TMI Blog2021 (8) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... t earned on government securities and short-term deposits which was shown separately by the assessee as Income from other sources from the total interest deposited in the Profit Loss Account to the tune of ₹ 27,11,471/-. For computing the proportionate disallowance of interest on the interest free non-business advance of ₹ 17,40,000/-, the AO is directed to set off the interest income of ₹ 9,15,626/- and, thereafter compute the proportionate disallowance. To this extent, the order of the CIT(A) is modified and the ground raised by the assessee is partly allowed. Appeal filed by the assessee is partly allowed. - ITA No. 4383/Del/2019 - - - Dated:- 3-8-2021 - SHRI R. K. PANDA , ACCOUNTANT MEMBER Assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances have been given out of commercial expediency and, therefore, the interest paid on secured loan should not be disallowed. However, the AO was not satisfied with the arguments advanced by the assessee and disallowed an amount of ₹ 27,11,471/- being the proportionate interest on interest free advance of ₹ 1,12,03,500/- . In appeal, the ld.CIT(A), following the decision of Punjab Haryana High Court in the case of CIT vs. Abhishek Industries Ltd. (2006) 286 ITR 01 and various other decisions of the Tribunal, sustained the addition made by the AO. 5. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal raising the following grounds:- 1. On the facts and circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned interest of ₹ 8 lakhs on investment of ₹ 1 crore in 8% government bonds. Further, the assessee has also earned interest of ₹ 1.15 lakhs on FDR purchased on short-term spare funds. Thus, the net interest payment is only ₹ 17.96 lakhs. Referring to the Profit Loss Account, he submitted that the assessee has made sales of ₹ 4,61,78,210/- on which it has earned profit of ₹ 46,38,762/-. He submitted that the allegation of the AO is that the assessee has given huge advances of ₹ 1,12,03,500/- which are not in the course of business. He submitted that except one advance of ₹ 17,40,000/- given to Nazuk Jindal which is not in the nature of business, the remaining advance of ₹ 94,63,500/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of the reply of the assessee, I am of the opinion that the reply of the assessee is not tenable. It is very much clear from the balance-sheet filed by the assessee and from the above mentioned reply, that the assessee has obtained loans from the Kotak Mohindra Bank and ICICI Bank, totaling to ₹ 2,26,52,053/- on which he has paid ₹ 27,11,471/- as interest. In para 3 of the reply of the assessee dated, 08.11.2017, the assessee has explained that he has made interest bearing investment of ₹ 1,00,00,000/- on which 8 lac of interest is shown as received. The data provided by the assessee is nothing but self serving presentation of statistics. Further in para 4 5 of the reply, he has given summery of outstanding lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 1,12,03,500/-. I find, the ld.CIT(A) sustained the addition made by the AO on the ground that the assessee has granted interest free advance of ₹ 1,12,03,500/- and failed to establish the nexus between the interest free funds available in the form of capital and the interest free advances given by him. It is the submission of the ld. Counsel for the assessee that out of the total interest free advance of ₹ 1,12,03,500/-, only an amount of ₹ 17,40,000/- is the interest free advance for the non-business purpose and the remaining advance of ₹ 94,63,500/- are given in the normal course of business. It is also his submission that the assessee has earned interest of ₹ 8 lakhs on investment of ₹ 1 crore i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nazuk Jindal is on account of non-business purposes and the remaining advances of ₹ 94,63,500/- are given in the normal course of business. The AO, in the instant case, without considering the interest earned by the assessee, has disallowed an amount of ₹ 13,41,068/- being the proportionate interest on interest free advances of ₹ 1,12,03,500/-. In my opinion, in the instant case, disallowance, if any, can be made on the interest free advances of ₹ 17,40,000/- given to Mr. Nazuk Jindal since the same is admittedly for non-business purposes. However, while computing the proportionate disallowance of interest free advances, the AO has to consider the interest earned on government securities and short-term deposits whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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