Rajmal Lakhichand Vs DCIT (ITAT Pune)
In the case aforementioned ITAT Pune, allowed appeal filed by assessee after observing that provision of section 36 (1) (iii) were not applicable in the present case. Assessee is engaged in the business of manufacturing and trading of gold and silver ornaments, bullions and diamonds. It also engaged in manufacturing of electricity through wind mills. It filed return at Rs.2,13,60,610/-. Subsequently, the assessee filed a revised return declaring total income of Rs.2,43,54,370/-. The return was selected for complete scrutiny and statutory notices were issued, in response to which assessee filed details from time to time. AO noted from the details submitted by the assessee that it has shown melting gain at 1.70%. Explanation was sought from the assessee. AO rejected all the submissions made by the AO and adopted melting gain at 4%. He accordingly made addition of Rs.1,06,96,398/- on account of melting gain. AO, further, noted that assessee has debited gross interest of Rs.6,93,54,058/-. Assessee was asked for the explanation which was duly explained by the assessee. AO further noticed that assessee has advanced loan of Rs. 24,63,16,951/- to its partners with whom assessee signed a joint ventures. Assessee has taken huge loan from its sister concern and paid substantial interest to it hence AO took view that advances made to partners is out of the borrowed funds only. AO held that the assessee has not used borrowed funds for business purposes, therefore, he calculated the interest up to date of agreement at Rs.1,42,04,274/- and made addition u/s 36(1)(iii). He further calculated interest on the advance made to the partners at Rs.2,93,58,034/-. Since Rs. 142,04,274/- was already disallowed hence he disallowed the balance amount of Rs.1,53,53,760/-. AO accordingly disallowed interest u/s 36(1)(iii) at Rs.2,95,58,034/-. Appeal before CIT (A) was dismissed.
