TMI Blog2011 (7) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the ld. CIT(A)-III, Surat has erred in deleting the addition of ₹ 95,429/- made on account of disallowance of interest expenses debited to the P L a/c of the assessee. 2. The first ground relates to an addition of ₹ 15,74,828/- made on account of notional interest. 3. The brief facts of the case are that a search operation u/s 132 of the Act was carried out at the residential and business premises of the assessee, consequence to which the assessee made a total disclosure of ₹ 2,76,68,805/- for the block period from 1998-99 to 2004-05. This disclosure was inter alia made on the basis of certain cheques of various persons found in the possession of the assessee. Out of this disclosure an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of ₹ 1.41 crores lying with its clients and that such advances could not have been given without charging any interest. He, therefore, calculated notional interest @ 18% per annum on this amount and added the same to the total income of the assessee thereby making an addition of ₹ 15,74,828/- on this account. 4. Before ld. CIT(A), besides reiterating the submissions made before the AO assessee s further submission was that after the search operation on the premises of the assessee, business of the assessee was severely disturbed as a result of which recovery from the debtors was not possible till the year under consideration. For this reason, the assessee as a prudent businessman decided not to charge interest to safegua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.431 of 2009, 15 July, 2009. (3) CIT vs. govind Agencies (P) Ltd. (2007) 295 ITR 290 (All). 7. After hearing both the parties and perusing the record, we find that a search and seizure operation under section 132 of the Act was carried out by the Revenue at the residential and business premises of the assessee. During this search operation assessee made a disclosure of ₹ 2.76 crores for the block period from 1998-99 to 2004-05 out of which an amount of ₹ 1.41 crores pertained to Asst. Year 2004-05 which is not in dispute. This disclosure made by the assessee has also been accepted by the Revenue and the taxes due have been paid by the assessee. The fact that against the disclosure of ₹ 1.41 crores made for As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The addition of ₹ 15,74,828/- made on account of notional interest income was rightly deleted by ld. CIT(A). Therefore, the order passed by him is hereby upheld. This ground of Revenue is dismissed. 8. The second ground of Revenue s appeal relates to disallowance of interest expenses of ₹ 95,429/- against unsecured loan of ₹ 26,68,106/-. During the assessment proceedings the AO observed that the loans and advances of the assessee at the end of the year were of ₹ 53,81,604/- most of which in the form of cash advances and bank FDRs and that assessee had also cash balance of ₹ 24,08,719/-. According to the AO the assessee was having sufficient funds with him but had taken loan from outside and paid unne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on such borrowings also. It was thus argued by him that as the interest bearing loans borrowed in the earlier years were utilized for business purposes there was no justification in making disallowance of the interest expenses claimed by the assessee u/s 36(1)(iii) of the Act. Reliance was placed on the judgments in the case of S.A. Builders 228 ITR 1, Shahibaug Enterprises vs. ITO (1995) SDTD 1329 Ahd, Gujjar Buildware vs. ITO (ITA No.1108/Ahd/2001) and other decisions. 10. After taking into consideration the submissions of the assessee, the ld. CIT(A) deleted this addition. Aggrieved by this order, the Revenue is now in appeal before us. 11. At the time of hearing the ld. DR placed reliance on the order of AO whereas the ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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