PREMIER BRASS AND METAL WORKS P LTD Vs. ASSISTANT COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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T.V.K. Natarqjachandran, Vice-President -
(1.) THESE appeals by the assessee are consolidated and disposed of by a common order, for the sake of convenience as they involve common issues. The appeals pertain to the assessment years 1978-79, 1979-80, 1980-81 and 1981-82 and arise out of the separate orders of the CIT (Appeals).
(2.) The assessee is a resident company and as the very name suggests, it purchases brass and metal scrap and manufactures brass rods. It has adopted calendar year as the previous year. It also undertakes job work of conversion of raw materials.
The first common issue relates to the disallowance of interest paid on borrowed funds on the ground of diversion of funds to sister concern without charging any interest. For the sake of convenience, we shall discuss the assessment year 1978-79 in detail. The assessee-company made certain advances to sister concern Copper Strips (P.) Ltd. on which no interest was charged. In the original assessment for 1978-79, the Assessing Officer disallowed interest of Rs. 36,585 pertaining to those advances on the view that there was no indication in the books of account, that they were made against any material received or purchased from the sister concern.
(3.) ON appeal, the then CIT (Appeals) restored the issue to the AO for examining the matter with reference to the balance sheet of the sister concern after giving opportunity to the assessee of being heard. Thereafter, the AO called upon the assessee to furnish the balance sheet of the sister concern but it was not filed. However, a photo copy of the certificate dated 31-12-1977 of sister concern was filed which indicated that raw material weighing 26738.400 kg. was given to the assessee on 31-12-1977 which is relevant for the assessment year 1978-79. However, it is not clear to the AO that the advances were made for the said raw material. He has also referred to the doubt cast in the earlier order by the then CIT (Appeals) on the nexus between the material received for conversion from sister concern and advances made to it by the assessee. ON the aforesaid premise, the AO concluded that the advances made to the sister concerns were not for business purposes. Consequently, he disallowed the interest of Rs. 36,585 for the assessment year 1978-79.;
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