TMI Blog2016 (7) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... t free amount to the sister concern, the assessee was having sufficient interest free funds available with it. For that purposes, the assessee should demonstrate from its cash flow statement and bank account that it has date-wise availability of interest free funds on the date of making advances to the sister concern. In our view, the assessee has failed to prove on the date of making investment in M/s Autopal Industries Limited that it has interest free funds available with it. No material was produced before AO despite the remand order of the Tribunal to substantiate the availability of surplus fund . Whether some business connection or strategical investment was required to be made by the assessee by providing the interest free borrowed capital to M/s Autopal Industries Limited i.e. to prove the commercial expediency in lending the amount? - As relying on Hero Cycle Pvt. Ltd. Vs. CIT [2015 (11) TMI 1314 - SUPREME COURT] will come to the irresistible conclusion that the assessee has failed to prove the business connection with the amount given as loan and advances to the assessee. As per page 32 of the paper book, the loan has been utilized by the M/s Autopal Industries fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appear and make the provision redundant. In view thereof, the submission of the ld AR whereby he sought to restrict the disallowance only for the amount borrowed during the assessment year, is not acceptable. Even otherwise the tribunal is also governed by its earlier remand order, where on such submissions were referred or addressed. Hence, the appeal of the assessee is dismissed on this ground. AY - 2001-02 - Assessee company has failed to prove the nexus between the interest bearing funds and advance made by it to the M/s Autopal Industries. It has also failed to prove the business connection with the amount given as loan and advance. The facts narrated by assessee is general in nature. The assessee has not submitted any documentary evidence to prove the contention that the loan amount was given for the purpose of business, for which, it is clear from the facts above that the assessee made loan and advance for non business purposes. The ld CIT(A) has confirmed 9% interest charge instead of 15% applied by the ld Assessing Officer. From the above facts and circumstances, in our view, no new facts has been narrated by the ld DR before us, therefore, we uphold the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001. The cases were scrutinized U/s 143(3) of the Income Tax Act, 1961, (in short the Act). All the grounds of the assessee s appeals as well as revenue s appeals are interlined and are against application of interest chargeable @ 9% by the ld CIT(A). 3.1 The brief facts of the case are that the assessee is engaged in the business of manufacturing of Autolamps and the assessment was originally completed under the provisions of section 143(3) by the Assessing Officer on 26.3.2003 and the Assessing Officer has made a disallowance of ₹ 64,73,392/- out of interest paid on the ground that the assessee had not established that advances made to M/s Autopal Industries Limited were out of own funds. The assessee had preferred an appeal against the said order and the matter was decided by the learned CIT(Appeals)-II, Jaipur vide his order dated 17.10.2005 and the learned CIT(Appeals) relying on the order of the CIT(Appeals)-II, Jaipur for assessment years 1997-98 and 1998-99 confirmed the action of the Assessing Officer. However, he directed that the Assessing Officer is to work out the disallowance of interest by applying a rate of 9%. The assessee had preferred an appeal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter to the file of the AO to verify the above claim of the assessee on the basis of material available on record in view of the decisions relied by the Ld. A/R in support after affording adequate opportunity of being heard to the assessee and decide the matter afresh accordingly. The ground no. 1 is thus allowed for statistical purposes . After the matter was restored to the Assessing Officer, the present assessment order was passed in the said order it is mentioned that the Manager (Finance) of the Company had attended and filed reply and during the proceedings the assessee did not file any documentary evidence in support of its claim. It has further been mentioned by the Assessing Officer that the assessee failed to prove the nexus between the interest bearing funds and advance made by it to M/s. Autopal Industries Limited. He has also mentioned that further it also failed to prove the business connection with amount given as loans and advances. Therefore, he held that in my considered view loans and advances given by the assessee to its sister concern is justified to charge interest @15% which works out as under . The ld Assessing Officer, therefore, made disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hart with the said letter detailing the utilization of money by M/s. Autopal Industries Limited to show that amounts have been utilized by them solely for the purpose of business. The Hon ble Tribunal had remanded the matter to the file of the Assessing Officer to verify the above claim of the assessee on the basis of material available on record in view of decision relied by the learned A/R and decide the matter afresh accordingly. The Assessing Officer has not accepted the claim of the assessee in this regard that the company had its own sufficient funds which were more than the advance given to the sister concern. He further argued that the Assessing Officer had not complied with the direction of the Hon ble Tribunal to verify that the share capital and reserves and surplus of the company which were ₹ 52.25 crores as on 31.3.1999 have increased to ₹ 52.95 crores as on 31.3.2000 and against this share capital and reserves surplus the amounts advanced to M/s. Autopal Industries Limited were only ₹ 4.08 crores as on 31.3.1999 and ₹ 4.97 crores as on 31.3.2000, for which he relied on the decision of Hon ble Rajasthan High Court in the case of CIT vs. Vijay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee to M/s. Autopal Industries Limited is only on account of business consideration and commercial expediency and no part of the payment out of the interest made by the assessee should have been disallowed and the disallowance has been made by the Assessing Officer without appreciating the