Commissioner Of Income Tax-I vs Abhishek Industries Ltd. on 4 August, 2006
34. Respectfully disagreeing with the views expressed by Delhi High Court in Commissioner of Income Tax v. Tin Box Co. (supra) and Commissioner of Income Tax v. Orissa Cement Ltd. (supra); Allahabad High Court in Commissioner of Income-Tax v. Radico Khaitan Ltd. (supra) and Commissioner of Income-Tax v. Prem Heavy Engineering Works (P) Ltd. (supra); Calcutta High Court in Commissioner of Income Tax v. Britannia Industries Ltd. (supra) and Madhya Pradesh High Court in R.D. Joshi and Co. v. Commissioner of Income-tax (supra), we do not subscribe to the observation in the judgments to the effect that if the amount is advanced from a mixed account or share capital or sale proceeds or profits etc., the same would not be termed as diversion of borrowed capital or that the revenue had not been able to establish nexus of the funds advanced to the sister concerns with the borrowed funds. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under Section 36(1)(iii) of the Act. Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. Accordingly, the assessee will not be entitled to claim deduction of the interest on the borrowings to the extent those are diverted to sister concerns or other persons without interest.