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Commissioner of Income Tax-II, Kanpur Versus M/s Ghari Industries Pvt. Ltd.

2017 (3) TMI 275 - ALLAHABAD HIGH COURT

Addition u/s 40A - Held that:- We find that in this case the appellate authorities have gone into the facts of the case and, thereafter, reached the conclusion of existence of commercial expediency. The findings recorded by both the authorities are correct and no infirmity has been shown. Therefore, the questions of law raised in the memo of appeal are answered in favour of the assessee - Income Tax Appeal No. 26 of 2017 - Dated:- 1-3-2017 - Hon'ble Bharati Sapru And Hon'ble Saumitra Day .....

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ied in law in dismissing the appeal filed by the Revenue holding that loan given to M/s Calcutta Detergents Ltd. was a trade advance and that the Assessing Officer had not been able to establish that there was a direct nexus between borrowed funds and the advance given, ignoring the vital facts that as on 31.03.2005 the assessee was not having any interest free fund at its disposal as the whole of the share capital and Reserves & Surplus was locked up in Assets and Business of the assessee a .....

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r the assessment year 2005-06 has been dismissed vide order dated 19.01.2017 for the reason of below monetary limit. The assessee is engaged in the manufacture and sale of leather shoe, leather and trading of detergents. Admittedly it had got certain quantities of detergent manufactured by a sister concerned M/s Calcutta Detergent Pvt. Ltd. In the course of assessment proceedings the assessing officer noted that the assessee had advanced ₹ 14,98,00,000/- to M/s Calcutta Detergent Pvt. Ltd. .....

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Calcutta Detergent Pvt. Ltd was a sister concern and no interest had been charged therefrom. A disallowance was made under Section 40A(2) (b) read with Section 36 of the Income Tax Act of interest paid on borrowed funds. On the contrary, the assessee's case was that M/s Calcutta Detergent Pvt. Ltd. was engaged in the activity of manufacturing branded detergent exclusively for the assessee. In view of the same the assessee claimed existence of commercial expediency for making advance to M/s C .....

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s of the Ld. AR of the appellant. I agree with the AR of the appellant that the aforesaid trade advance was given to M/s Calcutta Detergent (P) Ltd keeping in view of the commercial business expediency since M/s Calcutta Detergents (P) Ltd was exclusively manufacturing the product of the appellant company and it was for the appellant company to decide the business interest. I also agree with the AR that the appellant company had sufficient share capital, Reserve, Surplus and current year profit .....

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T (Appeals) it is not disputed that M/s Calcutta Detergent Pvt. Ltd was engaged solely in manufacturing the goods namely branded detergent for the exclusive use of the assessee. Thus, the existence of commercial expediency cannot be doubted. The findings recorded by both the appellate authorities are based on perusal of evidence and cannot be faulted for that reason. Sri Gaurav Mahajan, learned Counsel for the department has strenuously argued that the amount of advance made is disproportionate .....

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further recorded that assessee had recorded sales of ₹ 7 crore this year and ₹ 44 crore next year. In this regard the Hon'ble Apex Court in the case of S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) and another reported in (2007) 288 ITR 1 (SC) has held as under :- "26.The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not .....

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