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2019 (1) TMI 754 - HC - Income TaxDisallowance of interest on borrowed funds u/s 36(1)(iii) - proof of direct nexus between the borrowed funds and the investment in the sister concerns, which were made only out of share capital reserves and surpluses - commercial expediency - Held that:- AO while stating that the assessee has diverted part of the borrowed funds to the sister concern has not given any independent reasoning on what basis the Assessing Officer was of the view that part of the borrowed funds has been diverted to its sister concerns. In fact, the Tribunal has held that the assessee company has not derived any benefit out of such advances to the sister concern. If that is so, the exercise that is required to be done is to examine whether any part of the borrowed funds was diverted to its sisters concerns. This exercise appears to have not been done to the fullest extent. Tribunal has not given cogent reasons as to why the decision in the case of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT) cannot be applied to the facts of the present case as the test in such a case was whether this was done as a measure of commercial expediency. Thus AO has to take a fresh look into the matter, as we are not satisfied on the basis on which the Assessing Officer had come to the conclusion that part of the borrowed funds have been diverted by the assessee to its sister concerns. Thus, we are inclined to remand the matter for fresh consideration. One more reason which convinced us that the Assessing Officer should take a fresh look is that the judgment in Abhishek Industries (2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT) has been held to be no longer good law in the light of the decision of the Hon'ble Supreme Court in Hero Cycles (2015 (11) TMI 1314 - SUPREME COURT OF INDIA). This aspect also has to be noted by the Assessing Officer while re-doing the assessment. - decided in favour of assessee for statistical purposes.
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