TMI Blog2016 (4) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from the order dated 14.08.2014 passed by the learned CIT (A), Alwar for the A.Y. 2010-11. The ground raised by the assessee is as under :- That the ld. CIT (A) has misdirected himself in coming to the conclusion that the amount borrowed from bank has not been utilized for the purposes of business and in the process sustaining the disallowance of ₹ 48,85,314/- as made by the learned Assessing Officer out of the interest paid during the year. 2. Brief facts of the case are that the assessee company was engaged in manufacturing and trading of Hawai Chappals . The assessee has filed its return of income on 27.09.2011 declaring NIL income for the year under consideration. The case of the assessee was scrutinized under section 143(3) of the I.T. Act. During the course of assessment proceedings, while scrutinizing the Balance Sheet of the assessee company, the AO noticed that the assessee company has invested ₹ 3,28,08,080/- in M/s. Mascot Footcare, Noida and ₹ 1,45,76,154/- in M/s. Mascot Udhyog, Noida. The assessee had shown a profit of ₹ 8,01,141/- from the above two firms under the head Other Income in Schedule 8 of the profit loss account. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2000 ₹ 30,00,000/- Similarly investment in capital of M/s. Mascot Udhyog was made as under :- a) 1988-1999 ₹ 5,00,000/- b) 1999-2000 Rs.40,00,000/- After adding the profit year by year and interest, the capital in M/s. Mascot Footcare become ₹ 3,28,08,080.42 and in M/s. Mascot Udhyog ₹ 1,45,76,154.59. So it is incorrect that the company has invested ₹ 3,28,08,080.42 in M/s. Mascot Footcare and ₹ 1,45,76,154.59 in M/s. Mascot Udhyog. Moreover the investment in the above firms were made not out of borrowed funds but only out of internal accruals. The assessment of the company is being made almost regularly u/s 143(3) of the Income Tax Act and based on the above facts the department has never made addition on this account. You are, therefore, requested not to make any addition on this account. The AO considered the reply of the assessee carefully but found it not acceptable. The AO discussed the reasons for not accepting the assessee s submissions, at pages 4 to 6 of his order. He concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of share of profits and the investment made other persons (who are shareholders/directors of the appellant company). The appellant has not been able to controvert that the interest payments made to the specified persons and to the banks are justifiable in view of the utilization of the funds. The AO has given a finding that the funds have been utilized for the purposes of purchase of shares of another group company and thus do not stand covered within the ambit of for the purposes of the business . Further, it is found that the firm in which the appellant has substantial investment has invested their funds for the purchase of equity shares of ₹ 2.49 crores of another group company. 4.7. The appellant has merely reiterated the submissions filed before the AO and has not been able to produce any evidence so as to controvert the findings given by the AO. Further, on examination of these facts, I do not find any argument or justification being given by the appellant for obtaining huge loans and their utilization for the purposes of the business of the company. Moreover, there is no justification for payment of interest on loans taken from related persons, whereas the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the investment in these concerns were not part of the business of the assessee company and there is no profit to the business of that the assessee from such investment. It was further submitted that the assessee company has taken a loan from the Punjab National Bank at the rate of 12% and it was submitted that if the assessee company has withdrawn the investment from these concerns then there was no necessity to take the loan from the Punjab National bank. It was also highlighted that the share in the profit of the assessee is only 10% whereas a capital consideration is very high in comparison to the other partners of the firm. 4.3. The ld D/R further submitted that M/s Mascot Udyog is not doing any business and the capital of the assessee is lying blocked and no steps have been taken by the assessee to recall the capital investment made by it . The assessee not recalling the investment from M/s Mascot Udyog and taking loan from Punjab National bank, clearly shows that the commercial interest of the assessee has been compromised by the assessee. It was submitted on behalf of the revenue that the M/s Mascot Udyog had invested the major amount in equity shares of M/S Lakhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment of the assessee company in the above two firms is 1.69%. On the other than the assessee is paying the interest on unsecured loan from Shri Gunjan Lakhani @12% and interest to Punjab National bank @ 12%. Hence on one side the assessee had invested huge amounts in the firms ( in which directors of the firms are partners) at the very low rate of return, on the other hand the assessee company is having loans on which it is paying interest@ 12% which is very much higher than the rate of return from these investment In our view the authorities below have failed to bring on record any material which shows that the borrowed funds have not been used for the purposes of business. In the light of the above the appeal of the assessee is required to be allowed as no fresh investment has been made in the year under consideration and further no loan amount was used for that purposes. 4.6. Our view is also supported by the judgment of Hon ble Supreme Court in the matter of Hero Cycle Ltd. vs. CIT, 63 Taxman.com 308 wherein it is held as under :- 12. Insofar as loans to the sister concern/subsidiary company are concerned, law in this behalf is recapitulated by this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. Further, the Hon ble Jurisdictional High Court in the matter of CIT vs. Ram Kishan Verma has held as under :- 13. Taking into consideration the fact as noticed hereinabove, in our view as well, when there was no agreement to charge interest from the persons, to whom the assessee advanced short term loan/advance, the AO could not disallow part of the interest. It is also an admitted fact, as observed by the Tribunal, that the AO .vas not able to pin pointedly come to a definite conclusion that how interest bearing loans had been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-a-vis interest free loa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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