TMI Blog2017 (5) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... is as to how the receipts from firm would be taxable in the hands of assessee. Admittedly, the share of the profits derived from firm is exempt u/s 10(2A) in the hands of assessee and, therefore, to this extent proportionate disallowance can be made. However, interest and remuneration from firm would be taxable as business income in the hands of assessee and, therefore, interest paid on borrowed funds in this regard cannot be disallowed. The taxability of income in the hands of firm is not relevant while considering the nature of receipt in the hands of assessee. Therefore, the assessee’s claim that it had not invested the money to earn any exempt income is not correct. The nature of profits in the hands of firm cannot be the decisive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the amount of advance to the firm. He also examined the account of debtor and noticed that assessee was having a running account with this concern, wherein, numerous transactions of advancing loans had been carried out. Closing debit balance of the assessee with the firm was at ₹ 1,00,88,796/- as on 31.03.2010. He required the assessee to explain as to why interest equivalent to the interest free advances of ₹ 1,00,88,796/- to M/s Martin Brown Bioscience may not be disallowed in view of decision of Hon ble Punjab Haryana High Court in the case of CIT vs. Abhishek Industries Ltd., (2005) 156 Taxman 257 (P H). The assessee in its reply stated as under :- ..Respectfully it is submitted that we have not charged any int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loans raised by it to that extent. After taking into consideration, securities received from others totaling to ₹ 53,14,501/-, the Assessing Officer disallowed the proportionate interest amounting to ₹ 2,63,317/-. Ld. CIT(A) dismissed the assessee s appeal. Being aggrieved, the assessee is in appeal before the Tribunal and has taken following grounds of appeal :- 1. The order of the learned CIT (A) confirming the addition is bad in law and against facts. 2. The learned CIT (A) has erred in disallowing interest to the tune of ₹ 263317/-. 3. The Learned CIT (A) has erred by not considering the judgment of Honorable Supreme Court and Honorable different High Courts Tribunals cited by the assessee. Altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee had invested the amount as capital to earn profit. He pointed out that but for the section 80-I of the Act, the profit would have been taxable in the hands of the assessee and, therefore, the decision in the case of Abhishek Industries (supra) is not applicable. He submitted that assessee had not invested in the capital for earning exempt income. Ld. counsel relied on the decision in the case of S. A. Builders vs. CIT, 288 ITR 1, wherein, it has been held that no interest can be disallowed in respect of advance to sister concern given on account of commercial expediency. Ld. DR submitted that there was no commercial expediency. 6. I have considered the submissions of both the parties and have perused the record of the case. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the case of SA Builders 288 ITR 1, that the expression 'commercial expediency' is an expression of wide import and includes as much expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 7. From the above observations, it is evident that the claim of assessee has been rejected primarily because assessee failed to establish reasonable nexus of business expediency for advancing interest bearing funds to partnership firm. However, the factual position has not been disputed inasmuch as it is not disputed that the funds were invested in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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