direction of the Hon ble ITAT as well as the facts of the case and the disallowance made deserves to be deleted. The Assessing Officer without correctly appreciating the facts of the case and mentioning that the assessee had failed to prove the business connection with the amount given as loan and advances held that the assessee had made loans and advances for non-business purpose. The learned CIT(Appeals) has repeated the observations of the Assessing Officer holding that the appellant company failed to prove the nexus between the interest bearing funds and advances made by it to M/s. Autopal Industries Limited and also failed to prove the business connection with the amount given as loans and advances. He held that the contention of the appellant that loan amount was given for business purpose not proved and it is quite clear that the assessee made loan and advances for non-busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of interest for assessment year 1997-98 and 1998-99. The order of the learned CIT(Appeals) has also been accepted by the Department as no further appeal has been filed by the Department in the Income Tax Appellate Tribunal. Thus the action of the learned CIT(Appeals) in relying on the non-existing appellate order for earlier year is unjustified and direction given by him deserves to be cancelled. Without prejudice to whatever is submitted above, the assessee has also taken another plea before the learned CIT(Appeals) that while working out the disallowance the Assessing Officer had taken into consideration the opening balance in the account of M/s. Autopal Industries Limited whereas so far as the opening balance is concerned, the same could not have been taken into consideration. It was also submitted that it has been held that where amounts were advanced free of interest in earlier years and no disallowance was made in the said years, no disallowance in respect of the said amount can be made in the year under assessment. He relied on the decision of the Hon ble Karnataka High Court in the case of CIT vs. Sridev Enterprises reported in 192 ITR 165, decision of Hon ble ITAT, Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the parties and perused the material available on the record. The direction issued by the Tribunal while remanding the matter for the assessment year 2000-01, 2001-02 were mentioned in paragraph No. 8 of the order, which provides as under:- From bare perusal of the order and direction, it is clear that the A.O. is required to inquire as to whether the loans were given by the assessee as a measure of commercial expediency and that if the loan is given for the purposes of business, no interest can be disallowed even if the money has been advanced out of interest bearing funds. In nutshell, the assessee company was required to prove the nexus between the interest bearing funds and advance made by it to M/s Autopal Industries Limited and further it was also required to prove the commercial expediency. The commercial expediency is not for the purposes of earning profit but has a wider scope as mentioned by the Hon'ble Supreme Court in the case of S.A. Builders by referring and emphasizing on for the purpose of business . In the said judgment, the Hon'ble Supreme Court has held that it is not in every case, interest on borrowed loan has to be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company, therefore, in our view, the assessee was required to prove whether on the date of making investment or giving the interest free amount to the sister concern, the assessee was having sufficient interest free funds available with it. For that purposes, the assessee should demonstrate from its cash flow statement and bank account that it has date-wise availability of interest free funds on the date of making advances to the sister concern. In our view, the assessee has failed to prove on the date of making investment in M/s Autopal Industries Limited that it has interest free funds available with it. No material was produced before AO despite the remand order of the Tribunal to substantiate the availability of surplus fund . 7.2 The second aspect of the matter is, Whether some business connection or strategical investment was required to be made by the assessee by providing the interest free borrowed capital to M/s Autopal Industries Limited i.e. to prove the commercial expediency in lending the amount? 7.3 Recently, the Hon'ble Supreme Court in the matter of Hero Cycle Pvt. Ltd. Vs. CIT (2015) 63 Taxmann.com 308 has occasion to revisit earlier j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mia Cement (B.) Ltd. [2002] 254 ITR 377 (Delhi) wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximise his profit and that the Income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. If we apply the ratio of the Hon'ble Supreme Court as held in the case of Hero Cycles Pvt. Ltd. (supra) will come to the irresistible conclusion that the assessee has failed to prove the business connection with the amount given as loan and advances to the assessee. As per page 32 of the paper book, the loan has been utilized by the M/s Autopal Industries for repayment to Penna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged. 7.4 We have gone through the contention, in our view, the order passed by the ld CIT(A) even if not challenged by the revenue is not binding on the Tribunal. The Tribunal is duty bound to decide the issue as it thinks fit and appropriate in accordance with facts and circumstances of the case. In our view, what is provided U/s 36, the deduction on the amount of interest paid on the capital borrowed for the purposes for business or profession. The provision is made applicable on the capital borrowed and has not restricted to the capital borrowed during the year . If we agree to the proportion of the ld AR, then it will amount to rewriting the provisions of law. The Tribunal being a creation of statute is bound to adhere to the law laid down in the statute book and is not within its liberty to make the additions by way of judicial order in the statute book. If we accept the argument of the ld counsel for the assessee whereby if we held that the interest shall be disallowed on the capital borrowed during the assessment year then the entire thrust and purpose of the provision will disappear and make the provision redundant. In view thereof, the submission of the ld AR w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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