TMI Blog2005 (1) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest payment was claimed as a deduction in the P L a/c. According to the AO, these funds were utilised by the assessee for purchasing the shares of Samtel India Ltd. and Teletube Electronics Ltd., two sister-concerns of the assessee. According to the AO, the purchase of the shares of the sister-concerns was not connected in any way with the assessee's business. He noted that the term loan granted by the bank was for the infrastructure development and the plant and machinery required for the business. This purpose was, however, not achieved since the assessee diverted the funds, sanctioned for the purpose, for acquiring the shares of the sister-concerns. He, therefore, considered that the claim of interest on the borrowings from the bank was not allowable as a deduction. 4. The assessee while objecting to the disallowance also appears to have pointed out that the shares of the sister concerns were acquired out of internal accruals and own funds of the assessee, and the borrowings from the bank were not utilised for the purpose. The AO observed that the internal accruals and the own funds were used by the assessee for acquiring the plant and machinery and, therefore, the borrowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was executing certain job work for the sister-concerns, whereas in the present year there was no such business connection. In this behalf, he drew our attention to the fact that for the year under appeal, "assembling charges" shown in the income column in the P L a/c was Re. Nil which indicated that the assessee did not carryon any job work for the sister-concerns. He also pointed out that since the factual position was different for the year under appeal, the order of the Tribunal did not apply. He further pointed out that there has been a substantial increase in the borrowings from the bank during the year under appeal. From the balance sheet, he pointed out that whereas the borrowings in the year ended31st March, 1991, increased by around Rs. 229 lakhs, the increase in the bank borrowings has found its way towards financing the acquisition of further shares in the sister-concerns to the tune of Rs. 70,88,000 during the year under appeal. Therefore, he contended that the CIT(A) was not justified in deleting the disallowance the interest. 9. In support of his submissions, the learned senior Departmental Representative relied on the following authorities: (1) CIT vs. Motor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds generated by the assessee through share application monies for Rs. 15 lakhs and cash profit of Rs. 59 lakhs aggregated to Rs. 74 lakhs. Thus sufficient internal accruals and own funds were available to the assessee for investment in the shares of the sister-concerns for the year under appeal. As regards the onus, the learned counsel for the assessee submitted that the initial onus to substantiate the claim of deduction for interest, no doubt, lay upon the assessee, but once it was shown that the assessee either had sufficient interest-free funds available with it or that the borrowings were utilised only for business purposes, then the onus shifted to the AO and it is incumbent upon him to establish a nexus between the borrowings for interest and the diversion of the funds. This onus, which is a shifting onus has not been discharged by the AO. In support of his contentions, the learned counsel for the assessee drew our attention to the following authorities: (i) CIT vs. Tin Box Co. (2003) 182 CTR (Del) 171 : (2003) 260 ITR 637 (Del) (ii) Motor General Finance Ltd. vs. Dy. CIT (2004) 88 TTJ (Del) 1059 : (2004) 90 ITD 449 (Del) (iii) CIT vs. Hotel Savera (1998) 148 CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res with the help of the borrowed funds, it is reasonable to think, has helped the assessee in influencing the purchase decisions of those companies. The learned counsel for the assessee had submitted at the time of the hearing that 75 per cent of the assessee's sales for the year under appeal was to these two companies. We had directed him to substantiate the same with the figures and in response thereto, he has submitted the relevant details which show that out of the sales of Rs. 1,484,63 lakhs, sales of Rs. 1,173,03 lakhs were to the sister-concerns. Thus, the condition that the funds borrowed must be deployed for the purpose of the assessee's business is satisfied in the year under appeal also. Therefore, the ratio of the order of the Tribunal is attracted and we hold that the CIT(A) committed no error in directing the AO to allow the interest. 15. The first alternative submission of the assessee before us was that the internal accruals and profits of the business for the year under appeal were themselves sufficient to cover the investment of Rs. 70.88 lakhs in the shares of the sister-concerns. We find from the P L a/c for the year under appeal that the operating profit is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
