Case Law Details
Asuda Holdings Private Limited Vs CIT (ITAT Mumbai)
ITAT Mumbai held that there is a clear diversion of funds for non-business purpose as funds are borrowed @18% and lended the same to one of its directors at 13.5%. Accordingly, disallowance under section 36(1)(iii) sustained.
Facts- AO observed that assessee has taken loan from M/s. Elevators News Network Pvt. Ltd. (ENNPL) and paid interest @18%. AO further, observed that assessee has given a huge loan to one of its Director Mr. Anup Shyam Karnani and charged the interest @13.5%.
When the assessee was asked to substantiate on the above transactions, assessee filed its submissions. After considering the submissions of the assesse, AO rejected the same by observing that assessee has advanced funds to one of its Directors and charged interest only @13.5% whereas paid interest to ENNPL at higher rate. He observed that assessee has lent the amount to one of its Director with little interest, which proves that the funds borrowed have direct nexus between the borrowing of the funds and diversion thereof for non-business purpose. The same may be lent for the reason that the assessee company has some loans or other interest bearing debts to be repaid. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee and the Director would be enjoying the benefit thereof.
Accordingly, AO invoked provisions of section 36(1)(iii) of the Act to disallow the difference interest @4.5% and disallowed the same to the extent of ₹. 48,11,168/-. CIT(A) dismissed the appeal filed by the assessee. Accordingly, being aggrieved, the present appeal is filed.
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