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2014 (1) TMI 932 - AT - Income TaxAddition made u/s 36(1)(iii) of the Act – Suo moto enhancement without prior notice - Power of CIT(A) to enhance assessment u/s 251 – Held that:- The amount was investment prior to 1.4.2004, in the company Purifalir India P.Ltd. As on 31.3.2005 the assessee did not have any secured or unsecured loans - Thus it cannot be inferred that the investment made by the assessee in M/s Puriflair India P.Ltd. is out of borrowed funds - For the Assessment Year 2005-06, 2006-07, 2007-08 and 2008-09, no disallowance was made by the Assessing Officer u/s 36(1)(iii) of the Act. Similarly for the Assessment Year 2010-11 also no disallowance was made by the AO. There are advances on account of material sold and not interest free loans - The total interest free funds available with the assessee as against investment and advances – relying upon CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - when interest free funds are available, then the presumption would be that such interest free funds were invested or advanced as interest free loans/advances - deduction u/s 36(1)(iii) of the Act, one has to enquire whether the loan was given by the assessee as a measure of commercial expediency - The expression "commercial expediency is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business - The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business, expenditure if it, was incurred on grounds of commercial expediency - the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act set aside - The CIT(A) has made the enhancements without following the requirements of S.251(2) of the Act, as he has not given a show cause notice to the assessee on the enhancements - the enhancements made by the CIT(A) deleted – Decided in favour of Assessee.
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