TMI Blog2019 (1) TMI 1664X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Assessing Officer could not obtain any details and analyze the same while deciding the issue against the assessee. Accordingly, we do not find any infirmity in the findings of the Ld. CIT(Appeals) and relief provided to the assessee is, therefore, sustained. Hence, grounds raised by the Revenue are dismissed. - ITA No.158/PUN/2017 - - - Dated:- 23-1-2019 - SHRI R.S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM For The Revenue : Shri Pankaj Garg For The Assessee : Shri Nikhil Mutha ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the Revenue emanates from the order of Ld. CIT(Appeals)-3, Pune dated 05.09.2016 for the assessment year 2012-13 as per following grounds of appeal on record: 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the entire addition of ₹ 91,60,470/- made on account of disallowance of interest expenses u/s.36(1)(iii) of the IT Act, ignoring the facts that the assessee has not submitted any documentary evidence to prove that interest free funds were available with i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r disallowed the interest expenses of ₹ 91,60,470/- u/s.36(1)(iii) of the Act by making a sweeping comments without even examining the notes given by the appellant with the accounts. The AO, in Para 4.2 of the assessment order, while disallowing the interest on interest free loans/advances given to the sister concerns held as under: In response to the above, assessee submitted ledgers of these subsidiary in the books of company. The submission of the assessee duly considered. It can be seen from submission that the assessee company has not justified the business purpose of expediency of the amount advance. The loan is given to its related parties. As stated above, the assessee company has huge interest burden. Since the assessee has failed to establish that the fund were utilized for the purpose of the business of the assessee, this same calls disallowances of proportionate amount of interest. Interest on borrowed money in allowed as a deduction from business, only if it satisfies the condition that it is for the purpose of business or profession. Where the money borrowed was diverted for giving interest free loans to subsidiaries, the proportionate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 12: ₹ 97,02,950/- 3) To RJT : Net advances during FY 2011-12 : ₹ 1,66,18,456/- 4) To SMPTPL Ujjain : Net advances during FY 2011-12 : ₹ 21,66,574/- All the above monies advanced are out of the Capital and not out of any borrowings/debt carrying interest charge. 5.2 It is seen from the assessment order that the AO did not consider the aforesaid submission of the appellant and also did not examine the accounts vis-a-vis the contention of the appellant that there was sufficient interest free surplus balance with the assessee to the extent of ₹ 34,03,68,623/- and also there was business expediency for advancing interest free unsecured loans to its sister concerns as well besides the fact that the loans availed from various banks were all for the purpose of vehicle purchase with funds being directly disbursed to the vendors. The appellant has given various charts calculating and establishing the fact that the loans were advanced by the appellant out of its own funds and not borrowed funds. It has specifically given the details regarding Reserve and Surplus available with it vis-a-vis the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the view of the CIT(A), but the High Court allowed further appeal of the Department. On special leave petition (SLP), the Hon'ble Supreme Court held- i) It is manifest that the advance to the subsidiary became imperative as a business expediency in view of the undertaking given to the financial institution by the assessee to the effect that it would provide additional margin to the subsidiary to meet the working capital for meeting any losses. Subsequently, the assessee company had off-loaded its shareholding in the subsidiary to various company and at that time the assessee company not only refunded back the entire loan given to the subsidiary by the assessee but which was refunded with interest. In the year in which the interest was received, the same was shown as income and offered for tax. ii) So far as the loans to the Directors are concerned, the assessee had a credit balance in the bank account when the said advance of ₹ 34,00,000/- was given. The company had reserve/surplus to the tune of almost ₹ 15,00,00,000/- and therefore, the assessee company could in any case utilize those funds for giving advances to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Ltd. [2006] 285 ITR 554 (All) 6) D H Sechron Electrodes Pvt. Ltd. Vs. CIT [1983] 142 ITR 528 (MP) 7) CIT Vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.) In these cases, it was held that where the assessee had adequate interest free funds by way of proprietary capital or by way of interest free deposit for customers, there is an inference that borrowed funds are not diverted for non business purposes. In such circumstances there can be no disallowances. 5.15 In view of the discussion in the foregoing paragraphs and also the facts of the appellant's case under consideration, and further the various judicial pronouncements on the issue of allow ability and the disallow ability of the interest u/s.36(1)(iii) of the Act, on account of interest free advances given to subsidiaries / sister concerns, which apparently are in favour of the appellant and as the AO could not obtain the details and analyze the same while deciding the issue against the appellant, I hold that the disallowance made u/s.36(1)(iii), being proportionate interest on the interest attributable to such advances, was not justi ..... 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