TMI Blog2018 (10) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns and it cannot be considered that the assessee had advanced loans to the sister concerns free of interest. In our opinion, the assessee has to establish the commercial expediency to advance money to the sister concerns and the assessee has to furnish details of the business transactions between the assessee and the sister concerns. This exercise has not been done. With this observation, we remit this issue to the file of the Assessing Officer for fresh consideration in accordance with law after giving reasonable opportunity of hearing to the assessee. This ground of appeal of the assessee is allowed for statistical purposes. Disallowance on account of interest on borrowed capital for capital work in progress - main plea of the assessee is that the assessee is having interest free funds to make investment in capital work in progress and the assessee has not put to use any borrowed funds for making the investment in capital work in progress - Held that:- The assessee has not established the availability of interest free funds for making investment in capital work in progress. The assessee has to prove the availability of interest free funds on the day of investment in capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 26,19,379/- as leave wages during the year and the debit due to increase in the provision for leave wages was only ₹ 3,58,268/-, which had already been disallowed by the assessee in the computation. The CIT(A) observed that in the reconciliation of the expenses debited in this account, it was clarified that out of the amount of ₹ 26,19,379/- actually paid during the year, the assessee had already claimed payment of ₹ 8,98,430/- in the assessment year 2007-08 and therefore, the balance allowable would come to ₹ 15,62,681/- whereas the assessee had computed it at ₹ 17,20,949/-. Accordingly, the CIT(A) held that only an amount of ₹ 15,62,681/- would be allowable as deduction during this year and the same was allowed to the assessee and addition to this extent was deleted. The CIT(A) confirmed the balance disallowance of ₹ 13,96,349/-. 5. Against this the assessee is in appeal before us. The Ld. AR submitted that the actual payment made as leave wages during the year was directly debited to profit and loss account without routing through the provisions for leave wages account. It was submitted that the entire amount debited to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,692 (+) Expense debited to Profit and Loss Account Rs.29,77,647/- Sub Total Rs.59,38,339/- (-) Actual payment made during the year Rs.26,19,379/- Closing provision as on 31.03.2008 Rs.33,18,960/- Less: Payment made after 31.03.2008 but before filing the return Rs.3,59,930/- Closing balance in the provision account Rs.29,59,030/- The main contention of the assessee was that total amount of ₹ 29,77,647/- was debited towards leave wages in the profit and loss account. It was submitted that the assessee had added back the disallowance at ₹ 3,58,268/- while computing the income of the assessee. According to Ld. AR, there cannot be any further disallowance. It was submitted that the closing balance closing balance in the provisions for leave encashment account at ₹ 29,59,030/- included not only current year s provisions but also included previous year s carry forward provisions. However, there is no bifurcation of the closing bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (254 ITR 248), Popular Vehicles and Services Ltd. (325 ITR 523), Phalton Sugar Works vs. CIT (208 ITR 989) and CIT vs. Abhishek Industries Ltd. (286 ITR 1) (P H). 11. Against this the assessee is in appeal before us. The Ld. AR submitted that the advances were made in the ordinary course of business to sister concerns as part of commercial expediency. Hence, no interest is to be allowed. The Ld. AR relied on the judgment of the Supreme Court in the case of S.A. Builders vs. CIT Anr. (206 CTR (SC) 631). 12. On the other hand, the Ld. DR relied on the order of the lower authorities. 13. We have heard the rival submissions and perused the record. The main plea of the Ld. AR is that the amount was advanced to sister concerns in view of the business transactions between the assessee and the sister concerns and it cannot be considered that the assessee had advanced loans to the sister concerns free of interest. In our opinion, the assessee has to establish the commercial expediency to advance money to the sister concerns and the assessee has to furnish details of the business transactions between the assessee and the sister concerns. This exercise has not been done. With thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient internal surplus at the end of the year with which it had financed the capital work in progress. 18. The Ld. DR relied on the order of the authorities below. 19. We have heard the rival submissions and perused the record. The main plea of the assessee is that the assessee is having interest free funds to make investment in capital work in progress and the assessee has not put to use any borrowed funds for making the investment in capital work in progress. However, the assessee has not established the availability of interest free funds for making investment in capital work in progress. The assessee has to prove the availability of interest free funds on the day of investment in capital work in progress and the funds have to be available with the assessee at the time of making investment and not at the end of the year. Accordingly, we direct the assessee to establish the availability of interest free funds at the time of making investment in capital work in progress. Hence, with this direction, we remit this issue to the file of the Assessing Officer for fresh consideration. Thus, this ground of appeal of the assessee is allowed for statistical purposes. 20. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Assessing Officer nor before the CIT(A). In view of this, in our opinion, interest on borrowings used for the business purpose cannot be considered for computing disallowance u/s. 14A of the Act r.w. Rule 8D(ii). However, it is the duty of the assessee to prove that interest was incurred on borrowings which was used for the specific purpose of business. Similarly, the assessee has to prove that the assessee is having own funds to make investment which yielded exempted income by furnishing cash/Fund flow statement. This was not done by the assessee. Hence, in the interest of justice, we remit this issue to the file of the Assessing Officer for fresh consideration in accordance with law after affording reasonable opportunity of hearing to the assessee. Further, we notice that the Jurisdictional High Court in the case of CIT vs. Catholic Syrian Bank Ltd. Others (344 ITR 259) has held that disallowance u/s. 14A is to be made despite the fact that the assessees have not maintained separate accounts for the expenditure incurred towards interest paid on funds borrowed for investment in such securities and shares as well as overheads and administrative expenses. However, we make ..... X X X X Extracts X X X X X X X X Extracts X X X X
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