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TMI Blog2006 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in law in holding the expenses of Rs. 86,914 spent on silver wares for distribution to the dealers and foreign visitors as business expenditure? (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deleting the dis allowance of interest of Rs. 2,43,000 on the grounds that there is no direct nexus between the borrowing and interest-free advances made to certain parties? (iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding to exclude ST and CST from the total turnover for computation of deduction under section 80HHC? Income Tax Reports 3-3-2008 (iv) Whether, on the facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances made, the interest component on interest-free advances made to tain parties cannot be disallowed. 4.We have already considered an identical issue in CIT v. Abhishek Industries Ltd.[2006] 286 ITR 1 wherein this court held as under "As far as the issue of establishment of nexus of the funds borrowed vis-a-vis the funds diverted towards sister concern on interest-free basis is concerned, in our view, the stand of the assessee that the onus of proving the nexus of funds available with the assessee with the funds advanced to the sister concerns without interest is on the Revenue is not correct. Section 36(1) (iii) of the Act provides for deductions of interest on the loans raised for business purposes. Once the assessee claims any such de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of funds. This would depend on facts of each case — Section 106 of the Indian Evidence Act or the principles analogous thereto places the burden in respect thereof upon the assessee, as the facts are within its special knowledge. However, a presumption may be raised in a given case as to why an assessee who for the purpose of running its business is required to borrow money from banks and other financial institutions would be giving loan to its subsidiary cornpanies and that too when it pays a heavy interest to its lenders, it would claim no or little interest from its subsidiaries." 5. Following the dictum of law laid down in Abhishek Industries Ltd's case [2006] 286 ITR 1 (P & H), we answer the question in favour of the Revenue and ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) 9. As far this question is concerned, the contention raised on behalf of the Revenue is that the unit having been set up during the assessment year 1984-85, a period of 7 year to claim benefit under section 80-I of the Act, would expire in the assessment year 1991-92 and during the year in question, the assessee will not be entitled to claim this benefit. The finding recorded by the Tribunal permitting the benefit to the assessee under section 80-I of the Act during the year in question treating the same to be seventh year of production deserves to be set aside. On the other hand, the contention of learned counsel for the assessee is that the Revenue had moved an application for rectification under section 254(2) of the Act, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plant itself was completed in the assessment year 1986-87 and licence to manufacture was also granted during that year, there no reason to deny the benefit of section -: of the Act to the assessee for 7 years startingtherefrom. 10.We find the contention raised by counsel for the assessee, supported by :acts as narrated above, to be persuasive. Section 80-I of the Act applies toany industrial undertaking which fulfils four conditions as laid down in Sub-section (2) thereof and one of them being the Act to manufacture or Produce articles. It is not in dispute that the industrial undertaking could started manufacturing only after industrial licence is granted and in fact manufacturing thereafter. It is also not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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