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2017 (1) TMI 770 - ITAT INDORE

2017 (1) TMI 770 - ITAT INDORE - TMI - Interest free advances to the sister concern - disallowance of interest - Held that:- The assessee has un-secured loan amounting to ₹ 5.1 crores as at the end of the previous year relevant to assessment year under consideration. The assessee has paid interest on bank charges at ₹ 69.29 lakhs. We further find that the interest free advances given to sister concern have no business link with the assessee company. The claim of the ld. Authorized Re .....

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ster concern during the financial year 2005-06 also. - This proves that the assessee needed such a huge bank loan, because share capital, reserve and profits of the Company, which stood at ₹ 8.44 crores as on 31.03.2010. Therefore, we are of the considered opinion that capital reserve standing at ₹ 6.38 crores as on 31.03.2010 stands already utilized towards investment in fixed assets. Hence, there was no surplus funds available with the assessee for making interest free advance .....

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Income-tax (Appeals)-I, Indore [hereinafter referred to as the CIT(A)] dated 01.07.2014 and pertains to assessment year 2010-11 as against appeal decided in assessment order passed u/s 143(3) of the Act dated 28.03.2013 of ITO Ward 3(1) Indore [hereinafter referred to as the AO]. 2. The assessee has taken as many as four grounds of appeal. However, the effective ground relates to maintaining the disallowance of ₹ 30,80,000/- out of interest payment on the ground that the borrowed funds ha .....

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ed that the assessee has claimed a huge amount on account of interest and bank charges to the tune of ₹ 69,29,242/-. Therefore, the AO has drawn the inference that the assessee company has borrowed loan from Banks at the prevailing market rates for the purpose of regular business needs. Even if the amount of only secured loan is taken into consideration at ₹ 4,60,27,437/- balance as on 31.03.2011. In nut-shell, the AO noted that the assessee was in dearth of funds during the year and .....

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loan taken was not found acceptable in absence of substance and logic. The AO noted that the interest on Bank charges are at ₹ 69.29 lakhs, whereas the closing balance of secured and unsecured loan of ₹ 5,18,13,983/-. Thus, the effective rate of interest comes to approximately 14%. Accordingly, the AO disallowed the proportionate interest at ₹ 30.80 lakhs on advances of ₹ 2.20 crores and added the same to the total income. 4. Aggrieved with the order, the assessee filed .....

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efinitely do not help the expansion of business of the assessee. The ld. CIT(A) has also relied in the case of Harrisons Malayalam Limited, (2012 25 Taxman.com 546 (Kerala), wherein it was held that interest free loan if not been given to subsidiary company, the assessee would have meet its funds requirement from internal sources. As regards contention of the assessee that advances to sister concern was given out of reserves and profits available with the company was also found incorrect, becaus .....

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in financial year 2005-06 and advance of ₹ 15 lakhs in financial year 2006-07 to Cecil Pharmaceutical Pvt.Ltd. which went up to ₹ 1.40 crore in financial year 2008-09. These things proved that need arose to take such bank loans because share capital, reserves and profits of the company were already utilized in purchase of Fixed Assets of the company, which stood at ₹ 8.44 crores as on 31.03.2010. Accordingly, the ld. CIT(A) has upheld the disallowance on interest of ₹ 30 .....

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fore the Tribunal. 6. The Ld. Counsel for the assessee submitted that the advances were given to two concerns in the earlier years, who were manufacturing the pharmaceuticals and to expand the business of the assessee. These advances were given for the manufacturing Units in the notified area. The advance to M/s. Cecil Pharmaceuticals was to the tune of ₹ 1.40 crores as on 31.03.2009, wherein the assessee held 50% shares. The advance to M/s. Pro Laboratories Private Limited, Roorkee was to .....

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lakhs to ₹ 54 lakhs. The share capital and reserves to the tune of ₹ 6.38 crores. Thus, it could very well be seen that no interest bearing loans are utilized for the advances to these concerns during the year under consideration. In support of this, the ld. Authorized Representative of the assessee has placed reliance on the following decisions :- (i) D & H Secheron, 142 ITR 528 (M.P.. (ii) R. D.Joshi, 251 ITR 332 (MP) (iii) Prem Heavy Engineers, 285 ITR 554 (Alld.). (iv) Tulip .....

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ster concerns. We further note that the assessee has un-secured loan amounting to ₹ 5.1 crores as at the end of the previous year relevant to assessment year under consideration. The assessee has paid interest on bank charges at ₹ 69.29 lakhs. We further find that the interest free advances given to sister concern have no business link with the assessee company. The claim of the ld. Authorized Representative of the assessee that the assessee had capital reserves to the tune of ₹ .....

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