Case Law Details
Brief Facts
1. Assessee has filed its return of income on 22-11-2006 and 05-10-2007 declaring a loss at Rs. 21,98,810/-and Rs. 96,91,459/- in Assessment Year 2006-07 and 2007-08 respectively. The case of the assessee was selected for scrutiny assessment and notices u/s. 143(2) of the income tax act were issued on 09-10-2007 and 18-09-2008 which were duly served upon the assessee in Assessment Year 2006-07 and 2007-08 respectively.
2. Assessee had taken a loan to the tune of Rs. 39.11 crore in Assessment Year 2006-07 and has paid interest at Rs. 44,65,790/- on such loans and in Assessment Year 2007-08 assessee has paid interest amount of Rs 46,76,972/-. In Assessment Year 2007-08 the opening balance of the unsecured loan was Rs. 39.41 crore which was enhanced to Rs. 73,11,37,602/-
3. AO has disallowance interest paid for both the year by holding that (A) Assessment Year 2006-07 assessee has diverted interest bearing funds to the sister concern without charging interest and without any purpose of the business. In other words, the interest bearing funds were used for non-business purposes; therefore, the interest expenses are not admissible to the assessee. (B) Assessment Year 2007-08 The opening balance of the unsecured loan was Rs. 39.41 crore which was enhanced to Rs. 73,11,37,602/-. Thus, there was an increase in the unsecured loan amounts, simultaneously the amounts in advances given to sister concern without charging interest have also been increased from Rs. 23,75,00,209/- to Rs. 1,55,77,78,397/-
4. Therefore, AO has disallowances of interest expenses amounting to Rs. 44,65,790/- and Rs. 46,76,672/- in Assessment Year 2006-07 and 2007-08 respectively for the reason state above. Please become a Premium member. If you are already a Premium member, login here to access the full content.
