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Shri Jhawar Lal Jain Versus ACIT, Circle 51 (1) , New Delhi

2016 (7) TMI 824 - ITAT DELHI

Disallowance of interest under Section 36(1)(iii) - AR challenging the impugned order contended that the assessee company has transferred certain funds to its subsidiary company without any interest out of the loan taken at interest for business expediency - Held that:- The assessee has advanced loan of ₹ 1,23,48,111/- to Shri Manoj Kumar Jain without charging any interest and lent loan of ₹ 3,28,30,957/- to M/s. R.J. Fabrics by charging interest @ 6% out of the funds borrowed by the .....

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rate of interest to its subsidiary and relative, the judgments cited as S.A. Builders vs. CIT (A) [2006 (12) TMI 82 - SUPREME COURT ] , Chandigarh, CIT vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT vs. Jugal Kishore Dangayach (2013 (11) TMI 1661 - RAJASTHAN HIGH COURT) relied upon by the assessee are not applicable to the facts and circumstances of the case. We are of the considered view that the AO has rightly disallowed the claim of the assessee u/s 36(1)(ii .....

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d by the Commissioner of Income-tax (Appeals)-17, New Delhi qua the assessment year 2012-13 on the grounds inter alia that :- 1. The Learned Commissioner of Income Tax, (Appeals) -17, New Delhi [ CIT (A)') has erred both in law and on facts in upholding the order of Learned Assistant Commissioner of Income Tax, Circle 51 (1), New Delhi('ACIT') disallowing interest of ₹ 9,66,247/- under Section 36(1)(iii) of the Income Tax Act, 1961 ('Act'). 2. Without prejudice to our o .....

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business promotion, travelling & conveyance, vehicle maintenance, staff welfare and telephone on ad-hoc basis. 4. The Learned CIT (A) has erred both in law and on facts by not adjudicating on the ground for initiation of penalty proceedings by the Learned AO under section 271 (1)(c) of the Act on the premise that it is consequential in nature even though there was no concealment of income or furnishing of inaccurate particulars by the assessee. 2. Briefly stated the facts of this case are : .....

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77; 3,28,30,957/- and Rs.1,23,48,111/- to M/s. R.J. Fabrics and Shri Manoj Kumar Jain respectively. Assessee was called upon to furnish details as to whether due interest income from such advances has been disclosed in the return of income and the assessee contended that no interest is being received form Shri Manoj Kumar Jain and interest @ 6% per annum has been received from M/s. R.J. Fabrics. Assessing Officer noticed from the profit & loss account of the assessee for AY 2012-13 that it h .....

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hat opening balance in case of Shri Manoj Kumar Jain as on 01.04.2011 is ₹ 11,55,000/- (Dr.) and later on throughout the financial year, assessee diverted interest bearing funds to Shri Manoj Kumar Jain and also received some amount as and when required and at the end of the relevant assessment year closing balance was ₹ 12,38,111/- (Dr.). As per ledger account, the assessee has not charged any interest on the funds given to Shri Manoj Kumar Jain, so the interest disallowed is calcul .....

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ee on interest bearing funds and disallowed total interest amounting to ₹ 11,04,380/- (Rs.4,35,376/- + ₹ 6,69,004/-) and made an addition to the total income of the assessee. 4. Assessee claimed expenses to the tune of ₹ 3,78,508/- on account of business promotion, travelling and conveyance, telephone, etc.. Out of which, AO disallowed expenses to the extent of 1/10th and added the same back to the total income of the assessee and thereby made an addition of ₹ 37,851/-. 5 .....

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7. The ld. AR challenging the impugned order contended that the assessee company has transferred certain funds to its subsidiary company without any interest out of the loan taken at interest for business expediency and relied upon the judgments cited as S.A. Builders vs. CIT (A), Chandigarh [2007] 158 Taxman 74 (SC), CIT vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 (Bombay) and CIT vs. Jugal Kishore Dangayach [2014] 49 taxmann.com 486 (Rajasthan). 8. However, on the other hand .....

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3,48,111/- to M/s. R.J. Fabrics, its sister concern and Shri Manoj Kumar Jain, son of the assessee, respectively; that the aforesaid loans were advanced by the assessee to its sister concern and relative out of the funds taken by it at the interest rate of 18% per annum; that the assessee company is maintaining two different accounts : one loan account and another one is sale and purchase account purportedly for smooth running of the business. It is also the case of the assessee that the said lo .....

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AR only emphasized on the ratio of the judgments cited as S.A. Builders vs. CIT (A), Chandigarh , CIT vs. Reliance Utilities & Power Ltd. and CIT vs. Jugal Kishore Dangayach (supra) that when the assessee advanced part of the funds borrowed by it from the bank to its sister concern as interest free loan for business expediency, interest has to be allowed u/s 36(1)(iii) of the Act, but failed to brought on record even an iota of material to prove that the said loan was lent to M/s. RJ Fabrics .....

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d for personal use is not tenable because onus to prove the fact that the said funds were used for commercial expediency was on the assessee which he has failed to discharge. 13. Moreover, perusal of page no.45, which is part of the submission made by the assessee before CIT (A) during appellate proceedings, apparently goes to prove that the assessee has advanced loan of ₹ 1,23,48,111/- to Shri Manoj Kumar Jain without charging any interest and lent loan of ₹ 3,28,30,957/- to M/s. R. .....

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