Case Law Details
Brief- High Court of Bombay at Goa has held in the case of Vassantram Mehta & Co. (P) Ltd. vs. JCIT that Interest not to be disallowed if interest free advance granted to sister concern due to commercial expediency and is for business purpose of assessee.
Brief about case
The appellant-assessee filed its return of income declaring a total income of Rs.28.61 lakhs after claiming deduction of expenditure incurred on account of interest aggregating to Rs.27.03 lakhs on pre-shipment packing credit facility obtained and Rs.12.85 lakhs as loss on foreign exchange fluctuation. The A.O. disallowed the entire expenditure on account of interest of Rs.27.03 lakhs on the ground that interest paid in respect of credit facility obtained was not for the appellant’s own business as part of amount of Rs.9.36 crore out of pre-shipment packing credit funds had been diverted as advance to its sister concern M/s Bandekar Brothers Private Limited (BBPL) from whom it purchased iron ore of Rs.6.02 crores. Simultaneously out of total loss of Rs.12.85 lakhs booked on foreign exchange fluctuation on advances received for supply of iron ore from foreign parties, only a sum of Rs.3.59 lakhs was verified by A.O. being the actual loss and consequently the excess foreign exchange loss claimed of Rs.9.26 lakhs was disallowed. As a result, appellant’s income from Rs.28.61 lakhs was enhanced to Rs.35.87 lakhs after adjusting enhanced deduction u/s 80HHC of the Act. On an appeal CIT(A) upheld the decision of A.O. but restricted the disallowance to Rs.17.21 lakhs being the interest payable by the appellant in respect of advances made by it to BBPL (diverted funds) out of the packing credit facility obtained by it. However w.r.t to currency fluctuation loss, entire amount incl.Rs.3.59 lakhs allowed by A.O. was disallowed on the ground that amount received by the appellants are only in the nature of advances and the loss on account of exchange fluctuation could be only allowed as and when the goods are supplied against the advances received and not on a notional basis. On an appeal before Tribunal, order of CIT(A)was upheld. Being aggrieved by the impugned order of the Tribunal, the assessee raised following substantial question of law before the court.
- Whether on the facts and in the circumstances of the case, the appellate Tribunal is right in disallowing the claim of interest payment because of the interest-free advances made to sister concern, solely impelled by commercial expediency and used by the payee company for its business only, on the ground that the advances were excessive considering the requirements of assessee’s trade with that concern?
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