and perused the relevant recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m inclined to agree with the Assessing Officer that the amount was advanced to reduce the profitability of the appellant concern only. Also I agree with the Assessing Officer that the 'commercial expediency' for the purposes of examining the applicability of the ratio of the decision of S. A. Builders Ltd. (supra), has to be seen with the reference to the loan giver and not the loan receiver. As already discussed, no such business expediency is revealed as far as the case of the appellant is concerned. 7.1 In view of the above discussed facts and the legal position, I agree with the Assessing Officer that the ratio of the decision of the hon'ble jurisdictional High Court, i.e., the hon'ble Punjab and Haryana High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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