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M/s Sanjay Trade Corporation Versus Asst. Commissioner of Income Tax- 13 (3) , Mumbai

2016 (4) TMI 734 - ITAT MUMBAI

Disallowance on Account of Interest - loan to sister concern, a sick unit, fee of Interest - Held that:- No interest has been charged by the assessee firm from the said sister concern. The assessee firm has not been able to show that the loan amount has been advanced by the assessee firm from the partner’s capital account.

The case laws relied upon by the assessee firm are clearly distinguishable as in the instant case, the assessee firm is not able to demonstrate that the said loans .....

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our considered view and in the interest of justice, the matter needs to be set aside to the file of A.O. for re-determination of the issue de-novo after considering the cogent material/evidences of the assessee firm to be brought on record by the AO to prove its contentions that the interest free funds have been advanced by the assessee firm to the sister concern of the assessee firm and to that extent the assessee firm will be entitled for relief. Further, the A.O. shall also consider the plea .....

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MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee by Shri S.C. Tiwari For The Revenue by : Shri Rakesh Ranjan ORDER PER RAMIT KOCHAR, Accountant Member These are two appeals by the assessee firm directed against two separate orders of the learned Commissioner of Income Tax (Appeals)-24, Mumbai ( CIT(A) for short) dated 5-10-2011, for the assessment year 2008- 09 and order dated 15-05-2012 for the assessment year 2009-10. The identical issue is involved in both these appeals and b .....

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nder:- 1. The learned CIT(A) erred in confirming the disallowance of ₹ 10,85,012/- on Account of Interest. 2. Your appellant further submits that your appellant had given loan to sister concern which is sick unit and the recovery of the principal amount is doubtful and an as such your appellant has not charged any Interest on the loan advanced to sister concern being sick unit. 3. Your appellant therefore submits that the addition of ₹ 10,85,012/- on account of Interest be deleted. 3 .....

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the assessee firm is ₹ 3,47,32,991/- which is not sufficient for advancing interest free loan to the afore-stated sister concern, hence, it was observed by the AO that the said advance has been made by the assessee firm from the borrowed capital on which interest has been paid. An amount of ₹ 10,85,011/- has been claimed as interest expense on the borrowed capital in the profit and loss account. The assessee firm was asked during the course of assessment proceedings to explain why p .....

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of Hon'ble Bombay High Court in the case of CIT v. Bombay Samachar Ltd., 74 ITR 723(Bom. HC) and submitted that the interest should be allowed as all the conditions have been met as per section 36(1)(iii) of the Act. The A.O. rejected the contentions of the assessee firm holding that assessee firm has not shown any unsecured loan or over draft facility from the ING Vysya Bank in the details filed. The capital of the assessee firm is not sufficient to forward interest free loan to the sister .....

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firm was specifically asked to explain the purpose for which all the secured and unsecured loans have been taken and when the same have been utilized but the assessee firm could not establish any nexus between the interest free loans advanced and received. In view of the above, since the assessee firm could not establish any business expediency in forwarding interest free loans to the sister concern, and further, because the capital borrowed on interest has been diverted for non business purpos .....

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ed u/s 143(3) of the Act. 4.Aggrieved by the assessment order dated 28.12.2010 passed u/s 143(3) of the Act by the AO , the assessee firm preferred an appeal before the CIT(A). 5. Before the CIT(A), the assessee firm reiterated the submission as was made before the A.O. However, the CIT(A) rejected the contentions raised before him and held that the issue in assessee firm s own case for the assessment year 2007-08 was adjudicated by his predecessor and decided against the assessee firm. Admitted .....

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y the assessee firm. The CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of S. A. Builders reported in 288 ITR 1(SC) and held that the action of the AO of disallowing the interest is held to be justified. The assessee firm has also made a without prejudice submission wherein it has been contended that the opening capital account of the partner was ₹ 3,75,03,204/- and the assessee firm had given interest free loans of ₹ 4,86,96,890/- to the sister concern, h .....

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the CIT(A) dated 05-10-2011, the assessee firm is in appeal before the Tribunal. 7. The ld. Counsel for the assessee firm contended that the assessee firm has advanced loan to the sister concern M/s World Wide Commodities Pvt. Ltd. which has been advanced in the earlier years . The said loan amount is advanced from time to time and also received back from time to time from the said sister concern. The ld. Counsel for the assessee firm submitted that interest paid by the assessee firm on the bor .....

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which has been lent by the assessee firm has become doubtful and based upon the commercial expediency, no interest is charged from the said sister concern as the principal itself is doubtful. The assessee firm relied upon the decision of Hon ble Bombay High Court in the case of CIT v. Shivsagar Estates (AOP), (1993) 204 ITR 0001(Bom. HC) and also the CIT v. Bombay Samachar Ltd., [1969] 74 ITR 0723(Bom.HC). The ld. Counsel submitted that no amount of borrowed funds were advanced to the sister con .....

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her interest which has no connection with the amount advanced by the assessee firm to the afore-stated sister concern. 8. The ld. D.R. submitted that the CIT(A) in the preceding assessment year 2007-08 also rejected the contentions of the assessee firm and authorities below has rightly disallowed the claim of the interest expenses with respect to the borrowed capital as assessee firm has advanced interest free loan to the sister concern, which is not a subsidiary company. The ld. DR relied upon .....

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ccount with the said sister concern whereby loan payments have been made from time to time by the assessee firm to the said sister concern and the loan so granted were also received back partly from the said sister concern from time to time. We have observed that apart from these to and fro movement of funds between the assessee firm and the said sister concern, there is no business transaction entered by the assessee firm per-se with the said sister concern except movement of funds which is obs .....

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grant further loans to the said sister concern. The assessee firm has given interest free advance of ₹ 4,86,96,890/- whereas the assessee s firm capital is 3,47,32,991/-. No interest has been charged by the assessee firm from the said sister concern. The assessee firm has not been able to show that the loan amount has been advanced by the assessee firm from the partner s capital account. The case laws relied upon by the assessee firm are clearly distinguishable as in the instant case, the .....

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