TMI Blog2006 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... handigarh Bench 'B' (for short, 'the Tribunal') in I.T.A. No. 269/CHANDI/99, for the assessment year 1994-95, raising the following substantial questions of law: "(i) Whether in the facts and circumstances of the present case, order vide Annexures P.1 to P.3 are based on mis-appreciation of facts and law involved in the case and liable to be set aside, especially when the provisions of Section 36(1)(iii) of the Income Tax Act, 1961 are not applicable in the instant case ? (ii) Whether in the facts and circumstances of the case, the action of the authorities below in disallowing the interest of Rs. 2,49,002/-being 15% of the total amount of Rs. 16.84 lacs advanced by the appellant/ assessee to its sister concern, without consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsustainable in the eyes of law and is liable to be set aside ? (vii) Whether in the facts and circumstances of the present case, the action of the Ld. Tribunal in allowing the telephone expenses so claimed by the assessee/appellant partly and not fully, is arbitrary and merits reconsideration ? (viii) Whether the action of the authorities below acting of its own presumption is legally sustainable ? (ix) Whether in the facts and circumstances of the present case, the advancement of the interest free loan by the assessee/appellant to its sister concern, is in due course of business, is legally sustainable ? (x) Whether the action of the assessing officer in excluding its jurisdiction by acting merely on its presumption and right in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deduction in the books of accounts, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 companies and that too when it pays a heavy interest to its lenders, it would claim no or little interest from its subsidiaries." 4.In view of the above, finding that the issue raised in the appeal being covered by the judgment of this Court, no substantial question of law arises. As the effect of the disallowance of interest in the hand of the assessee on the income of the partners to whom interest was paid having not been considered, we deem it appropriate to remit the matter back to the Tribunal for the limi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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