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2015 (10) TMI 596 - ITAT NAGPUR

2015 (10) TMI 596 - ITAT NAGPUR - TMI - Disallowance of interest paid as non-business purpose expenditure - Held that:- The partners have withdrawn their capital, which were credited in the firm. There is no bar to withdraw their capital as they have withdrawn their capital out of the total capital invested in the firm. They have advanced these amounts to another firm i.e. M/s Raju Steel Industries on which they have charged interest and that interest income has been shown in the hands of these .....

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their hands and paying due tax on that income. The rate of tax is same, therefore, in our considered view, disallowance of interest paid was not justified under Section 37(1). This is the business man who knows how to run his business activity. The assessee has run his business activities in a way which they like and was beneficial for them. If by any reason they have made some tax planning, that tax planning is also in the four corner of law, which is permissible. Therefore, for this reason al .....

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TMI 325 - DELHI HIGH COURT] - Decided in favour of assessee. - ITA No.352/Nag./2013, ITA No.353/Nag./2013, ITA No.354/Nag./2013, ITA No.355/Nag./2013 - Dated:- 28-8-2015 - Mukul Kr Shrawat and Shamim Yahya, JJ. For The Appellant Rep : Shri V K Lukka For The Respondent Rep : Shri K P Devani ORDER Per: Mukul Kr Shrawat: These appeals filed by the Revenue are emanating from the impugned orders of even date 12th July 2013, passed by the learned Commissioner (Appeals)-II, Nagpur, for the assessmen .....

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ssues are discussed herein below after perusing the orders of the Revenue authorities for that year. The grounds of appeal for the assessment year 2008-09, read as under:- "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in treating the interest expenses of ₹ 10,04,744 as allowable under section 37(1) of the Act without appreciating that there was a direct nexus between loans borrowed and advances made to the patterns and sister concerns. 2. O .....

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ments on deemed dividend Hon'ble Delhi High Court's decision in CIT v/s Bharat Overseas Trading Co., 249 CTR 554, and National Travel Services, 249 CTR 540, wherein the issue has been decided in favour of the Revenue." 3. Facts in brief:- The assessee firm is in the business of trading of iron and steel. For the assessment year 2008-09, the assessment was completed under section 143(3) of the Act dated 12th October 2010. The Assessing Officer has observed that the interest bearing f .....

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At the outset, we have been informed by the parties appearing before us that on identical facts and circumstances in the past i.e., for assessment year 2006-07 and 2007-08, in assessee's own case, the Tribunal, Nagpur Bench, has decided this issue in assessee's favour vide order dated 9th January 2013. In addition to the said order of the Tribunal, it has also been pleaded that when the withdrawals were made by the partners to the extent either capital or accrued profit, then there shou .....

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der of the Tribunal, Nagpur Bench, cited supra, is reproduced below:- "8. Now, we will take up the appeals of the assessee i.e. ITA No.68 & 69/Nag/2011 for A Y 2006-07 & 2007-08. 9. The only issue in appeals of the assessee is against confirming the disallowance of ₹ 8,48,034/- & ₹ 10,57,490/- out of interest paid as non-business purpose expenditure respectively for both of the years. 10. The brief facts in this regard are that the partner of the assessee firm withdr .....

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paid to the lenders was not allowable under Section 37(1). 11. Learned CIT(A) has also confirmed the action of the AO. 12. After considering the submission and perusing the orders of the authorities below, we found that the assessee deserves to succeed on the issue involved in both these appeals. The partners have withdrawn their capital, which were credited in the firm. There is no bar to withdraw their capital as they have withdrawn their capital out of the total capital invested in the firm. .....

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here is no loss of revenue at all. The firm is paying interest and claiming deduction in profit and loss account, on the other hand, the lenders have shown the interest income in their hands and paying due tax on that income. The rate of tax is same, therefore, in our considered view, disallowance of interest paid was not justified under Section 37(1). This is the business man who knows how to run his business activity. The assessee has run his business activities in a way which they like and wa .....

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9;s favour, hence, in the absence of any contrary material, we find no reason to take any other view but to respectfully follow the same. Resultantly, the ground no.1, raised by the Revenue is hereby dismissed. 8. Ground no.2, reads as under:- "2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in treating that loan of ₹ 1,66,32,595 and interest accrued thereupon of ₹ 19,72,929 given on the assessee firm by OCAPL did not fall within the amb .....

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accepted factual position that the firm was not having any shareholding in the said two companies namely OCAPL and OCSIPL. The Assessing Officer has found that the assessee had taken loan of ₹ 3,26,49,691, from OCAPL and a loan of rs 1,28,94,755, from OCSIPL respectively. According to the Assessing Officer, due to the fact that Doly Weighbridge Pvt. Ltd. was having shareholding in the firm and also having substantial shareholding with the said two companies, therefore, through the said Pri .....

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s of the assessee by invoking the provisions of section 2(22)(e) of the Act. 10. When the matter was carried before the first appellate authority, it was found that this issue was also decided by the Tribunal, Nagpur Bench, in favour of the assessee for the assessment year 2006-07 and 2007-08, order dated 9th January 2013 cited supra. After reproducing the portion of verdict of the Tribunal, the learned CIT(A) has held that the deeming fiction of section 2(22)(e) of the Act could be applied only .....

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Hon'ble Jurisdictional High Court in ACIT v/s Bhaumik Colours Pvt. Ltd., 118 TTJ 001 (Bom.) and Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom.) deleted the addition. For ready reference in Para-7 is reproduced below:- "7. After considering the order of the Assessing Officer and learned CIT(A), we found no infirmity in the findings of the learned CIT(A). the assessee's firm is neither a registered shareholder nor beneficiary share holder in the said company, who is a creditor of th .....

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the Assessing Officer in view of the provisions of section 2(22)(e) and disallowing the interest which was consequential to the addition made as deemed dividend. Accordingly, we confirm the order of the learned CIT(A) for both the years. Hence, appeals of the department i.e., ITA no.65&66/Nag./2011 fail and the same are dismissed." 12. On this issue, the Hon'ble Jurisdictional High Court has passed the judgment in CIT v/s Impact Containers Pvt. Ltd., 107 DTR 145 (Bom.), wherein ref .....

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