TMI Blog2021 (7) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... he above legal settled position of law and facts of the case in respect of the incremental loans and advances made to the sister concerns / related parties during the previous year relevant to the assessment year under consideration. - Appeal filed by the assessee is allowed. - ITA No.556/PUN/2018 - - - Dated:- 12-7-2021 - Shri Inturi Rama Rao, AM And Shri S. S. Viswanethra Ravi, JM For the Assessee : Shri Rajan Vora / Shri Rajendra Agiwal. For the Revenue : Shri Mahadevan A.M. Krishnan ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of learned Commissioner of Income Tax (Appeals) 7, Pune dated 29.12.2017 for the assessment year 2014-15. 2. The brief facts of the case are as under : The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of construction of sale and residential commercial buildings. The return of income for A.Y. 2014- 15 was filed on 31.082014 declaring a loss of ₹ 4,24,68,213/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward 14(4), Pune (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch advances were made, no disallowance u/s 36(1)(iii) was made, it was only for the first time during the assessment year under consideration, Assessing Officer had chosen to make the disallowance u/s 36(1)(iii) of the Act. Ld.A.R. further taken us through Page No.323 of the Paper Book demonstrating that a sum of ₹ 4,37,39,540/- was given to sister concerns / related parties as loans and advances during the previous year relevant to the assessment year under consideration as against the reserves generated of ₹ 13,12,44,064/-. Finally, the contention of the Ld.A.R. is that even in case when there is a mixture of borrowed funds as well as interest free funds are utilized and when the interest free funds are more than the investments, then a presumption should be drawn that loans and advances to sister concerns / related parties is made out of the own funds. In support of this proposition, he relied on the decision of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities reported in 313 ITR 340. On the said proposition, he also relied on the following decisions : 1) ACIT Vs. M/s. Indo Industrial Engineers ITAT, Delhi. 2) JCIT Vs. M/s. Mbharat Fritz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the contention of the appellant restricted the amount of disallowance to the extent of interest claimed as an expenditure vide Para 6.10 of the order of ld.CIT(A) by holding that interest is required to be disallowed irrespective of the fact that whether the borrowed funds have been utilized for the purpose of making advances to the sister concerns / related parties as no business expediency was established. 10. On perusal of the relevant financial statements of the appellant company which are placed at Page No.323 of the Paper Book, two things are clear, firstly, a sum of ₹ 51,37,56,632/- was advanced to sister concerns / related parties as on 31.03.2014 out of which only, a sum of ₹ 4,79,39,540/- were advanced to sister concerns / related parties during the previous year relevant to the assessment year under consideration and secondly, total Reserves and Surpluses available as on 31.03.2014 was ₹ 25,10,65,020/- and the Advances from Customers which are also interest free funds available are of ₹ 45,02,27,730/- which aggregate to a sum of ₹ 70,12,92,750/-. Out of which the net incremental interest free funds available during the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,79,39,540/-. It is settled position of law that where there is a mixture of both borrowed funds as well as the interest free funds are available, a presumption has to be drawn that investments are made out of the interest free funds as held by the Hon ble jurisdictional High Court in the case of CIT Vs. Reliance Utilities (supra) wherein it was held as under : 10. If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. (Supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (supra) where a similar issue had arisen.. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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