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Shri Govind Ram Modi Versus The Addl. CIT Range-1, Kota

2015 (9) TMI 174 - ITAT JAIPUR

Disallowance interest/ bank charges paid to bank on overdraft - Held that:- It is a fact that whatever names mentioned by the ld. CIT(A) in his findings were the loanee in preceding years. Therefore, the ld. CIT(A)s finding is totally wrong. However, the AOs findings in case of M/s. Mittal Pigment (P) Ltd. and M/s. Gaurav (P) Ltd. were found correct that during the year under consideration the assessee had given ₹ 60 lacs on CD A/c maintained with HDFC Bank bearing A/c no. 1672070000032 .....

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ludes interest paid to HDFC Bank, Kota at ₹ 1,21,214/- and SBI, Chawni Branch, Kota at ₹ 3,51,110/- which has been directly adjusted by the assessee against interest income. The AO had established the nexus that the assessee had borrowed the funds on interest and advance the interest free loans to the sister concerns or other concerns. Thus in view of the above deliberations, we confirm the order of the ld. CIT(A). - Decided against assessee. - ITA No. 268/JP/2013 - Dated:- 11-8-2015 .....

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5/-. 2.1 Brief facts of the case are the assessee filed the original return of income declaring income at ₹ 26,80,390/- and agricultural income at ₹ 80,000/- on 31-10-2006. The case of the assessee was scrutinized u/s 143(3) of the Act. The AO observed that as per computation of income, the assessee had shown net income from other sources at ₹ 24,33,573/-. The assessee has also shown income from bank interest, interest loans etc. for ₹ 29,13,642/- and this income was redu .....

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t on overdraft facility and bank charges on account of payment of DD Commission etc. The AO further observed that bank overdrafts were mainly due to the fact that interest free advances were made to either the sister concerns or other assessee's from whom no interest was charged. The assessee had not shown the interest and bank charges payment for ₹ 4,80,069/- in the profit and loss account and he simply reduced this amount from the income from other sources and disclosed net income. A .....

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mitted by the assessee before the AO that no advances were given to the parties after taking loans from the bank. The assessee submitted that interest free advances given to the parties were old and out of self capital and not from borrowed capital. The assessee also admitted that the assessee had taken advance from the following parties and no interest had been charged. 1. M/s. Anjali Traders ₹ 15,00,000 2. M/s. Anjani Drawing & Printing Mills Ltd. ₹ 9,00,000 3. M/s. Modi Floori .....

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₹ 60.00 lacs to M/s. Mittal Pigment (P) Ltd. on 12-12-2005 and no interest had been charged from that amount. The assessee had also given ₹ 1.50 crores to M/s. Gaurav (P) Ltd. i.e. another sister concern on 17-01-2006 from his bank account maintained with Bank of Rajasthan Ltd. However, on this account also, the amount was transferred from the loan/ overdraft account on which interest had been paid. This shows that there is no business expediency and the assessee had advanced the loa .....

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ere that these interest free advances were given in earlier years and they were out of self capital. It was not found correct by the AO that the amounts advanced to M/s. Mittal Pigment (P) Ltd. and M/s. Gaurav (P) Ltd. were not old and pertaining to the earlier period. As regards another contention that there was no direct nexus on the fund borrowed and its diversion for nonbusiness purposes, the AO relied on the Hon'ble Punjab & Haryana High Court judgment in the case of CIT vs. Abhishe .....

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t is pleaded to be out of sale proceeds or share capital or different account cannot be accepted. Entire money in a business entity comes in a common kitty. The AO further observed that the money received as share capital, as term loan, as working capital loan, a sale proceeds etc. did not have any different colour. Whatever are the receipts in the business that have the colours of business receipts and have no separate identification. Sources have no concerns. Whatsoever, the only thing suffici .....

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rated income and not that it is diverted toward sister concern free of interest. Therefore, the AO held that there should be no nexus required to establish between the borrowed funds on interest and advances without charging the interest. Rather there should be nexus of use of borrowed fund for the purposes of business to claim deduction u/s 36(1)(iii) of the Act. Accordingly, the AO disallowed the interest payment and other bank charges of ₹ 4,80,069/-. 2.2 Being aggrieved by the order of .....

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specific nexus is proved. The ld. CIT(A) had verified the details and it was found that the assessee had advanced money to M/s. Anjali Traders, M/s. Anjani Dyeing and Rajendra Kumar Garg out of over draft account. Considering the above, the ld. CIT(A) restricted the disallowance to 50% of the amount. Therefore, the addition of ₹ 2,40,035/- was confirmed by the ld. CIT(A) and remaining interest payment of ₹ 2,40,034/- was deleted. 2.3 Now the assessee is before us. The ld. AR of the a .....

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nd Shri Rajender Kumar Garg on 18-05-2003 to prove that loans given to above parties were not out of OD account during the year under consideration. There was no disallowance of interest in earlier years. Therefore, there is no precedent for which the ld. AR relied on following case laws. (i) Union of India vs. Raghuvrer Singh (1989) 178 ITR 548 (SC) (ii) Ceshav Mills Co. Ltd. vs. CIT (1965) 56 ITR 365 (SC) The ld. AR for the assessee further argued that no nexus has been found by the AO or the .....

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) (vii) CIT vs. Tin Box Co. (2002) 260 ITR 637 It is further submitted that the assessee did not claim any payment of interest in the profit and loss account. No loss has been caused to the Revenue in the interest account. The AO had charged notional interest and had not disallowed interest because there was no claim of payment of interest for which he relied on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. 323 ITR 490. The ld. AR keeping in view of the ab .....

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