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2016 (11) TMI 1056 - ITAT KOLKATA

2016 (11) TMI 1056 - ITAT KOLKATA - TMI - Disallowance of interest on account of interest free loan given to its associate company - Held that:- From the submission of the assessee we find that the sufficient fund was available with the assessee as discussed above to advance the money to its associate concern. The ld. DR has not brought anything contrary to the arguments of the ld. AR. Therefore, in our considered view, the authorities below should have disallowed the interest expenses rather th .....

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h Court we reverse the orders of Authorities Below and we allow ground of assessee’s appeal. - ITA No. 1818/Kol/2010 - Dated:- 28-9-2016 - Shri Waseem Ahmed, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member By Appellant : Shri D.S.Damle, FCA By Respondent : Shri Provash Roy, JCIT-SR-DR ORDER Per Waseem Ahmed, Accountant Member This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 26.07.2010. Assessment was framed by ITO Ward- .....

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For that, on the facts and in the given circumstances, the Learned Assessing Officer was totally unjustified in concluding that the Appellant adopted dual policy of utilizing interest baring bank loan for running its business operations and giving its own funds to a related company without any interest. The Learned Assessing Officer did not appreciate the other aspect o commercial prudence on the basis of which, the sums were given to associate firm time to time for meeting its various statutor .....

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dditional grounds and/or amend or alter the present grounds either before or during the course of the appellate proceedings. Shri D.S. Damle, Ld. Authorized Representative appeared on behalf of assessee and Shri Provash Roy, Ld. Senior Departmental Representative appeared on behalf of Revenue. 2. The common inter-connected issue raised by assessee in Ground No.1 and 2 are that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of interest of ₹ 5,76 .....

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interest income was worked out at ₹ 5,76,231/- on notional basis. Accordingly, AO added a sum of ₹ 5,76,231/- to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the loan was given to the associate enterprises out of its own surplus fund and no borrowed fund has been utilized for the loan given to the associate enterprises. However, Ld. CIT(A) rejected the plea of assessee and confirmed the order of AO by o .....

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ed. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 5. Before us Ld. AR submitted paper book which is running pages 1 to 46 and cited case law. Ld. AR of assessee stated that loan was given to associate enterprise out of its own surplus fund and which is as on 31.03.2007 of the assessee is of ₹ 1,83,59,374/- and interest free advance given to its associate concern is of ₹ 45,01,820/-. He also submitted that AO in the instance case, has worked out .....

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arties and perused the materials available on record. From the foregoing discussion, we find that the AO in the instance case has added the interest income on the advance given by assessee on notional basis and it was also confirmed by Ld. CIT(A). However, the ld. AR before us argued that the dispute before the AO was the interest expenses claimed by the assessee and therefore he should have disallowed the interest expenses rather charging the interest income on notional basis on the amount adva .....

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llowed the interest expenses, in either case he wanted to levy the tax on the borrowed money utilized for the purpose of the business other than assessee. But in our considered view the AO was to disallow the interest expenses on the money advanced to the associate concern. The lower authorities needs to work out period for which the interest bearing loan was utilized by the associate concern and the interest pertinent to that advanced money. But the lower authorities erred in charging the inter .....

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Hindustan National Glass & Industries Ltd. it further appears that the assessee was one of the promoter of the said company. The Commissioner of Income Tax (Appeals) in his order held as follows: I have carefully considered the facts of the case and the findings of the Assessing Officer from the audited accounts. I find that as of 31st March, 2005 the assessee s net owned funds was ₹ 6.88 crores which were far in excess of the interest free advance given to M/s Hindustan National Glas .....

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e. The Supreme Court in catena of case has held that the subject matter of tax is always income which should be real income and not hypothetical income. The Income Tax Act does not permit taxation of hypothetical or opportunity income and what is subject matter of tax is read income, irrespective of the fact whether an entry is made in the books of account or not. This is the ratio laid down in the case of Godhra Electric Co. Ltd. vs. CIT 225 ITR 746). The Income Tax Act does not compel an asses .....

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