TMI Blog2015 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantum of advances made by the assessee. If the AO finds that the amount of interest-free funds was higher than the advances made, in that event, the AO would delete the addition made on account of disallowance of interest on borrowed funds - Decided in favour of assessee for statistical purposes. Disallowance u/s.36(i)(iii) - advances given to sister concern - assessee submitted that these loans are not liable for tax even u/s.41(1) - Held that:- CIT(A) has followed the judgement of Hon’ble Apex Court rendered in the case of CIT vs. T.V.Sundaram Iyengar & Sons Ltd. reported at (1996 (9) TMI 1 - SUPREME Court ). The contention of the ld.counsel for the assessee is that the facts are distinguishable in the present case as in that case it was trading a receipt, but in the present case these are the loans by the sister-concerns being capital in nature. Since the evidence in support of this contention was not furnished before the AO, therefore, it would be appropriate that the issue be restored to the file of AO for verifying the claim of the assessee that the impugned amount was not a trading receipt. The AO would verify the nature of amount and in case it is found that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was framed vide order dated 15/12/2006; thereby the Assessing Officer (AO in short) made addition(s) on disallowance of interest cost of ₹ 70,78,411/-, disallowance of interest cost on capital work-in-progress of ₹ 1,57,797/-, disallowance of club fees of ₹ 5,400/- and disallowance of expenses of ₹ 3,12,635/-. Against the said assessment order, the assessee preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal; thereby ld.CIT(A) confirmed the disallowance out of interest expenditure to the extent of ₹ 66,44,817/- and confirmed other disallowances made on account of disallowance of interest cost on capital work-in-progress, club fees and the expenses in personal nature. Aggrieved by the order of the ld.CIT(A), assessee is further in appeal before us. 3. At the time of hearing, the ld.counsel for the assessee submitted that he does not wish to press ground No.6. The ld.Sr.DR has no objection. Therefore, in view of the statement made by the ld.counsel for the assessee, ground No.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad) rendered in the case of M/s.Kinariwala Automat Mfg.Pvt.Ltd. vs. ITO in ITA No.2472/Ahd/2009 for AY 2003-04, dated 08/01/2010, and decision in the case of Ravji Co. vs. DCIT in ITA No.1745/Ahd/1995 for AY 1990-91, dated 23/01/2001. The ld.counsel for the assessee submitted that the advances were the opening balance of the previous year and the borrowed funds have been paid during the year under appeal. The borrowings has reduced in the year under appeal. These factor goes to show that there was no reason for the authorities below to make disallowance of interest. 5.1. On the contrary, the ld.Sr.DR vehemently opposed the submissions of the ld.counsel for the assessee and submitted that the assessee had invested funds available in the other assets, therefore it cannot be concluded that only interest-free fund was utilized for the purpose of giving interest-free funds to its sister-concerns. He further submitted that no material is placed on record suggesting that on the date of advances the assessee was having interest-free fund available. 6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the apex court at this stage given in case of S.A.Builders Ltd. v. CIT reported in [2007] 288 ITR 1 (SC) where the question was whether interest on funds borrowed by the assessee to give an interest-free loan to sister concern shouldbe allowed as deduction and the apex court ruled thus (pages 7 and 8): We have considered the submission of the respective parties. The question involved in this case is only about the allowability of the interest on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of the High Court as well as the authorities below on the aforesaid question was not correct. xxx In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income Tax Authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. xxx The expression commercial expediency is an expression of wide import and includes such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be verified from its records. The ld.Sr.DR has no objection to this proposal. Therefore, after taking into consideration and looking to the totality of the facts of the case and in the light of the aforesaid judicial pronouncements as relied upon by the ld.counsel for the assessee, we hereby set aside the orders of the authorities below and restore the issue back to the file of the AO for limited purpose of verification. The AO would verify from the records placed before him that the fact of availability of interest-free funds for the purpose of making advances to its sister-concerns. In case, the AO finds that the assessee was having sufficient interest-free funds available for making advances to its sister-concerns, the AO would delete the disallowance. However, the AO would also verify whether the borrowed funds had been utilized for business purposes or not. In the event of the mixed funds, if at the time of making advances the assessee had both the borrowed funds as wells as the interest-free funds, the AO would verify the quantum of advances made by the assessee. If the AO finds that the amount of interest-free funds was higher than the advances made, in that event, the AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of interest u/s.36(i)(iii) including the fund flow statement. 2. The Learned CIT(Appeals) erred in holding that the decision of S.A.Builders Limited Vs. CIT 288 ITR 001 is not applicable to the case of the appellant company. 3. The Learned CIT(Appeals) erred in holding that interest u/s.36(i)(iii) was disallowable even in case where an amount have been paid to the associate concerns in the preceding year. 4. The Learned CIT(Appeals) erred in holding that the disallowance u/s.36(i)(iii) can be made even in case where the advances have been give to sister concern out of current on which no interest is paid by the appellant company. 5. The Learned CIT(Appeals) erred in confirming disallowance of ₹ 46,31,906/- u/s.36(i)(iii) of the Act. 6. The Learned CIT(Appeals) also confirming the addition of ₹ 8000000 made by the assessing officer being Inter Company balance written back and further held that the same was taxable. 7. The appellant company craves leave to add, alter or amend any of the grounds mentioned above. 8.1. Ground Nos.1 to 5 are identical as were raised in ITA No.1101/Ahd/2011 for AY 2005-06(supra). For the same rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L account by the appellant itself as income and the nature of amounts written back has not been explained with evidence. In this situation, Assessing Officer s action in taxing sum of ₹ 80,00,000/- as appellant s income u/s.28 is upheld. 9.1. However, the contention of the assessee is that these are the loans from the sister-concerns and cannot be liable to be taxed. We find that the ld.CIT(A) has followed the judgement of Hon ble Apex Court rendered in the case of CIT vs. T.V.Sundaram Iyengar Sons Ltd. reported at (1996) 222 ITR 344(SC). The contention of the ld.counsel for the assessee is that the facts are distinguishable in the present case as in that case it was trading a receipt, but in the present case these are the loans by the sister-concerns being capital in nature. Since the evidence in support of this contention was not furnished before the AO, therefore, it would be appropriate that the issue be restored to the file of AO for verifying the claim of the assessee that the impugned amount was not a trading receipt. The AO would verify the nature of amount and in case it is found that it was not a trading advance, then the AO would delete the same. Thus, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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