TMI Blog2020 (5) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... ency. Interest paid by the assessee on such account cannot be allowed. The only plea of the assessee is that the assessee had mortgaged its property to avail bank loans for the sister concerns and if the sister concerns failed in their business, it will effect the profitability of the assessee - 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. We are not in a position to uphold the argument of the Ld. AR on this issue. Judgment as relied on by the Ld. AR in the case of Munjal Sales Corporation v. CIT [ 2008 (2) TMI 19 - SUPREME COURT] cannot be applied to the facts of the assessee's case. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of own funds can be established by comparison of financial statements and not necessarily the cash flow statement. 4. Commissioner of Income tax (Appeals) erred in his conclusion that there was no commercial expediency for the appellant based on the decision of ITAT Chandigarh bench in the case of C.R.Auluck Sons Private Ltd, which was rendered following the decision of Punjab and Haryana High Court in the case of CIT v. Abhishek Industries Ltd (286 ITR1) which was subsequently reversed by Supreme Court. 3. The facts of the case are that the Assessing Officer disallowed the interest expenses incurred on advancement of loans to the sister concerns on account of commercial expediency. The Assessing Officer observed that the languag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee have no element of commercial expediency. Accordingly, he confirmed the action of the Assessing Officer in disallowing the interest expenses incurred on advancement of loans to the sister concerns. 4. Against this, the assessee is in appeal before us. The Ld. AR relied on the judgment of the Supreme Court in the case of S.A. Builders v. CIT (288 ITR 1) and submitted that money has been advanced to the sister concerns on account of commercial expediency and it is to be allowed. Further, the Ld. AR relied on the judgment of the Supreme Court in the case of Munjal Sales Corporation v. CIT (298 ITR 298) wherein it was held as follows: Under the Income-tax Act, 1961, after amendment of the Act by the Finance Act, 1992 in order that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the funds were transferred to the sister concerns, it cannot be said that money has been advanced on account of commercial expediency. Hence, the interest paid on borrowed funds relates to the funds transferred to the sister concerns and has to be disallowed. The Ld. DR relied on the following case laws: (1) CIT v. C.R. Auluck and Sons (P) Ltd. v. CIT (360 ITR 193) (P H) (2) Poabs Rock Products (P) Ltd. v. DCIT (137 ITD 296) (Cochin Trib.) (3) CIT Vs. Accelerated Freeze Drying Co. Ltd. (324 ITR 316) (Kerala) 6. We have heard the rival submissions and perused the record. In the present case, the assessee had advanced funds to the sister concerns to the tune of ₹ 1,25,22,538/-. At the same time, the assessee incurred ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith cash flow statements about availability of its own funds at the time of making the interest-free advances, the finding of the Tribunal cannot stand. Besides this, going by the decision of the Supreme Court, unless the assessee establishes the benefit it derives from each sister concern to which loans were advanced and the financial plight of such business concerns deserving interest-free advances, we do not know how the test of business expediency is satisfied. The Tribunal has just accepted the argument of the assessee that the sister concerns were in financial difficulties and the cheques issued by them could be honoured only with the interest-free advances made by the assessee. We have to necessarily accept the argument of the Standi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of making the advances for the officer to consider eligibility for deduction of interest on borrowed capital. In order to avoid further contest, we direct the Assessing Officer to examine the details furnished by the assessee, issue a written pre- assessment notice containing proposals for disallowance of interest, if any, and the reasons thereof so that the assessee gets an opportunity to file written objection and that the assessment completed after giving sufficient opportunity to the assessee. 6.1 In the course of passing consequential order by the lower authorities, the assessee has not led any evidence to show the commercial expediency to advance funds to the sister concerns. In addition to this, the assessee failed to file the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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