TMI Blog2012 (1) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... rder for the sake of convenience. 2. First, we reproduce grounds raised in I.T.A.No. 243.Ahd/2011 which are as under: 1) The Ld. CIT(A) has erred in law and on facts in confirming the disallowance of ₹ 2,81,657/- made by the A.O. out of the claim of interest. 2) On the facts and in the circumstances of the case and in law the Ld. CIT(A) ought to have deleted the said disallowance. 3) It is therefore, prayed that the disallowance of ₹ 2,81,657/- may be deleted. 3. Now, we reproduce grounds raised by the assessee in I.T.A.No. 3512/Ahd.2010 which are as under: 1. The learned CIT(A) has erred in law and on facts in confirming the disallowance of ₹ 2,63,912/-Assessing Officer out of claim of interest. 2. On the facts and in the circumstances of the arid In Taw the learned C.I.T. (A) ought to have deleted the disallowance it is therefore prayed that the disallowance of ₹ 2,63,912 may be deleted. 3. Your appellant craves leave to add, alter or amend any ground of appeal at the time of hearing. 4. This appeal is filed late by three days. The small delay in filing the appeal was due -to circumstances beyond the control of the appellant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 21,99,269/-, The assessee has not charged any interest on this advance given to this party. Even though the assessee has debited interest expenditure of ₹ 13,07,904/- in the P L account being the interest paid on unsecured loans borrowed by the assessee. The AO therefore asked the assessee to explain why on proportionate bases the Interest be not disallowed at the loans taken on interest to the extent of loans given without charging interest is not for the purpose of business. The assessee stated that the loans and advances were given for the purpose of business. The AO stated that he is examined the copy of account of this party, and there isno business transaction entered in the account of this party and hence there is no business connection or commercial connection. All the transactions are of financial nature. The A.O. therefore, disallowed the interest of ₹ 263912/- out o the interest claim. 7. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us. 8. Ld. A.R. placed reliance on the following judicial pronouncements: (a) 285 ITR 554 CIT Vs Prem Heavy Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Before us also, the assessee has simply placed reliance on some judgments but no evidence has been brought on record before us to show that these interest free advances were given out of interest free funds available with the assessee or these interest free advance were given for business expediency. The balance sheet of the assessee as on 31.03.2007, is available on page 8 of the paper book, as per which proprietor s capital was ₹ 64.30 lacs whereas the amount utilized for fixed assets and investments was at ₹ 106.27 lacs. Hence, we find that no interest free funds were available with the assessee for giving interest free advances. The balance sheet of the assessee as on 31.03.2006 is also available on page 16 of the paper book, as per which proprietor s capital account has balance of ₹ 51.15 lacs and funds utilized for fixed assets and investments was ₹ 101.67 lacs and hence, it is seen that in this year also, no interest free funds wee available with the assessee for giving interest free advances. Regarding business expediency, no evidence has been brought on record before the authorities below or before us that the impugned advances were given for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, interest free funds were not sufficient for financing the business assets and moreover, it could not be established that borrowed funds were not diverted for giving interest free advances and hence, this judgment is also not applicable in the present case. - Now, we consider the applicability o9f the judgment of Hon ble Delhi High Court in the case of Tin Box (supra). In that case, interest was paid by the assessee on overdraft from State Bank of India against hypothecation of goods etc and pledge of land and building, plant machinery etc. A clear finding is given in that case that the assessee has not paid any interest to another party either in the past or during the relevant year. In the present case, there is no borrowing from bank and borrowings are unsecured loan of ₹ 126.72 lacs and, therefore, the purpose of these unsecured loans and use thereof is not static whereas the purpose of bank loan was for business purpose alone and therefore, the facts are different in the present case and hence, this judgment of Hon ble Delhi High Court is also not applicable in the present case. - Now, we consider the applicability of Tribunal decision cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces have been extended out of the borrowed funds or out of mixed funds which include borrowed funds. The test to be applied in such cases is not the source of the funds but the purpose for which the advances were extended. 11. We find that as per this judgment of Hon ble Delhi High Court, where mixed funds are used for the purpose of giving interest free advances, the only relevant test is as to whether such interest free advances are due to commercial expediency or not. In the present case also, the funds are mixed funds and the assessee could not establish any commercial expediency and hence, in our considered opinion, this issue is squarely covered against the assessee by this judgment of Hon ble Delhi High Court and respectfully following the same, this issue is decided against the assessee. 12. It was agreed by both the sides that the issue involved and facts are identical in both the cases and hence, decision taken in one case can be applied in other case. Hence, by applying the same, both the appeals are dismissed. 13. In the result, both the appeals are dismissed. 14. Order pronounced in the open court on the date mentioned hereinabove. - - TaxTMI - TMITax ..... 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