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2015 (9) TMI 70 - ITAT AHMEDABAD

2015 (9) TMI 70 - ITAT AHMEDABAD - TMI - Disallowance of interest on borrowed funds - Held that:- The assessee was having sufficient interest-free funds at the time of advances made to its sister-concerns can 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 we hereby set aside the orders of the authorities below and restore the issue back to the file of the AO for limited .....

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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 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 .....

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apital 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 - Decided in favour of assessee for statistical purposes. - I.T.A. No. 1101/Ahd/2011, I.T.A. N .....

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Identical grounds are raised in AYs 2004-05 & 2005-06 except change of figure and in AY 2006-07 except ground No.6 all are identical as were raised in AYs 2004-05 & 2005-06. Therefore, all these appeals were taken up together and are being disposed of by way of this consolidated order for the sake of convenience. 2. First, we take up the assessee s appeal in ITA No.1101/Ahd/2011 for AY 2004-05. The assessee has raised following grounds of appeal:- 1. The Learned CIT(Appeals) erred in dis .....

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as made in preceding years. 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 given to sister concern out of current account with Bank on which no interest was paid for the company. 5. The Learned CIT(Appeals) erred in confirming disallowance of ₹ 66,44,817/- u/s.36(i)(iii) of the Act. 6. The Learned CIT(Appeals) also confirming the adhoc disallowance of ₹ 312635/- out of various expenses. 7. The ap .....

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₹ 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 .....

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5 are inter-connected and are against the confirmation of disallowance of interest expenditure to the extent of ₹ 66,44,817/-. The ld.counsel for the assessee argued at length. He submitted that the authorities below were not justified in making the disallowance of interest expenditure. He submitted that the assessee had advanced out of its interest-free funds/money to its sister-concerns for commercial expediency. He submitted that even otherwise also, the action of the authorities below .....

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ter-concerns. He drew our attention towards page No.12 of the paper-book of the assessee to buttress the contention that borrowings have been reduced from the earlier years. He further submitted that before ld.CIT(A), a fund flow statement was given, but the ld.CIT(A) has not considered the fund flow statement. He submitted that under these facts, the action of the authorities below deserves to be set aside. He further placed reliance on the judgement of the Hon ble Supreme Court rendered in the .....

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ced reliance on the judgement of Hon ble Karnataka High Court rendered in the case of CIT vs. Sridev Enterprises reported at (1991) 192 ITR 165 (Kar.). The ld.counsel for the assessee further placed reliance on the decision of the Coordinate Bench (ITAT C Bench Ahmedabad) 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 .....

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nds 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 as well as the judgements/decision .....

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to its sister-concerns without charging any interest out of borrowed funds, in that event the AO is justified to make disallowance of such interest claimed as deduction u/s.36(1)(iii) of the Act as the borrowings were not utilized for the purpose of business. But if the assessee demonstrates and satisfy the Revenue Authorities that the advances either are out of interest-free funds available with the assessee or the advances made to the sister-concerns are for the purpose of commercial expedienc .....

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red in the case of CIT vs. Sridev Enterprises [supra]. In that case, it was held by the Hon ble High Court that it would not be equitable to permit the Revenue to take a different stand now in respect of the amounts which were the subject-matter of previous year assessments. The reliance is also placed on the judgement of Hon ble Jurisdictional High Court rendered in the case of CIT vs. Raghuvir Synthetics Ltd.(supra), wherein the Hon ble Jurisdictional High Court held as under:- The Tribunal ha .....

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her 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 cor .....

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n 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 a business expenditure if it was incurred on grounds of commercial expediency. xxx We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 377, that once it is established that there was nexus between the expenditure and the purpose of the bus .....

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authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Accordingly, the question is answered in favour of the assessee by the Apex Court. In this Tax Appeal it is to be specified here that considering the material on record and .....

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en note of the ratio laid down by the Hon ble Apex Court in the case of S.A.Builders vs. CIT(supra) and the Hon ble High Court of Delhi in the case of CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 377(Delhi). During the course of hearing the ld.counsel for the assessee submitted the fact that the assessee was having sufficient interest-free funds at the time of advances made to its sister-concerns can be verified from its records. The ld.Sr.DR has no objection to this proposal. Therefore, a .....

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. 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 t .....

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l:- 1. The Learned CIT(Appeals) erred in disregarding the detailed submissions made by the appellant company on disallowance 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 associat .....

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e appellant company craves leave to add, alter or amend any of the grounds mentioned above. 7.1. The facts and grounds are identical to the facts of AY 2004-05 in assessee s own case(supra). The respective representatives of the parties have adopted the arguments that were in the AY 2004-05. Therefore, taking a consistent view, ground Nos.1 to 5 are allowed for statistical purposes. The AO is directed to decide the issue in the light of the direction given in para-6.1 of this order. 7.2. Ground .....

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und 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 be .....

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Ground Nos.1 to 5 are identical as were raised in ITA No.1101/Ahd/2011 for AY 2005-06(supra). For the same reasoning, in this year also, these grounds are allowed for statistical purposes. The AO is directed to decide the issue in the light of the direction given in para- 6.1 of this order. 8.2. Apropos to ground No.6, the ld.counsel for the assessee submitted that the authorities below were not justified in making addition and confirming the same. The ld.counsel for the assessee submitted that .....

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e assessee has not placed any evidence in support of its contention. 9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided the issue in para-3.2 of his order, by observing as under:- 3.2. I have considered the mater. To ascertain the nature of transaction, the A.R. was asked to file copy of ledger accounts of the parties since the time of taking the aforesaid amounts from siste .....

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ived in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character, when the amount becomes assessee s own money. The Court held that deposits received from customers in the course of business, unclaimed balances transferred by assessee to his P&L account were its trading receipt, even though deposits were initially treated as capital receipt. Amounts in question of ₹ 80,00,000/- were written b .....

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