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TMI Blog2016 (11) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... her and disposed off, by way of this common order for the sake of convenience. 2. The brief facts of the case are that the assessee is a partnership firm, which is engaged in the business of dealer in footwear filed its return of income for the assessment year 2009-10 on 29.9.2010 declaring total income of Rs. 68,58,677/-. The case has been selected for scrutiny under CASS and accordingly, notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and produced books of accounts and other relevant information as called for. 3. During the course of assessment proceedings, the A.O. noticed that the assessee has advanced interest free advance to partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (1974) 96 ITR 568 and the High Court of Delhi, in the case of Mohan Meakin Limited Vs. CIT in ITA No.405/2007. 4. The A.O. after considering the explanations of the assessee, held that the assessee has given interest free advances out of interest bearing funds to its partners and sister concern without charging any interest. The A.O. further held that the assessee had borrowed huge funds from banks and without charging any interest diverted its interest bearing funds to the Managing partners and sister concerns. If the assessee had not given interest free advances, there would not have been any necessity for the assessee to borrow funds and pay huge interest. As it is evident that interest bearing funds have been extended to its partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade advances on which charging of interest is not correct. There is no finding by the A.O. that such advances have no business nexus, therefore, the A.O. was not correct in charging interest on advances given to sister concerns. With these observations, directed the A.O. to delete notional interest charged on advances given to partners and sister concerns. As regards write off of advances given to suppliers, the CIT(A) held that the assessee has given advances to suppliers towards supply of materials in the normal course of business and the advances turned bad because the suppliers neither supplied the goods nor returned the advances. Thus, advances were made in the ordinary course of business with an intention to carry on the business oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37 of the Act. The D.R. further argued that the CIT(A) erred in holding that the same is business loss as such advances do not reflect in profit & loss account. On the other hand, the Ld. A.R. for the assessee strongly supported the order of the CIT(A). 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The first issue that came up for our consideration is additions towards notional interest on advances given to partners and sister concerns. The A.O. observed that the assessee has diverted its interest bearing funds to partners of the firm and sister concerns without charging any interest. The A.O. further observed that the assessee has paid huge inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. was not correct in holding that the assessee has diverted its interest bearing funds to its partners and sister concerns. The CIT(A) after considering the relevant details rightly deleted additions made by the A.O. We do not see any reasons to interfere with the order of the CIT(A). Hence, we direct the A.O. to delete additions towards notional interest and reject the ground raised by the revenue. 9. The next issue that came up for our consideration is advances written off of Rs. 20,20,763/-. The A.O. has made additions of Rs. 20,20,763/- towards advances turning bad. The A.O. was of the opinion that advances to suppliers are in the nature of capital advances and hence, the assessee is not eligible to write off capital advances eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances to suppliers" and kept under current assets. The assessee has written off these advances in the books of accounts as bad debts. Even if these amounts are not allowed as deduction u/s 36(1)(v) of the Act, the assessee can always claim deduction u/s 37 of the Act, as the scope of section 37 of the Act is vide enough to include all such amounts paid for the purpose of business and are to be allowed unless and otherwise the advance is capital in nature. In the present case on hand, on perusal of the details available on record, we noticed that these advances are given for the purpose of purchase of raw materials. The assessee has written off these advances in the books of accounts. Therefore, we are of the view that the A.O. was erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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