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2007 (9) TMI 450 - AT - Income TaxInterest expenditure u/s 36(1)(iii) - Interest on borrowed capital - Deductions u/s 80M - Intercorporate dividends. Interest expenditure u/s 36(1)(iii) - Interest on borrowed capital - certain assumptions and presumptions - incremental funds of the assessee exceeded the investments made during the year - HELD THAT:- We are of the opinion that mere presentation of capital plus reserve funds in the liability side of the Balance Sheet cannot result into a position where the funds can be said to be available with the assessee as these are represented by the corresponding assets appearing on the asset side of the Balance Sheet. It is also noted that assessee’s funds are mixed and in the bank accounts relating to working capital requirements of the assessee, the trading receipts have been deposited, hence, one to one nexus between the availability of interest-free funds and investments cannot be established. In this background, now we have to look into the legal aspects of the issue. It is a settled proposition that for claiming the expenditure, onus lies on the assessee to prove that such expenditure has been incurred for the purposes of the business and this position is applicable both for claims made under sections 36(1)(iii) & 37(1) of the Act. From the perusal of the Balance Sheet as on 31-3-1992, it is observed that there is an increase in the share capital as well as reserve and surplus as compared to previous year to the tune of Rs. 6.92 crores and 2.67 crores respectively. There is also an increase of Rs. 58 crores approx. in the secured loans and un-secured loans. Correspondingly, there is an increase in the fixed assets to the tune of Rs. 15 crores and increase in the net current assets to the tune of Rs. 44 crores. Thus, the business assets have increased by Rs. 59 crores as against increase in the interest bearing funds by Rs. 58 crores. Hence, the logical conclusion which can be drawn is that the borrowed funds have been utilised for investment in business assets. The increase in the investment in the year under consideration is to the tune of Rs. 5.53 crores which apparently stands set off by an corresponding increase in the share capital and reserve and surplus. As stated earlier, in case of mixed funds, one to one nexus is hardly possible, hence, the claim of the assessee has to be inevitably examined either on the basis of the capital structure of the company and corresponding changes therein as compared to earlier years and on the basis of cash flow and funds flow statements. In case of the present assessee, both are on record and analysis of these statements lead to a conclusion in favour of the assessee. In view of the forgoing, we hold that there is no justification for making proportionate disallowance. Thus, this ground of the assessee stands accepted. Deduction u/s 80M - expenses to earn intercorporate dividend - HELD THAT:- The issue raised in this ground is directly covered in favour of the assessee by the decision in the case of Punjab State Industrial Development Corpn. Ltd.[2006 (4) TMI 187 - ITAT CHANDIGARH] held that for the purpose of granting deduction u/s 80M, only actual expenditure incurred is to be taken into consideration and there is no question of taking expenditure on estimation or presumption basis. Accordingly, this ground of the assessee is also accepted. In the result, appeal filed by the revenue for AY 1992-93 stands dismissed.
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