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TMI Blog2010 (5) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... of Director and that the expenditure is personal expenditure of the Director. 5.1. Disputing the said disallowance the Authorised Representative of the appellant submitted that the expenditure on account of medical reimbursement amounting to Rs.1,58,822/- has been incurred wholly and exclusively for the purpose of business of the company. The appellant being a company, there is no element of any personal benefit derived out of incurring any expenditure. Further, the expenditure in question is fully allowable as revenue outgoing as remuneration to the Directors. It is important to mention here that in the immediate preceding year i.e. A.Y. 2003-04 the appellant incurred expenditure of Rs.71,717/- on account of medical reimbursement to the Director and no disallowance was made on account of expenditure of Rs.71,717/- on medical reimbursement. Further it was submitted that by virtue of resolution of appointment of directors, the said amount is due and payable to him. The ld. A.R. relied on the following judicial pronouncements: (i) J.M.A. Industries Ltd. 200 ITR 210 (Del.) (ii) Godfrey Philips India 206 ITR 023 (Bom.) (iii) Paradeep Oxygen Ltd. 71 TTJ 662 (Ctk.) (iv) Herocycles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taxable in the hands of Director employee was not shown by such employee Director in his return of income. In our considered opinion, in such a situation, the action of the department should be against the said employee Director and not in the hands of assessee company. We therefore, do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals). It is confirmed and the ground of appeal of the revenue is dismissed. 8. Ground No.2 of the appeal reads as under:- "2. The Ld. CIT(A) erred in law and on the facts in not upholding the proportionate disallowance of interest on account of interest free advances given to M/s. Karnataka Jewels Ltd." 9. Learned Commissioner of Income Tax (Appeals) has decided as under:- "6. The fifth ground of appeal is against disallowance of interest paid on the borrowed funds of Rs.10,25,400/-. The disallowance was made solely on the ground that the appellant has given interest free advances of Rs.1,87,38,243/- to the following persons: Deposit KEB Rs. 5,59,792 Deposit machinery Rs. 60,00,000 Rent Advance Rs. 10,50,000 Karnataka Jewels Ltd. Rs. 1,07,77,310 While disallowing the interest of Rs.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l discounting. Thus, interest on the other borrowings is only Rs.21,465/-. From an analytical study of the interest and financial charges as above it was submitted that there was no shadow of doubt that the expenditure incurred on payment of interest was wholly and exclusively incurred for the purpose of business. The appellant has not diverted any interest-bearing funds for making interest free advances as erroneously presumed by the Assessing Officer. Moreover, out of the four persons mentioned by the Assessing Officer in the assessment order, Karnataka Jewels is the only party to whom the appellant company has given interest free advance, the other three advances i.e. deposit with Karnataka Electricity Board (Rs.5,59,792), advance given for purchase of machinery (Rs.60,00,000/-) and advance rent given (Rs.10,50,000/-) are not in the nature of loans. These advances were given for specific business purpose and did not bear any interest. During the year under consideration, advance of Rs.43,10,900/- only was given to Karnataka Jewels Ltd. at the fag end of the year i.e. 29/3/2004. Again this advance was not relatable to the interest bearing borrowed funds. The interest bearing borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with KEB and deposit for machinery and rent advance. As regards the advance to Karnataka Jewels Ltd., the Ld. Counsel has submitted that the balance advance as on 31-3-2002 was of Rs.67.62 lacs. The ld. A.R. has furnished copy of balance sheet as on 31- 3-2002 to show that there are no unsecured loans. The appellant has secured loan of Rs.52,90,000/- as on 31.03.2002 which is term loan from Vyasa Co.Op. Bank which was taken for specific machinery and the appellant has taken hire purchase loan of Rs.11.03 lacs which was for purchase of vehicles. Further during the year the appellant had advanced Rs.8.25 lacs and Rs.33.07 lacs to Karnataka Jewels Ltd. only on 29-3-2004. This was supported by copy of account of Karnataka Jewels Ltd., submitted by the Ld. Counsel. Therefore, as the nexus of the advances with the borrowed funds is not established according to Ld. Counsel, disallowance of interest is not justified. Further the ld. Counsel has given break up of the interest of Rs.11,47,249/- out of which Rs.1,21,849/- is bank charges and Rs.4,86,866/- is the interest on term loan which has been utilized for specific purpose and no part of interest on this loan is attributable to advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing in the balance sheet of the assessee company as at 31.03.2002 observed that though the advance to Karnataka Jewels Ltd., was Rs.64,66,410/- no interest bearing fund was utilised for such advances. Further, Learned Commissioner of Income Tax(Appeals) observing that interest free funds available with the assessee was to the tune of Rs.4,91,86,835/- and the Learned Assessing Officer has brought no material to establish nexus between the interest free advance of Rs.43,10,900/- advanced during the year and interest bearing loan deleted the disallowance of Rs.,10,25,400/- made by the Learned Assessing Officer. 12. The Learned Departmental Representative supported the order of the Learned Assessing Officer and Learned Authorised Representative of the assessee supported the order of the Learned Commissioner of Income Tax(Appeals). 13. We find that the Learned Departmental Representative could not point out any specific error in the order of the Learned Commissioner of Income Tax(Appeals). The Learned Departmental Representative could not point out how the advance given to Karnataka Electricity Board for electric supply, advance given for purchase of machinery and advance rent pa ..... 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