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TMI Blog2015 (9) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... The finding of the learned CIT(A) that in reply to a query raised during the course of appeal proceedings, the learned AR replied "that the architectural design of building were cleared as a residential building only but the appellant proposed to use 25% of the same for business purposes", is factually incorrect because no such submission had ever been made and the submission made has been totally misunderstood by learned CIT(A). 3. That in absence of any material to show that the interest bearing borrowed funds were diverted for nonbusiness purposes, the disallowance as upheld is deserves to be deleted and the interest expenses as claimed deserves to be allowed as revenue expenditure. 4. That in any case the learned CIT(A) has erred in not granting a fair and proper opportunity of being heard. It is therefore prayed that the disallowance upheld be deleted and the entire interest expenses claimed by the assessee be directed to be allowed as revenue expenditure u/s 237 of the Act. 2. The brief facts of the case are that the Return was filed by the assessee on 21.9.2010 declaring income of Rs. 52,443/-, which was processed u/s 143(1). Subsequently, case was selected for scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the fact whether diversion of interest bearing loan to non-interest bearing loan was for commercial expediency? To decide the same, Assessing Officer placed reliance in the case of Atherton Vs. British Insulated & Helsby Cables Ltd. (1925) 10 TC 155, Hon'ble Apex Court's decision in the case Eastern Investments Ltd. Vs. CIT (1951), 201 ITR 1, CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 etc. Considering the facts and circumstances of the case and judicial decisions, mentioned above, it was held by the Assessing Officer that there is no commercial expediency in diverting interest bearing loan to interest free loans. Thus, he held that loans given to M/s Suresh Goel and Sons, HUF were not for business purpose. Thus, he held that loan given to above partner is not allowable either U/S 36(1)(iii) or 37(1) of the Act. Therefore, Assessing Officer disallowed a sum ofRs.10,54,790/- being 13% on debit balance of capital of Rs. 81,13,770/-, which was added back to the taxable income of the assessee for the year under consideration. Thus, total taxable income of the assessee was computed at Rs.ll,07,230/- vide assessment order dated 11.2.2013 passed u/s. 143(3) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting any investigation sustained the disallowance so made by learned AO. I further find that the since the formation of the firm, the assessee has been carrying on its business activities of trading in chemicals from the agricultural property owned by the partners and no rent has been charged by the partners in respect of such premises. It is submitted that the appellant also entered into an agreement with M/s Suresh Goel & Son (HUF) on 16.3.2009 for construction of building to be used by the assessee for its business activities as per clause No. 5 of the said agreement. I find force in the assessee's submissions that the said building being located in residential area could not be a valid basis so as to conclude that appellant firm's business could not have been carried out in the said premises, as there is no bar to conduct business from residential premises especially in the case of the assessee assessee, which is in trading of chemicals and non manufacturing. Thus, in my opinion, the finding of learned CIT(A) that the assessee could not have conducted business from residential premises does not stand to reason in as much as, there is no prohibition in law to conduct s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans" [Emphasis supplied] 6.3 I further draw support from the judgment of the Hon'ble High Court of Madras in the case of CIT vs. Century Flour Mills Ltd reported in 334 ITR 377 wherein the Hon'ble Apex Court judgment in the case of SA Builders vs. CIT (Supra) has been followed. The Hon'ble High Court of Madras while following the Hon'ble Apex Court judgment as aforesaid, has held that where assessee having borrowed money, utilized it as advance to its managing director for purchase of land for business purpose, interest paid on said borrowing was to be allowed as deduction. The finding of the Hon'ble High Court was as under:- "10. The Supreme Court in the case of S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1, has considered the question of payment of interest on the borrowed money. In that case, the borrowed money was lent to the sister concern without charging interest and it was held that the Revenue must look into the transaction whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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