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2021 (9) TMI 882 - ITAT MUMBAIRevision u/s 263 - disallowance of the assessee’s claim for deduction of interest expenditure u/s 36(1)(iii) - HELD THAT:- Assessee had sufficient owned funds to source the interest-free advance that was given to its subsidiary company is not in dispute. The controversy involved in the present appeal hinges around the aspect, that as per the department if an assessee had borrowed certain funds on which liability to pay interest is being incurred; and on the other hand had advanced certain amounts to its sister concern or other third parties without charging any interest and without any business purpose, then, the proportionate interest correlating to the amount so advanced without charging any interest was liable to be disallowed u/s 36(1)(iii) of the Act. We are of a strong conviction that the aforesaid view taken by the lower authorities is absolutely misconceived and in fact misplaced. In our considered view, if there be interest-free funds available with an assessee which are sufficient to meet its interest free investments; and at the same time the assessee had raised interest bearing loans, then, the presumption would be that the investments in question were made by the assessee from the interest-free funds so available with it. Our aforesaid view is fortified by the judgment of CIT vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] as observed that in case if the assessee had advanced interest-free amounts out of its mixed funds i.e interest free and interest bearing funds lying in common pool, then, the presumption would be that the amount so advanced was from the interest-free funds available with the assessee company. We are unable to persuade ourselves to subscribe to the view taken by the lower authorities who had disallowed the assessee’s claim for deduction of the interest expenditure under Section 36(1)(iii) of the Act, for the reason, that as the assessee was in receipt of interest bearing funds, therefore, it was to be presumed that the interest-free funds given by it to its subsidiary company, viz. SRPL were out of such interest bearing funds. We, thus, not finding favor with the view taken by the lower authorities set-aside the order passed by the CIT(A), to the extent he had upheld the disallowance of the assessee’s claim for deduction of interest expenditure u/s 36(1)(iii) of the Act. - Decided in favour of assessee.
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