The facts, in brief, are that the ld. Assessing Officer disallowed interest payment of Rs.3,61,356/- being capital introduced in M/s King Empire Developers (AOP), on the plea that the interest bearing funds were diverted, without charging any interest, out of own funds. On appeal, before the Ld. Commissioner of Income Tax (Appeal) granted relief to the assessee, which is under challenge before this Tribunal. It is noted that the assessee gave loan and advances to the tune of Rs.23,68,000/- and also invested Rs. 1,52,00,427/- in Kings Empire Developers and no interest was charged on these amounts. A show-cause notice was issued to the assessee by the Assessing Officer as to why the interest should not be disallowed u/s 36(1) (iii) of the Act as interest bearing funds were diverted as interest free loan and advances.
ITAT Mumbai held that there is uncontroverted finding in the impugned order that the impugned amounts were invested in earlier years and not in the current year. It is also noted that no evidence has been produced by the Revenue evidencing that the funds were diverted without commercial exigencies. So far as, making investment is concerned, it is the businessman who is to make the investment protecting his business interest. The Assessing Officer cannot be expected to sit in the chare of the assessee and decide in which manner the investment has to be made. Action can only be taken or disallowance can be made only in a situation when it is found that the investment or granting loans is contrary to the provisions of the Act. Therefore, I find no merit in the ground raised by the Revenue, consequently, the stand taken by the Ld. Commissioner of Income Tax (Appeal) is affirmed.
