TMI Blog2011 (6) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is engaged in the manufacturing of steel ingots, metal rods etc. During the course of assessment proceedings, the assessee was asked to file the details of interest free loans/advances if any alongwith reasons. The assessee explained to have advanced interest free loans to 5 parties as detailed in para 5 at page 3 of assessment order. The assessee was confronted vide order-sheet entry dated 7.12.2009 that in view of substantial interest debited to the Profit Loss Account, why proportionate interest should not be disallowed in view of the judgement of Hon'ble Punjab Haryana High Court in M/s Abhishek Industries Ltd. (286 ITR 1 (P H) ) and also because of disallowance in assessment year 2006-07. The AO notes the assessee to have agreed to the above addition vide order-sheet entry dated 15.12.2009 and accordingly interest debited to the Profit Loss Account was disallowed @ 15% resulting in disallowance of Rs.3,67,931/-. In appeal before the CIT(A), the assessee raised the issue of disallowance of Rs.3,67,931/-. The submission of the assessee in this regard was that it had agreed to the addition in view of the judgement in case of Abhishek Industries Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Keeping in view the facts of the case and relying on the judgement of the ITAT Bench reported in 51 TTJ 393 in the case of M/s Goyal Timbers v ITO, I hold that no disallowance of interest could be made. The assessee gets a relief of Rs.3,67,931/-. 4. The ld. DR for the Revenue by placing reliance on the order of AO pointed out that the disallowance in the case was warranted in view of the ratio laid down in Abhishek Industries Ltd. (supra). The ld. AR for the assessee pointed out that the AO had not raised any query with regard to the concern M/s Goyal Steels, which was not a sister concern and the advance was made to the said party in connection with the business of the assessee. The parties No.2 3 were stated to be related to the partners and the advances were out of capital balances of the partners. The party No.5 was claimed to be not related to the assessee and amount due from party No.4 was on account of an advance for plot, which was later debited to the account of the partners. 5. We have heard rival contentions and perused the records. The assessee during the course of assessment proceedings was asked to give details of interest free loans, if any alongwith rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs and as such the interest bearing loans were claimed not to have been utilized for making the abovesaid advances. 7. The Hon'ble Punjab Haryana High Court in CIT V Abhishek Industries has held as under : Section 36(1)(iii) of the Income-tax Act, 1961, provides for deductions of interest on loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be a very heavy onus on the assessee to discharge before the Assessing Officer to the effect that in spite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, there was justification to advance loans to sister concerns for non-business purposes without any interest and accordingly the assessee should be allowed deduction of interest being paid on the loans raised by it to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the explanation of the assessee viz-a-viz the transfer to the capital accounts of the partner being effected in assessment year 2010-11. Admittedly certain advances were made interest free by the assessee and were outstanding as on the close of the year. The interest attributable to such interest free advances is disallowable in the hands of the assessee in view of the ratio laid down by the Hon'ble Punjab Haryana High Court in Abhishek Industries (supra). Accordingly, we uphold the disallowance of interest in respect of advances made to Raghav Goyal, Kavita Goyal, Satish Chandra and also the advance made for purchase of plot to M/s Sarvpriya Developers, which is not the asset of the assessee firm as the said amount was later transferred to the capital account of the partner. In respect of the advances made to M/s Goyal Steels, admittedly the assessee itself had shown the said advance as interest free advance before the AO. However, later it claims that the said advance was for the purchase of material. The necessary evidence in this regard is not available on record and following the principles of natural justice, we deem it fit to restore this issue back to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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