TMI Blog2017 (5) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... my opinion the action of the AO was not justified and the ld. CIT(A) without appreciating the fact in right perspective, sustained the disallowance made by the AO. As regards to the interest free advances given by the assessee to M/s Aggarwal Industries and M/s Discover Industries Pvt. Ltd. is concerned, it is noticed that the assessee was having sufficient own funds available with it during the year under consideration which is evident from page no. 9 of the assessee’s paper book which is the copy of the balance sheet as on 31.03.2012 and reveals that share capital and reserves and surplus were to the extent of ₹ 6,31,74,469/- which were more than the interest free advances of ₹ 1,15,82,925/-. Therefore, the AO was not justified in presuming that the interest @ 12% was to be disallowed of ₹ 1,15,82,925/- when the loans raised by the assessee were utilized for the business purposes and the advances given to m/s Aggarwal industries and M/s Discover Industries Pvt. Ltd. amounting to ₹ 1,82,925/- and ₹ 1,14,00,000/- respectively were out of the own funds available with the assessee. In that view of the matter, the disallowance made by the AO and susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd M/s Discovery Enterprises Pvt. Ltd. and had not charged any interest on those loans/advances but had taken loan from bank and other on interest. He considered the aforesaid loans and advances amounting to ₹ 1,15,82,925/- for non-business purposes and disallowed interest @ 12% on the said amount which came to ₹ 13,89,951/-. 5. Being aggrieved the assessee carried the matter to the ld. CIT (A) and submitted as under: The amount of ₹ 1,14,00,000/- is the balance amount of loan of ₹ 1,25,00,00/- paid to M/s Discovery Enterprises Pvt. Ltd. in the course of appellant business during the previous year 2006- 07 as loan. The party paid interest of ₹ 1,23,288/- thereon in that year. Thereafter the part amount was refunded leaving a balance of ₹ 1,14,00,000/- as on date. Similarly, the loan amount of ₹ 1,82,925/- is outstanding from earlier period and the amount has not been refunded till date. No addition on such out standings has been made in the assessment of previous years. These amounts have been paid out of appellant own capital and not from borrowed funds. The appellant in his wisdom has not charged any interest on these amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Addl. C.I.T., in ITA No.848/Chd/2015, decided on Dated: - 12 April 2016, (2016 (5) TMI 1182). The relevant extract of the decision is reproduced as under;- 20, Before parting, we would like to deal with the argument of the learned D.R., to the effect that even if there are sufficient funds, the business expediency for lending the money has to be proved by the assessee. For this, we would like to understand the provisions of section 36(1)(iii) of the Act. Section 36 comes under Chapter IVD of the Act, which deals with the computation of income under the head 'profits gains of business or profession'. Section 36 deals with other deductions, while sub-section (1) to section 36 reads as under: (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-------- 21. Thus, the provisions of section 36(1)(iii) of the Act relates to deductions to be allowed while computing income under the head 'business income'. The clause (iii) of the sub-section (1) of section 36, to the extent relevant in the present context, reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expediency. The ground No.3 raised by the assessee is allowed. 21.7 The Hon'ble Bombay High Court in a recent decision in C.I.T. Vs HDFC Bank Ltd. [2014] 366 ITR 505 has held as under: 4. After examining the entire factual matrix of the matter and the law on the subject, this Court held as under:- If there be interest-free funds available to an assessee sufficient to meet its investments and_ at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free' funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT (1997) 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (1982) 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nour though strictly speaking res judicata does not apply to income tax proceedings. Again each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order,, it would not be at all appropriate to allow the position to be changed in a subsequent year. In support of our submission we rely on the judgment of Hon'ble Apex Court in the case of Commissioner of Income Tax vs Excel Industries Ltd, as reported at 295 ITR has held in paragraphs 28, 29, 30 and 31. 21.9 More over the Income tax Department has not taken any such adverse inference In all the earlier years. Your honour though strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been 'found as a fact one way or the other and parties have allowed that position to be sust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------- 31. It appears from the record that in severalassessment years, the Revenue accepted the order of the Tribunal In favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it. 21.9 In the light of aforesaid judicial interpretation in the similar facts, we would submit before your honour to delete the addition and grant relief to the appellant. 6. The ld. CIT(A) after considering the submissions of the assessee observed that the assessee had received a loans from M/s Sudha Apparels ltd. amounting to ₹ 5,06,36,314/- and repaid ₹ 62,00,000/-, so there would be no escape from the finding that interest being paid by the assessee to the extent the amounts were diverted on interest free basis, were to be disallowed. He further observed that once it was borne out from the record that the assessee had borrowed certain funds on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from details of utilization of the unsecured loan (copy of which is placed at page no. 45 of the assessee s paper book). It was explained that the loans and advances had been given by the assessee in financial year 2007-08. Therefore, the allegation of the AO that there was a nexus between the loan from M/s Sudha Apparels Ltd. and the advances given was completely misplaced and contrary to the facts of the case. It was further submitted that the loan obtained by the assessee from M/s Sudha Apparels Ltd. was used for business exigency and the assessee had earned interest on fixed deposit amounting to ₹ 39,73,387/-. A reference was made to page no. 17 of the assessee s paper book which is the copy of Schedule 9.2 relating to other income. It was contended that the interest expenditure incurred during the year had direct nexus with the income of the assessee, so it was fully allowable as per the provisions of Section 36(1)(iii) of the Act. It was further contended that the own funds available with the assessee during the year under consideration and the previous years were sufficient to cover the loans and advances given by the assessee, particularly when, the amount of sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the AO was not justified and the ld. CIT(A) without appreciating the fact in right perspective, sustained the disallowance made by the AO. 12. As regards to the interest free advances given by the assessee to M/s Aggarwal Industries and M/s Discover Industries Pvt. Ltd. is concerned, it is noticed that the assessee was having sufficient own funds available with it during the year under consideration which is evident from page no. 9 of the assessee s paper book which is the copy of the balance sheet as on 31.03.2012 and reveals that share capital and reserves and surplus were to the extent of ₹ 6,31,74,469/- which were more than the interest free advances of ₹ 1,15,82,925/-. Therefore, the AO was not justified in presuming that the interest @ 12% was to be disallowed of ₹ 1,15,82,925/- when the loans raised by the assessee were utilized for the business purposes and the advances given to m/s Aggarwal industries and M/s Discover Industries Pvt. Ltd. amounting to ₹ 1,82,925/- and ₹ 1,14,00,000/- respectively were out of the own funds available with the assessee. In that view of the matter, the disallowance made by the AO and sustained by the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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