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Principal Commissioner of Income Tax-2 Versus Lalbhai Realty Finance Pvt. Ltd.

Disallowance of interest expenses - Held that:- The assessee had diverted its interest bearing funds for the purpose of its business. It was not mere lending without interest but involved engagement of the assesseee in a business of developing real estate. - Tax Appeal No. 717, 718 of 2016 - Dated:- 26-9-2016 - Akil Kureshi And A. J. Shastri, JJ. Mrs Mauna M Bhatt, Advocate for the Appellant ORDER ( Per : Honourable Mr. Justice Akil Kureshi ) 1. Leave to amend the question of law suggested. 2. T .....

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ssessee had borrowed funds from HDFC Bank out of which, a sum of ₹ 15 crores was lend to the sister concern M/s. SSKI which carried no interest. The Revenue was of the opinion that the interest paid to the asessee on such borrowings which was diverted for interest free loans should be disallowed. This is second round of litigation. In the first round, the Tribunal accepted that there was diversion of interest bearing funds for advancing interest free loans. However, the question was, was i .....

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ss of financial activities. The funds given to SSKI were given for the purpose of real estate project by the appellant company and the same was used for the purpose of appellant company's business only. And accordingly, the question for treating as non-business purpose should not arise. The Assessing Officer, however, discarded such defence and taxed the income by disallowing a claim of expenditure on the interest paid on such borrowed funds. 5. The assesse carried the matter, in appeal befo .....

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e machineries, plants, stock in trade, trademarks and such other movable and immovable properties of all description. The Tribunal held that the advance was for business expediency. The Tribunal made following observations: 18. As mentioned above, the objects in the Memorandum of Association are clearly in favour of the impugned transaction and establish a direct neux between the business of the assessee and the advancing of money. Our view is also fortified with the financials of the assessee i .....

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