The Tax Publishers2013 TaxPub(DT) 1612 (Guj-HC) : (2013) 052 (I) ITCL 0522 : (2013) 354 ITR 0222

Income Tax Act, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capital Interest-free advances to associate concerns--Assessing officer noticed that the company had incurred heavy interest expenses and, on the other hand, it had given interest-free loans to its associate concerns, therefore, after considering submissions of both sides, he disallowed certain amount of interest of the interest-free loans advanced to its associate concerns on the ground that the same was not incurred for business expenses. According to Commissioner (Appeals) and Tribunal, there were sufficient funds available with the assessee on which no interest liability had been incurred and the same funds were far greater than the loan advanced to its associate concerns, thus, borrowed money was not utilized for the purpose of advance to the sister concerns and interest was not disallowable merely on account of utilization of funds for non-business purpose. Held: Rightly so, as when there was no evidence brought on record by the department for the Tribunal to hold otherwise than what has been concluded by way of any material' the issue was appropriately concluded in favour of the assessee.

Income Tax Act, 1961 Section 36(1)(iii)

In the Gujarat High Court

Akil Kureshi & Sonia Gokani J.J.

CIT v. Raghuvir Synthetics Ltd.

Tax Appeal No. 829 of 2007

5 December, 2011

Appellant by : M. R, Bhatt, Senior Advocate with Mauna M. Bhatt

Respondent by : None appeared

JUDGMENT

Sonia Gokani, J.

To briefly state, the facts are that for the assessment year 2001-02, during the course of the assessment proceedings, it was noticed by the assessing officer that the company had incurred heavy interest expenses to the tune of Rs. 59,83,543 and, on the other hand, it had given interest-free loans to R. R. Family Trust (Kashiram Textiles Ltd.) to the tune of Rs. 1.05 crores and to Sagar Textile Mills to the tune of Rs. 18.40 crores. On calling for the explanation for interest-free loans and duly considering the submissions of both sides, the assessing officer disallowed the interest to the extent of Rs. 18,66,000 of the interest-free loans advanced to both the parties on the ground that the same was not incurred for business expenses.

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