TMI Blog2013 (4) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... est free advances, the principles laid down by Hon ble Supreme Court in SA Builders case [ 2006 (12) TMI 82 - SUPREME COURT] dealing with governing commercial expediency in advancing interest free advances will not really be relevant. Ld Commissioner (Appeals) s stand was thus devoid of legally sustainable merits on this aspect as well. Thus, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance out of interest expenses. The assessee gets the relief accordingly. In the result, the appeal is allowed. - Shri Pramod Kumar A.M. and Shri Kul Bharat J.M. For the Appellant: U Shodhana, For the Respondent: Y.P. Verma, ORDER PER PRAMOD KUMAR: 1. By way of this appeal, the assessee appellant has called into question correctness of order dated 22nd October 2010, passed by the learned Commissioner (Appeals), in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2007-08. Although the assessee has raised as many as five grounds of appeal, the short issue that we are really required to adjudicate in this appeal, as learned representatives agree, is wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncern by the name of A P Traders (outstanding balance at the beginning of the relevant previous year ₹ 14,46,000 and outstanding balance at the end of the relevant previous year ₹ 16,84,000/-) but no interest was paid in respect of the said borrowing. It was thus submitted that since the assessee clearly had sufficient interest free funds, by way of capital and interest free borrowings from sister concern (i.e. ₹ 11,44,483/- plus ₹ 16,84,000/-, which work out to ₹ 28,28,483/- as against interest free advances aggregating to ₹ 25,91,600/-), the interest free advances to the sister concerns cannot be considered to be out of interest bearing funds. It was also stated that the Assessing Officer did not accept the said contention on the ground that there is an opening balance of ₹ 11,44,483/- only and hence there is direct nexus that the borrowed money is utilized for giving interest free loans .. . None of these submissions, however, impressed the learned Commissioner (Appeals) either. He simply brushed aside all the above factual averments, which have been succinctly set out in the statement of facts itself, and proceeded to deal with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and others and then borrow funds from the bank on interest for business purposes, and that such borrowings will not be for business purposes, but for supplementing the cash diverted by the assessee without any benefit to it , as approved by Hon ble Kerala High Court in V I Baby s case (supra) and by Hon ble Punjab Haryana High Court in Abhishek Industries case (supra) is, therefore, no longer good law. Learned Commissioner, in our considered view, was completely in error in adopting this approach. The mere fact that the assessee is paying interest on its borrowings and the assessee has also given interest free loans or advances cannot, by itself, leads to disallowance of interest so paid on the ground that the borrowed funds have not been used for business purposes. 6. That takes us to the question as to whether the borrowings made by the assessee can be said to have been used for the purposes of its business, or, in other words, whether the interest free advances by the assessee can be presumed to have been made out of the interest bearing funds. On this issue, we find guidance from a judgment of Hon ble Bombay High Court in the case of CIT Vs Reliance Utilities Pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2007 unreported) wherein Their Lordships have, inter alia, observed as follows: As can be noted from the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R.R. Family Trust and Sagar Textile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R.R. Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the fact that there was sufficient funds available with the assessee-respondent on which there was no interest liability that had been incurred. In such circumstances, relying on the case of Torrent Financiers Ltd. (supra), it found that the disallowance was not justifiable. The Tribunal on noting these details, in terms held that there was nothing contrary that could be brought on record by the Department. The assessee s equity share capital ₹ 3.85 cores and reserve and surplus of ₹ 5.52 crores also were noted by the Tribunal. It found that the interest free fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional High Court, as there is nothing to the contrary thereto by Hon ble jurisdictional High Court and as is the settled legal position as analysed in Asstt. CIT v. Aurangabad Holiday Resorts (P.) Ltd. (118 ITD 1), in the absence of anything to the contrary by Hon'ble jurisdictional High Court, a judgment of even non jurisdictional High Court constitutes binding precedent for this Tribunal. In view of these discussions, as long as the assessee has non-interesting funds in excess of interest free advanced by the assessee, the presumption has to be that interest free advances are made out of the interest free funds available to the assessee. 9. We may also briefly deal with learned CIT(A) s reliance on SA Builders Ltd s case (supra). It is very important to bear in mind the fact that it was a case in which borrowed funds were not used by the assessee in its business but diverted the same to the sister concern by giving interest free advances. It was not a case in which the interest free funds were used by the assessee for granting interest free advances to sister concern. On these facts, Their Lordships observed that It is true that the borrowed amount in question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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