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M Plast (India) Ltd. Versus Asst. Commissioner of Income Tax

Disallowance of interest under sec. 36(1)(iii) - Held that:- The assessee was having sufficient non-interest bearing funds being shareholder fund (Rs.3,65,72,082 as on 01.04.2010 and ₹ 7,72,68,670 as on 31.3.2011) and since the immediate source of the loan to the director was sale proceeds of the industrial plot, in our view, there was no nexus between the borrowings of the assessee and advances made to the director out of the interest bearing borrowed funds. It is also undisputed fact tha .....

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n the above cited decision in the case of CIT vs. Bharti Tele-venture Ltd.( 2011 (1)326 - DELHI HIGH COURT ), we hold that the authorities below were not justified in making and upholding the disallowance of interest invoking the provisions of sec. 36(1)(iii) of the Act - Decided in favour of assessee - ITA No. 5161/Del/2015 - Dated:- 29-2-2016 - I. C. Sudhir, JM And L. P. Sahu, AM For the Appellant : Shri S R Wadhwa, Adv For the Respondent : Shri Rajesh Kumar Kedia, Add. CIT ORDER Per I. C. Shu .....

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is engaged in the business of manufacturing of plastic, processing machine and its parts. In the assessment order, the Assessing Officer noted that the assessee had paid interest to the banks on secured loans borrowed for business purpose but the profit and loss account of the assessee revealed that the assessee had paid a sum of ₹ 41,65.686 to the banks on account of interest @ 15% per annum, whereas assessee had provided its director interest free advances. The Assessing Officer accordi .....

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d CIT(Appeals) has discussed the submission of the assessee that it had not obtained any loan or credit facilities during the year. The total secured loans outstanding at the beginning of the year i.e. as on 01.04.2010 of ₹ 5,09,08,700 has been reduced to ₹ 2,75,17,405 as on 31.3.2011. The assessee s own fund being paid up capital and pre-reserves were ₹ 3,65,72,082 as on 01.04.2010 which had been increased to ₹ 7,72,68,670 at the end of the year i.e. on 31.3.2011. Reiter .....

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8,250. He contended that the Assessing Officer without establishing on record any nexus between borrowed funds and specific advance made to its director by the assessee, has made the disallowance in question, upheld by the Learned CIT(Appeals). The Learned AR also referred page Nos. 33 to 87 of the paper book which are copies of statutory audit report, tax audit report, balance sheet and profit and loss account with schedule; sanction letter of credit facilities/term loan/car loan; ledger accou .....

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nture Ltd. (2011) - 331 ITR 502 (Del)- SLP preferred by the Revenue has been dismissed on 5.8.2011 reported in (2012) - 204 Taxman 188 (Mag.); ii) CIT vs. Reliance Utility & Power Ltd. (2009) - 313 ITR 314 (Bom.); iii) CIT vs. South Indian Corpn. (Agencies) Ltd. (2007) - 290 ITR 217 (Mad.). 5. The learned Senior DR on the other hand tried to justify the orders of the authorities below. 6. Having gone through the decisions relied upon, we find that the Hon'ble jurisdictional High Court of .....

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