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2017 (5) TMI 900 - ITAT DELHI

2017 (5) TMI 900 - ITAT DELHI - TMI - Advancing interest bearing funds to partnership firm on no interest - Reasonable nexus of business expediency - Held that:- The factual position has not been disputed inasmuch as it is not disputed that the funds were invested in the capital of partnership firm and, therefore, the primary intention of assessee was to earn profits from the firm. - The contention of assessee that since the profits from firm were exempt u/s 80-IC, therefore, it cannot be s .....

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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 factor for considering the nature of profits in the hands of assessee. In view .....

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the Income Tax Act, 1961 (in short the Act ), relating to assessment year 2010-11. 2. Brief facts of the case are that the assessee fled return declaring an income of ₹ 9,52,940/-. The Assessing Officer noticed from Profit & Loss Account that assessee had claimed expenses of ₹ 4,67,832/- on account of payment of interest on borrowed funds, as per following details :- Unsecured loans Rs.41,89,706/- Unsecured loans Rs.83,95,459/- Total interest bearing funds Rs.1,25,85,165/- 3. Th .....

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see 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 c .....

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ring the assessee s reply, the Assessing Officer concluded that the funds to the extent diverted to the partnership concern free of interest were not required by the assessee for the purposes of its business and no loans to that extent were required to be raised and interest thereon was not allowable. He relied on the decision in the case of CIT vs. Abhishek Industries Ltd. (supra), wherein, it has been held that if in the process of examination of genuineness of deduction of interest, it transp .....

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ion of interest being paid on 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 fa .....

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en disallowance comes to ₹ 94007/- only as per calculation given before the Learned CIT (A). The learned CIT (A) erred in not considering the calculations. 4. The learned C.I.T. (A) has erred in relying on the judgment of Abhishek Industries which has no relevance in the case of assessee as assessee has not made any interest free advances to its sister concern for non business purpose. Rather he has invested funds in a new unit and all the cases relied by him are supporting his stand. The .....

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41 of the Constitution of India the law declared by the Supreme Court shall be binding on all courts within the territory of India. Moreover, cases decided by the Jurisdictional High Courts are also binding within the State. 5. Ld. counsel submitted that 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 .....

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the submissions filed before ld. CIT(A), it was specifically stated by assessee that he had started a unit in partnership under the name and style of M/s Martin & Brown Biosciences in Baddi, Himachal Pradesh. The assessee was partner in the firm having 50% share. The profits of the firm were exempt for a period of 5 years u/s 80-I of the Act. This plea of assessee did not find favour with the ld. CIT(A), who observed in para 5.2 and 5.3 as under :- 5.2 It is not clear from the submission of .....

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required by the appellant for the purposes of its business and no loans to that extent were required to be raised and interest there on is therefore not allowable. 5.3 It is to be examined, in view of the decision of the honorable Supreme Court as to whether there was reasonable nexus or business exigency for advancing interest free funds out of interest bearing funds. It has been held by the Supreme Court in the case of Hero Cycles pvt. Ltd. V. CIT(2015) 63 taxmann.com 308 (SC), quoting from t .....

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