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TMI Blog2014 (8) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial expediency and hence no disallowance of interest is called for. 1. 3 The AO has further misunderstood in coming to the conclusion that appellant was not having any business relationship with M/s. Avik Pharmaceuticals Ltd. 1. 4 The appellant submits that once the advance to Avik Pharmaceuticals Ltd. of Rs. 2. 7cr is considered for the business purpose, it has sufficient own funds to advance to Partners and hence, no disallowance is called for on the debit balance in Partners capital accounts of Rs. 56, 06, 188/-. 1. 5 The appellant therefore prays Your Honour to direct the AO to delete the addition on account of interest calculated @11. 2% on Rs. 85, 40, 685/-. The appellant respectfully craves leave to add to, alter or amend any of the above grounds of appeal. AO has filed following grounds of appeal: 1. On the facts and in the circumstances of the case in deleting the additions made of Rs. 10, 12, 321/- pout of the registration expenses claimed by the assessee to the tune of Rs. 22, 29, 255/-. 2. In law and in the circumstances of the case in deleting the addition of Rs. 28, 80, 360/- out of the total addition of Rs. 38, 36, 917/- u/s 36(1)(iii) on account of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 143(3) of the Act on 23. 11. 2009, determining the income of the assessee at Rs. 1. 26 crores. 3. The effective ground of appeal is about disallowance of interest expenditure, amounting to Rs. 38. 36 lakhs. During the assessment proceedings, the AO found that the assessee had paid interest of Rs. 44. 35 lakhs on the loans raised. On perusal of the balance-sheet and notes to accounts, he further found that it had advanced huge loans to associate concern without charging any interest, that Rs. 2. 86 crores were advanced to its group concerned M/s. Avik Pharmaceuticals Ltd. (APL). He asked the assessee whether there was any business relation in terms of purchase/sale with the said amount and why the loan was advanced without charging interest. As per the AO, it admitted that there was no business relation with the APL, that it was in financial trouble, that it was a sick unit and matter was pending before the BIFR, that no interest was charged for that reason. He further found that partners'capital accounts showed that it had a negative capital balance of Rs. 56. 06 lakhs as on 01. 04. 2006, that the closing balance figures had changed because the it had credited a goodwill reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest bearing funds, that the proportionate disallowance of interest was claimed in its P&L Account. 3. 2. After considering the submission of the assessee, FAA directed it to furnish complete details of interest free funds/interest bearing funds available with it as on 31. 03. 1997, complete ledger account showing the bifurcation of earlier account of appearing in APL its books of accounts. He further directed the assessee-firm to corroborate the submission that the interest free loan given to APL in 1996-97was sourced out of interest free funds. It was admitted before him that the unsecured loan account was bifurcated out of the regular ledger account of APL in the books of the assessee, that the direct nexus of interest free unsecured loan given out interest funds avail - able with the assessee could not be proved. Relying upon the decision of Hon'ble jurisdictional High Court in the case of Reliance Utility and Power Ltd. (313 ITR 340), it submitted that sufficient interest free funds were available with the assessee to meet the interest free unsecured loan given to its associate concern, that AO was not justified in holding that interest free loan given to APL was out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue balance as on 31. 03. 2007 was to be considered, that availability of funds as on 31. 03. 1997 was not material, that as per the admission of assessee the IFF on the last day of AY. 2007 was 1. 14 Crores, that against that IFL of Rs. 1. 43 Crores was given, that the debit balances in the partners' account was of Rs. 56. 06 lakhs, that IFL and debit balances of Rs. 1. 99 Crores (Rs. 1. 43 Crores+56. 06 lakhs) were given out of 1. 14 Crores. He directed the AO to consi -der only a sum of Rs. 85. 40 lakhs(1. 99 Crores-1. 14 Crores)as IFL given by the assessee to its associate concern and partners and to work out the proportionate disallowance as per the provisions of Sec. 36(1)(iii) of the Act. He further held that there was no commercial expediency of giving such IFL to associate concern and partners, that argument of the assessee that interest paid by it had no direct link with the funds given to the partners or to APL, that even in the year ending on 31. 03. 2007 the assessee had failed to prove that the IFL given to APL was directly out of IFL available, that it had not proved the direct nexus, that it could not establish that it was having sufficient IFF on 31. 03. 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. But, without affording a chance to the AO to rebut/confirm the stand of the assessee, the FAA had given relief to the it. In our opinion, matter needs further verification. So, in the interest of justice, we are remitting back the matter to the file of the AO for fresh adjudication with a direction to afford a reasonable opportunity of hearing to the assessee. The assessee would produce all the necessary documents before the AO. As far as disallowance sustained by the FAA is concerned, we find that he was of the opinion that IFF/IFL given to APL and partners were partly out of interest bearing funds. We find that he has given certain calculation as on 31. 03. 1997and 31. 03. 2007 for part disallowance of interest expen - diture. We find that AO did not have benefit of the submissions of the assessee made during appellate proceedings. So, in the interest of justice, matter of part confirmation is also restored to the file of the AO for further verification. Considering the peculiar facts and circumstances of the matter the effective ground of appeal filed by the assessee and ground no. 2 filed by the AO are allowed in their favour, in part. ITA/1198/Mum/2011: 5. First ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principals, that during the year, assessee had claimed that it has wrongly credited commission account with the receipts on account of reimbursement of expenses, that the non-payment on registration expenses works out to Rs. 10, 12, 321/-that the assessee was following mercantile system of accounting, that it was duty bound to offer the expected reimbursement of expenses as receipt. Finally, he made a disallowance of Rs. 10. 12 lakhs. 5. 1. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him the assessee argued that that the registration fees for products incurred by the appellant on behalf' of its principals, amounting to Rs. 15, 88, 151/- were to be reimbursed and the other incidental expenses were the normal business expenditure of the assessee, that the assessee had consultant's fees of Rs. 6, 22, 800/-during the year under consideration, that the entire payments were made through account payee cheques on which TDS as required under the various provisions of chapter XVI-B of the Act was deducted, that the expenditure was incurred in connection with the obtaining of registration formalities done on behalf of its principals, that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of Rs. 6. 22 lakhs. Therefore, confirming his order we decide first ground of appeal against the AO. Cross Objection/142/mum/2013: 6. Ground no. 1 is about confirming the addition of Rs. 1. 64 lakhs by the FAA under the head registration expenses. In the earlier part of our order we have discussed the facts related with the issue. The FAA had partly allowed the appeal filed by the assessee and out of the total amount of Rs. 7. 87 lakhs, a sum of Rs. 1. 64 lakhs was disallowed. While deciding Ground no. 1 of the appeal filed by the AO, we have held that expenditure incurred by the assessee under the heads registration charges, consultancy charges and other charges were directly related to the business of the assessee. Bank charges or other charges cannot be separated from the above two main items of expenditure. We find that while confirming the disallowance of Rs. 1. 64 lakhs the FAA has not given any reason. Therefore, reversing his order we decide first ground of cross objection in favour of the assessee. 7. Second ground is about interest expenditure. At the time of hearing before us, the AR stated that the issue had already been raised in main appeal and there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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