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TMI Blog2015 (4) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld.CIT(A) has erred in allowing the interest expenses on account of borrowed funds utilized in repayment of interest free loans taken from sister concern and whether such expenses amounts to incurring wholly and exclusively for the purpose of business. 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing reimbursement of expenses to sister concerns and other parties amounting to Rs. 1,30,05,978/- without appreciating the fact that the assessee failed to justify the same as incurred wholly and exclusively for the purpose of business, further whether it is within the jurisdiction of the Ld.CIT(A) in directing the Assessing Officer to rectify the correct amount of reimbursement 3. Whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company was required to maintain level of USL at INR 533.20 Mio as at 31st March, 2007 by way of unsecured loan. Most of the unsecured loans have been received from M/s.Rosy Blue India Private Limited. During the relevant financial year the assessee has made payment to M/s.Rosy Blue India Private Limited and the balance had gone well below the limit prescribed in the sanction letter. The total amount of unsecured loan to be maintained by the assessee as per the sanction letter of the bank was at Rs. 82 crore. However the average amount of unsecured loan from the sister-concerns was only Rs. 40 crore. Thus, he concluded that the interest bearing loans from the bank, was taken for the business purposes which has been used for repaying non-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per justification with evidences. Further the assessee had incurred losses in the current year and also in the earlier years which supports the fact that the payment of commission is not justified. Further regarding other person also, no valid explanation or justification was given by the assessee. Accordingly he disallowed the said expenses aggregating to Rs. 33,06,289. 3. Before the CIT(A), regarding the disallowance of interest, the assessee submitted that the A.O. has failed to understand the correct facts of the case that it has not given any interest free loan to any persons including its sisterconcerns. In fact it has borrowed substantial interest free funds from the sister-concerns. The summarized position of interest bearing funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has diverted any interest bearing funds for non-business purposes. Accordingly, he deleted the said disallowance of interest made by the A.O. 3.3 Regarding the disallowance of reimbursement of expenses, the assessee submitted that the actual reimbursement was only Rs. 8,25,000 to M/s.Ruby Blue India Private Limited and Rs. 69,689 to M/s.Inter Gold India Private Limited, towards administrative expenses incurred on behalf of the assessee. It was stated that all the documentary evidences in this regard were submitted to the A.O. vide letters dated 21.12.2007 and 29.12.2007. The learned A.O. has taken the ledger totals of M/s.Jose Jewels (I) Private Limited's account in the books of M/s.Ruby Blue India Private Limited and disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is quite justified. Thus, relying upon the earlier orders of the CIT(A) for the assessment years 2005-2006 and 2006-2007, he allowed the assessee's ground on this score. 4. Before us, the learned Departmental Representative strongly relied upon the order of the Assessing Officer and the reasoning given by him. He submitted that the onus was upon the assessee to show direct nexus of the utilization of interest bearing borrowed funds for the business purposes. The day-to-day cash balance has to be shown as to whether it has not been diverted to the sister-concerns without charging any interest. Therefore, the A.O. has rightly disallowed the proportionate interest. Regarding other issues also, he referred to the findings given by the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportionate interest on borrowed funds, it is evident from the findings given in the impugned order as well as material placed on record that, the borrowings from the banks has been substantially reduced in this year, whereas interest free borrowings from the sister-concerns have increased. The interest free funds have been borrowed to reduce the bank borrowings only. The fund flow statement, which is part of the audited accounts, also show that the assessee has generated huge cash from operating activity. Besides this, if the assessee has taken interest free loans from sister-concerns for the purpose of business, then the payment of the said amount, even if they are partly from the interest bearing borrowings from the bank, the same cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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