TMI Blog2023 (5) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... on different dates, but no interest has been charged on the advances. We further note since the internal cash accruals from operations are more than the interest free funds advanced to the sister concern for business purposes, it cannot be said that the interest bearing loan funds had been utilized by the assessee for the purpose of giving interest free advances over the years to its sister concern - In view of this factual finding and relying on the judgment of Munjal Sales Corporation v. CIT [ 2008 (2) TMI 19 - SUPREME COURT] we hold that proviso to section 36(1)(iii) is not applicable in the present case. Accordingly, we set aside the order of the CIT(Appeals) and delete the addition. Decided in favour of assessee. - SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Shri Shreesh Kumar Hegde, CA For the Respondent : Shri P. Suresh Rao, Addl.CIT(DR)(ITAT), Bengaluru. ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER: This is the second round of appeal before the ITAT by the assessee against the order of the CIT(Appeals)-11, Bengaluru dated 27.10.2022 DIN: ITBA/APL/M/250/2022-23/ 1046481087(1) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities obtained from the bank. The said advance will be receivable by the Appellant and such amount will not be capitalized in the books of account of the Appellant. The advance is not a capital expenditure in the books of the Appellant attracting the proviso to section 36(1)(iii) of the Act in the instant case. Thus, the said advance has not resulted in any capital assets or the Appellant has capitalized any asset in the books of accounts. The relevant portion of the proviso to section 36(1)(iii) of the Act has been provided below for Your Honors ease of reference: Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 (i) (ii) (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case, the learned Assessing Officer has disallowed the interest on proportionate basis. The learned Assessing Officer failed to appreciate that the Appellant has not borrowed any form of facility from the Banks for advancing the amount to the sister concern. The borrowing of loan in relation to acquisition of asset is one of the primary condition for the applicability of Proviso to Section 36(1)(iii) of the Act. Further, the Proviso requires that portion of the interest to be disallowed incurred/paid from the date of borrowing till the asset is first put to use. There is no satisfaction of these conditions in the orders passed by the lower authorities. 12. The Appellant has obtained two cash credit facilities from Canara Bank and State Bank of India respectively which have been duly disclosed in Note No. 2.6 of the financial statements. Your Honors attention is drawn to Page No.128 of the paper book wherein the short term borrowings has been disclosed in the financial statements. Thus, on perusal of the financial statements, it is apparent that the Appellant has not taken any loan for making advance to the sister concern. 13. In view of the above, the Appellant most hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not utilized for other than business purpose. The bank will determine the drawing power on a month on month basis by obtaining monthly work done certificates/stock and receivable statements, work orders etc excluding all kinds of long term loans and advances. 17. Further, the Appellant most humbly states that the finding of the learned Assessing Officer further confirmed by the learned Commissioner of Income Tax (Appeals) that the payments has resulted in over drawals and negative balance increased from time to time leading to charging of OD/CC interest by the bank is factually incorrect. The Appellant has utilized the interest free funds available in making the advance to Naveen Hotels Ltd. The summary of the interest free funds available with the Assessee as at the end of the period are as under: Sr. No. Particulars Amount in Rs. As at 31/03/2014 Amount in Rs. As at 31/03/2013 3. Share Capital 63,00,00,000 63,00,00,000 4. Reserves and Surplus 91,84,56,786 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. The copy of the order has been provided at Page No. 24 to 35 of the legal paper book for Your Honors ready reference. Kindly refer para 13 of the case law for the relevant portion of the observation of the Hon'ble Tribunal. The ratio laid down by the Hon'ble Tribunal squarely covers the facts of the Appellant. Thus, the interest free funds are much higher than the amount of land advance paid to Naveen Hotel in the instant case of the Appellant. 20. The Appellant wishes to place reliance on the decision of Hon'ble Supreme Court in the case of CIT V/s. Reliance Industries Limited in Civil Appeal No. 10 of 2019 dated 02/01/2019 wherein the Hon'ble Apex Court has held as under: Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. In view of the above findings, we find no reason to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in advancing the funds to the sister concern M/s. Naveen Hotels Limited and accordingly direct the lower authorities to delete the interest added under the proviso to section 36(1)(iii) of the Act in the instant case. 24. We request Your Honors to take the above on record for Your Honors kind consideration and gracious favourable orders for the substantial cause of justice and equity in the instant case. 6. In addition to the above, the ld. AR strongly submitted that proviso to section 36(1)(iii) is not applicable in the present facts of the case and submitted that assessee had sufficient internal accruals during the impugned assessment year which is evident from the cash flow statements which is part parcel of the financial statements. He also submitted that the assessee had earlier given advances pf Rs. 53.93 crores on which no expenditure has been charged. The AO has considered only the advances given during the impugned assessment year. He relied on the following case laws:- i) CIT v. Reliance Utilities Power Ltd. [2009] 178 Taxman 135 (Bombay) ii) CIT v. Reliance Industries Ltd. [2019] 102 taxman.com 52 (SC) iii) CIT v. Reliance Industries Ltd. [2017] 86 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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