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TMI Blog2020 (5) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the disallowance u/s 36(1)(iii) of a sum of Rs. 8,35,805 rejecting the appellant's arguments that the advances were made out of own funds and the same was out of commercial expediency 3. The Commissioner of Income tax (Appeals) erred in his conclusion that the advances to sister concern were out of borrowed funds since the appellant had not furnished detailed cash flow statement. The Commissioner of Income Tax (Appeals) failed to note that the appellant had a cash profit of Rs. 1,00,36,565 during the year and the advance to sister concerns was only Rs. 46, 42,633 and thus the availability of own funds was established. The Commissioner of Income Tax (Appeals) failed to follow the decision of the various courts that existence of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the Assessing Officer the assessee and the sister concerns are in totally different streams of business. This expediency, if at all a commercial expediency, cannot be considered as a genuine one. 4. On appeal, the CIT(A) observed that though the assessee made the argument that advancement of loans by the assessee to its sister concerns was for the purpose of saving the sister concerns from being declared as NPA by the Bank or to save the properties mortgaged by the assessee to the bank as a guarantee, the assessee has not produced any evidence to show that advancement of loans to the sister concerns had impact on the assessee's income. Therefore, it was observed by the CIT(A) that the loans advanced by the assessee have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the following decisions: (i) ITA Nos. 618 & 619/Coch/2006 and 681/Coch/2005 dated 15/04/2008 in assessee's own case . (ii) CIT v. Harrisons Malayalam Ltd. (414 ITR 344)(Ker) (iii) CIT (Large Taxpayer Unit) v. Reliance Industries Ltd. (410 ITR 466)(SC) (iv) Hero Cycles P. Ltd. v. CIT (379 ITR 347) (SC). 5. On the other hand, the Ld. DR submitted that the assessee has not explained any commercial expediency to advance loans to the sister concerns. The Ld. DR submitted that even if the issue is remitted to the file of the Assessing Officer for fresh consideration, it is not known for what purpose the funds were transferred to the sister concerns. Since the assessee has not explained the purpose for which the funds were trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made out of own funds because assessee had a huge profit. However, we notice that the interest-free advances made every year is Rs. 2 crores when the assessee had substantial borrowings. The argument of the assessee is logically unacceptable because if assessee had huge profits and own funds, we do not know why the assessee should depend on borrowed funds. In any case if at a given point of time assessee has own funds and they have advanced it as interest-free loans to sister concerns for meeting their business needs in which assessee also has an interest, then such advances should not lead to disallowance of st paid on subsequent borrowings. In other words, unless the assesses establishes with cash flow statements about availability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest derived by the assessee to prove commercial expediency for justifying interest-free advances made from out of borrowed funds. We notice that the decision of the Supreme Court relied on by the Tribunal also was not available when the assessment was made. We, therefore, allow the appeals vacating the orders of the Tribunal and by remanding the cases to the Assessing Officer for the assessee to produce cash flow statements showing availability of own funds for advances made to sister concerns, constitution, assessee's interest, etc., in the sister concerns and the documents showing nature of assessee's business interest and financial position of such business concerns at the time of making the advances for the officer to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. However, the assessee has not produced an iota of evidence to prove that it has mortgaged its property, and on its classification of funds as NPA, it would affect the assessee's profitability. Being so, we are not in a position to uphold the argument of the Ld. AR on this issue. Further, the judgment of the Supreme Court relied on by the Ld. AR in the case of Munjal Sales Corporation v. CIT (supra) cannot be applied to the facts of the assessee's case. In that case, the issue was with regard to allowability of interest u/s. 36(1)(iii) subject to provisions of section 40(b)(iv) of the I.T. Act. Hence, this ground of appeal of the assessee is rejected.
7. In the result, the appeal of the assessee is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X
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