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2016 (1) TMI 857 - ITAT MUMBAI

2016 (1) TMI 857 - ITAT MUMBAI - TMI - Disallowance of interest expenditure under section 36(1)(iii) - interest free loan to sister concern - Held that:- When the assessee had sufficient interest free funds available with it, the plea of the assessee that it has advanced the interest free loan to the sister concern out of such non–interest bearing funds is acceptable. Therefore, in our view, no disallowance of interest expenditure can be made. As far as commercial expediency is concerned, it has .....

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llowance of interest expenditure - Decided in favour of assessee

Disallowance under section 14A - Held that:- Considering the fact that the assessee has not challenged the disallowance before the first appellate authority, and a plea was taken before us by the learned counsel that the assessee did not earn any exempt income during the impugned assessment order, hence, no disallowance under section 14A is called for, we consider it appropriate to restore the issue to the file of the As .....

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dated 8th December 2010, passed by the learned Commissioner (Appeals)-12, Mumbai, for the assessment year 2001-02. The assessee has raised three grounds in the appeal:- 1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming disallowance of ₹ 38,31,920/- and ₹ 17,11,417 under section 36(1)(iii) of the Act without appreciating that the appellant was having sufficient interest free funds and, therefore, there was no intere .....

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here was no exempt income earned during the year and therefore there could have been no disallowance under section 14A. 2. Grounds no.1 and 2, relate to disallowance of interest expenditure amounting to ₹ 38,31,920 and ₹ 17,11,417 under section 36(1)(iii). 3. Briefly stated the facts are, assessee a company, filed return of income for the year under consideration on 31st October 2001, declaring total income at nil. Assessment in assessee s case was completed under section 143(3) of t .....

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um./2005 dated 20th February 2009, on certain issues restored the matter back to the file of the Assessing Officer for deciding the issue afresh which are as under:- a) Disallowance of interest expenditure; b) Disallowance under section 14A in connection with exempt income of ₹ 2,76,251; c) Re-computation of deduction under section 80HHC in the light of the Hon'ble Supreme Court judgment in the case of IPCA laboratories and Hon'ble Bombay High Court in the case of Kantilal Chotalal .....

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mmercial expediency for advancing such loan. As observed by the Assessing Officer, though, the assessee claimed that it had sufficient surplus funds amounting to ₹ 39, crore out of which the interest free loan was given to the sister concern, however, he alleged that the assessee did not furnish any evidence to back its claim. He, therefore, relying upon certain judicial precedent held that as the assessee has failed to establish the nexus between the interest free funds available and loan .....

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al. 6. The learned Counsel for the assessee submitted before us that the assessee had sufficient interest free funds available with him to make advances to the sister concern, therefore, no disallowance of interest expenditure can be made without establishing the fact that the assessee has diverted interest bearing funds to its sister concern. He submitted, once it is established that sufficient interest free fund is available with the assessee the presumption would be the interest free loan adv .....

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copy of which is at Page-1 of the paper book submitted that assessee had surplus funds of ₹ 39 crores on account of capital and reserve and surplus. That besides, the assessee had available with him an amount of ₹ 867.98 lakh towards advance against orders and sundry loans of ₹ 364.63 lakh. Therefore, it has substantial interest free fund available to make the advance to sister concern. He submitted as far as loan obtained from banks are concerned, they are for specific purpos .....

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as the assessee has failed to establish a nexus between surplus fund and the interest free advance made to the sister concern disallowance made is justified. 8. We have considered the submissions of the parties, perused the orders of the authorities below and the material available on record. It is a fact that in the earlier round, the addition made on account of disallowance of interest expenditure was restored back to the file of the Assessing Officer by the Tribunal while deciding assessee s .....

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ders, and sundry loans which is more than enough to take care of the interest free advances to the sister concern. Moreover, as held by the Hon'ble Jurisdictional High Court in Reliance Utilities and Power Ltd. (supra) and the Hon'ble Delhi High Court in Bharti Tele Venture Ltd., (supra) when mixed funds viz. both interest bearing and non-interest bearing are available with assessee, presumption would be interest free loan has been given out of non-interest bearing funds available with t .....

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ee that almost the entire product manufactured by the sister concern to which interest free loan was advanced was sold to the assessee. This very fact reveals that assessee has a business interest in the sister concern, therefore, advancement of interest free loan to the sister concern can be considered to be for commercial expediency. In view of the aforesaid, we delete the addition made by the Assessing Officer on account of disallowance of interest expenditure, grounds no.1 and 2 are allowed. .....

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