TMI Blog2015 (9) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds have been raised:- 1. That the learned CIT(A) has grossly erred both in law and on facts in upholding the disallowance of ₹ 10,54,790/- out of the interest expenses of ₹ 21,81,286/- on the ground that the assessee has allegedly diverted interest bearing funds for non-business purposes. The submission made an evidence furnished has arbitrarily been brushed aside. 2. The learned CIT(A) has failed to appreciate that the assessee firm had advanced fund to one of its partner namely M/s Suresh Goel Sons HUF for construction of a building on the plot owned by the partners and was to be used by the assessee firm for its business purposes. 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 divert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made. Authorised Representative of the assessee further filed a letter dated 29.01.2013 wherein he placed reliance on various judicial pronouncements, which are mentioned in the assessment order. Assessing Officer considered the reply of the assessee. However, it was observed by the Assessing Officer that, it is fact even accepted by the assessee that it has given interest-free loan of ₹ 61,40,000/- to M/s Suresh Goel and Sons, HUF out of its secured loans of ₹ 1,17,07,384/-. Which clearly shows that assessee was diverting its interest-bearing funds to non-interest bearing loan to one of its partners fox his undue enrichment. To decide the issue involved in the case, Assessing Officer examined the same considering 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave heard the both the parties and perused the records especially the orders of the revenue authorities. I find that the AO vide order dated 11.02.2013 in disregard to the documentary evidences filed by the assessee and without conducting any enquiry or investigation gave a finding that the assessee - assessee had diverted its interest bearing funds by giving interest free loans to one of its partners and worked out a disallowance under section 36(1)(iii) at ₹ 10,54,790/- (i.e. 13% of 81,13,770/-). I also find that the assessee filed its written submissions before learned CIT (A), wherein, the aforesaid contentions were reiterated before learned CIT(A) as well, who in complete disregard of the submissions and also without conducting or directing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been held as under: We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency, However, money can be said to be advanced to a sister concern for commercial expediency in many either circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company 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 judg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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