Case Law Details
Brief of the Case: ITAT Delhi has held In the case of M/s Chemical Sales and Services vs. ITO that the only condition for claiming deduction under section 36(1 )(iii) is “commercial expediency” of the expenditure incurred and once the said condition is fulfilled, no further factor can be brought in to deny the legitimate claim of deduction. It has not been established by AO that advances are for non – business purposes and as such, disallowance is unsustainable in law.
Facts of the Case: Assessee firm was engaged in the business of trading of chemicals. It was observed by the Assessing Officer that assessee had paid interest of Rs.21,81,286/- on secured loan of Rs.l,72,49,345/-. Assessing Officer found that one of the partner of the firm, M/s Suresh Goel and Sons, HUF had debit balance of its capital as on 31.3.2010 of Rs.81,13,770/- as against the balance of Rs.l4,59,446/- as on 01.04.2009. It was observed that assessee was paying interest on secured loans other than for business purposes and assessee has given interest-free loan of Rs.61,40,000/- to M/s Suresh Goel and Sons, HUF out of its secured loans of Rs.1,17,07,384/-. Which clearly shows that assessee was diverting its interest-bearing funds to non-interest bearing loan to one of its partners for his undue enrichment.
He also found that there is no commercial expediency in diverting interest bearing loan to interest free loans. Thus, he held that loan given to above partner is not allowable either U/S 36(1)(iii) or 37(1) of the Act.
Contention of the Assessee: Ld. Counsel of the assessee stated that the CIT (A) have wrongly disallowed of Rs. 10,54,790/- out of the interest expenses of Rs. 21,81,286/- on the ground that the assessee has allegedly diverted interest bearing funds for non business purposes. He submitted that evidence furnished has arbitrarily been brushed aside. He further submitted that the ClT(A) has failed to appreciate that the assessee firm had advanced fund to one of its partner namely M/s Suresh Goel & Sons HUF for construction of a building on the plot owned by the partners and was to be used by the assessee firm for its business purposes. Also a fair and proper opportunity of being heard is not given to assessee.
Contention of the Revenue: Ld. DR relied upon the orders of the lower authorities.
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