TMI Blog2017 (1) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... t nexus is established between interest free advances made by the assessee out of interest bearing funds, there is no merit in the reliance placed upon by the learned Authorized Representative for the assessee on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT). - Decided against assessee - ITA No. 827/PN/2016 - - - Dated:- 26-8-2016 - Ms. Sushma Chowla, JM Appellant by : Shri M.R. Bhagwat Respondent by : Shri Hitendra Ninawe ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against the order of CIT(A)-2, Aurangabad, dated 22.02.2016 relating to assessment year 2011-12 against order passed under section 143(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The Assessing Officer further noted that during the year under consideration, the assessee had debited sum of ₹ 25,50,519/- towards interest on CCRE account No.11 of Malkapur Urban Co-operative Bank. The Assessing Officer further noted that the assessee had not entered into any commercial activity of development of land before 31.03.2010 but in the year under consideration, the assessee had started development activity on land which was taken for development from her husband Shri Ravindra Khinvasara. The Assessing Officer referred to the balance sheet as on 31.03.2009, wherein the total of assets were ₹ 76,88,293/- and the assessee had not raised any secured loans. In the assessment year 2010-11, the assessee had opened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 36(1)(iii) of the Act on both the aforesaid advances totaling ₹ 16,25,000/- and ₹ 6,53,489/- = ₹ 22,78,489/-. 5. The CIT(A) allowed the claim of assessee in respect of business advance made to Neelvastu H.R. Pvt. Ltd. and deleted the addition of ₹ 16,25,000/-, against which no appeal has been filed by the Revenue. In respect of second addition made on account of interest relatable to advance to Shri R.C. Khinvasara, the addition made by the Assessing Officer was upheld to the extent of ₹ 6,53,489/- since the amount was paid out of CC account opened with Co-operative Bank and there was immediate and proximate source of making the advance on 31.03.2010 out of interest bearing funds. 6. The assessee is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest expenditure paid / accrued on overdraft account utilized by the assessee. The assessee though, was engaged in construction activity, but admittedly, for the past several years had not carried out any development activities. During the year under consideration, some activity had arisen, but there was no income from business. However, the assessee had sold one piece of land on which it had declared no capital gains in view of the provisions of the Act, which claim of the assessee has been accepted. Undoubtedly, the said amount was from sale of land in the year under consideration and the income arising therefrom was about ₹ 85 lakhs. The Assessing Officer during the course of assessment proceedings has analyzed Funds Flow position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 36(1)(iii) of the Act. The Assessing Officer has established direct nexus between the loan raised by the assessee and utilized by the assessee. Another aspect which is to be kept in mind is that this loan was given in assessment year 2010-11 as on 31.03.2010. Since the cheques were issued by the assessee from CC account on 31.03.2010, no disallowance of interest was to be made in the said year. However, the question which arises in the present year is of allowance of interest paid / accrued on the OD account, where the proceeds of OD account were utilized for making interest free advances for non-business purpose, the provisions of section 36(1)(iii) of the Act are squarely applicable and the interest on interest bearing fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 31.03.2010. Secondly, the capital which is available with the assessee has already been utilized for investment which stands till date and no interest free capital can be presumed to be available with the assessee in the given set of facts. Since direct nexus is established between interest free advances made by the assessee out of interest bearing funds, there is no merit in the reliance placed upon by the learned Authorized Representative for the assessee on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Reliance Utilities Power Ltd. (supra). Upholding the order of CIT(A), the grounds of appeal raised by the assessee are dismissed. 11. In the result, the appeal of the assessee is dismissed. Order pronounced o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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