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Lalbhai Realty Finance Pvt. Ltd. Versus ACIT, (OSD) -1, Range-4, Ahmedabad

2016 (6) TMI 521 - ITAT AHMEDABAD

Disallowance of deduction for interest paid by the assessee on its borrowing from HDFC Bank - advancing money for purchase of property - nexus with business - Held that:- The objects in the Memorandum of Association are clearly in favour of the impugned transaction and establish a direct nexus between the business of the assessee and the advancing of money. Our view is also fortified with the financials of the assessee in as much as in the Balance Sheet under the Head “Stock-in- trade” there is .....

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bservations clearly show that the revenue authorities have grossly erred in not accepting assessee’s contention that is one of the businesses is in real estate. The Tribunal in the first round of litigation has directed the assessee to establish direct nexus between the advancing of money to SSKI and its commercial expediency. In our understanding of the fact, as mentioned elsewhere, the assessee has successfully discharged its onus and has complied with the directions of the Tribunal. We set as .....

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)-VIII, Ahmedabad dated 07.08.2012 pertaining to A.Y. 2002-03 & 2003-04. Both these appeals have common grievance on identical set of facts; therefore, these appeals are disposed of by this common order for the sake of convenience. 2. The common grievance in both these appeals relate to the disallowance of deduction for interest paid by the assessee on its borrowing from HDFC Bank. 3. In this case, the return of income for A.Y. 2002-03 was filed on 02.12.2003; the return was selected for scr .....

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eceived on 27.11.2001 was given as loan/advance to SSKI on the very same date. 4. The assessee was asked to explain the purpose of the loan/advance made to SSKI along with the interest charged from it. The assessee explained the nature of transaction vide letter dated 27.02.2006 claiming that the advance is made out of the interest free funds available with the assessee. 5. This contention of the assessee did not find favour with the A.O who was of the firm belief that the assessee has utilized .....

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commercial expediency or not. 7. Pursuant to the directions of the Tribunal, fresh notices were issued and served upon the assessee. The assessee was asked to explain the claim of interest in the light of the directions of the Tribunal. 8. Assessee categorically stated that it has approached M/s. SSKI to jointly develop the project at Mumbai which proposal was accepted by SSKI and it was mutually decided between them to utilize their financial resources, man power and experience so as to develo .....

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reafter, the A.O simply incorporated the findings from the original assessment order, and once again, the interest expense of ₹ 77,35,960/- in A.Y. 2002-03 & ₹ 1,16,40,385/- in A.Y. 2003-04 were disallowed. The only reason given by the A.O for the disallowance is that the main business of the assessee is of finance and leasing, hire, purchase, invest to assist or subsidizing in purchasing of industrial and office plant, equipments machinery, vehicles movable assets, land & bu .....

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what has been stated during the first round of litigation in the present assessment proceedings/appellate proceedings. The ld. counsel vehemently stated that there is a direct nexus between the business of the assessee and the advancing of money to SSKI. The ld. counsel drew our attention to the object clauses in the Memorandum of Association of the company. It is the say of the ld. counsel that the lower authorities have simply disregarded the other objects of the company and have grossly erre .....

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on it by the directions of the Tribunal in the first round of litigation. Therefore, there is no error/infirmity in the findings of the First Appellate Authority. 13. We have given a thoughtful consideration to the findings of the authorities below. We have also carefully perused the directions of the Tribunal given in the first round of litigation. There is no dispute in so far as the finding of the Tribunal is concerned. All that is to be considered is whether the assessee had successfully est .....

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, movable assets, land and building, real estates and consumer goods of all kind by way of leasing, hire purchase. 15. However, we find that clause 4 is very relevant for the understanding of the impugned transactions, which reads as under:- To carry on the business of financiers, for purchase of property, lent or advance money on the security of movable or immovable property, takeover of stock units, legal claims, chose in action or other such rights and assets in financing the business underta .....

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