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TMI Blog2017 (2) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Punjab & Haryana, Chandigarh. 2. That the appellant craves permission to elucidate, add, amend, modify, delete any ground or grounds of appeal before the disposal in the interest of substantial justice." 3. The only issue in the present appeal relates to disallowance of a sum of Rs. 4,94,811/- made by applying the provisions of section 36(1)(iii) of the Income Tax Act, 1961 (in short 'the Act'). 4. Briefly stated, during the course of assessment proceedings for the impugned year, it was found that the assessee had given advance of Rs. 1.05 crores during the year for purchase of shares on different dates. The Assessing Officer held the advance to be apparently non- business in nature and further relying on the judgment of Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Limited, 286 ITR 1 (P&H), disallowed the interest attributable to the same @ 12% per annum amounting in all to Rs. 4,94,811/-, under section 36(1)(iii) of the Act. 5. Before the learned CIT (Appeals), the assessee stated that it had sufficient own funds and, therefore, presumption under law was that the investment should be treated as made out of own funds. The assessee re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other hand, countered by saying that reliance placed by the Ld. counsel for the assessee on the decision of the Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. (supra) was misplaced and did not apply to the facts of the present case. The Ld. DR pointed out that even in the case of Bright Enterprises Pvt. Ltd. (supra) the High Court had first held that the advance met the criteria of commercial expediency and it was established by the Court that the advance made was for the purpose of business of the assessee. The Ld. DR stated that it was only thereafter that the proposition of enough own funds to make the impugned advances was applied by the High Court and the disallowance made under section 36(1)(iii) was deleted. The Ld. DR pointed out that it is evident, therefore, that for applying the proposition laid down by the Jurisdictional High Court, that where there are enough own funds the presumption is that the investments have been made out of the same, it is essential to establish commercial expediency for making the advance/investment in the first place. The Ld. DR stated that in the absence of the same in the present case, the proposition laid down i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption that would arise was that the investments were made out of interest free funds generated or available with the company. Para 16 of the order is reproduced hereunder : "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 10. A perusal of the above para reveals that while upholding the above proposition the High Court relied upon the judgment of the Bombay High Court in the case of CIT Vs. Reliance Utility & Power Limited (2009) 313 ITR 340 (Bom).The Bombay High Court ,in the said case, at para 10 of its order relied on the judgment of the Hon'ble Supreme Court in the case of East India Pharmaceutical Works Vs. CIT. (1997) 224 ITR 627 (SC),and held that if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case are to be presumed to have been made out of the same. 12. Further once it has been held that the investments have been made by utilizing the own interest free funds of the assessee, it automatically means that for the purpose of making the investments, no interest expenditure has been incurred by the assessee. When no interest expenditure have been incurred by the assessee, issue of allowance of the same under section 36(1)(iii) of the Act does not arise at all, since section 36(1)(iii) of the Act deals with the circumstances or the conditions subject to which interest expenditure are to be allowed. Section 36 (1)(iii) of the Act reads as follows : "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- (i); [(ia);] [(ib) (ii) (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :" 13. It is evident from the same that the above section deals only with allowability of claim of interest expenditure, for which the incurring of such expenditure or claim of such expenditure ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stated above, it follows that where own interest free funds have been used for the purpose of making the advance, no question of incurring any expenditure arises and therefore, the assessee does not fall in the ambit of section 36(1)(iii) of the Act and when the assessee does not fall in the four corners of the provisions of the section at all, the question of establishing commercial expediency does not arise at all. Further, the judgment of the Bombay High Court in the case of Reliance Utility & Power Limited (supra) followed by the Jurisdictional High Court was on the identical issue that where the assessee had own sufficient funds for making the investment/advance no disallowance u/s 36(1)(iii) was warranted. The question of law before the High Court in this case was: " (A) Whether , on the facts and in the circumstances of the case and in law, the hon'ble Tribunal was justified in holding that the assessee company had sufficient funds of its own for making the investments without using the interest- bearing funds even though the balance-sheet of the assessee - company has no reserve or own funds for making the investments in the sister concern and , therefore , borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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