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TMI Blog2017 (2) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) of the Act does not arise at all, since section 36(1)(iii) of the Act deals with the circumstances or the conditions subject to which interest expenditure are to be allowed. Since in the present case, the investments have been presumed to made out of own funds, clearly no interest expenditure has been incurred for making the same and, therefore, no question of allowability/disallowability of the same arises under section 36(1)(iii) of the Act - Decided in favour of assessee - ITA No.779/Chd/2016 - - - Dated:- 28-11-2016 - Shri Bhavnesh Saini, Judicial Member And Ms. Annapurna Gupta, Accountant Member Appellant by : Shri Sudhir Sehgal Respondent by : Shri Manjit Singh, DR ORDER Per Annapurna Gupta, A. M. This appeal has been filed by the assessee against the order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana dated 18.3.2016 for assessment year 2010-11. 2. The assessee has raised following grounds of appeal : 1. On the facts in the circumstances of the case and in the law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of ₹ 4,94,811/- under section 36(l)(iii) of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee reiterated the contentions made before the learned CIT (Appeals) and stated that the assessee had sufficient own funds to make the impugned investments/advance. Ld. counsel for the assessee drew our attention to the Balance Sheet of the assessee relating to the impugned year and drew our attention to page no.9 of the same,and pointed out that as on 31.3.2010 the Shareholders Funds available with the assessee, which included Share Capital and Reserves Surplus, amounted in all to approximately ₹ 20.88 crores. Ld.Counsel for the assessee stated that this was more than sufficient to make the impugned investment of ₹ 1.05 crores. Thereafter relying on the proposition laid down by the Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. (supra), that where enough own funds are available for making the investment the presumption is that the same had been made out of the own funds, the learned counsel for the assessee stated that the same applies in the present case also. The Ld. counsel for the assessee therefore stated that there was no reason to make disallowance of any interest under section 36(1)(iii) of the Act. Ld. counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficiency of funds was upheld for deleting the disallowance of interest. 8. We have heard the contentions of both the parties, perused the orders of authorities below as also the documents produced before us. The undisputed facts in the present case are that during the impugned assessment year, the assessee had claimed interest expenditure amounting to ₹ 481.38 crores and had made interest free advances for making investment in shares amounting to ₹ 1.05 crores. It is also an undisputed fact that the Interest free funds available with the assesse in the form of Share Capital and Free Reserves amounted to ₹ 20.88 crores as at the end of the year. Further, the business purpose for making the aforestated advances was not established either before the lower authorities or even before us. Therefore, the only question which remains to be answered before us is whether in the cases where there are sufficient own interest free funds of the assessee to make advances/investments without charging any interest, could the same be attributed to having been made out of the interest free own funds. Going forward from here, if the answer to the same is in the affirmative, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber's case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pediency of making the advances is required to be established, is in our opinion incorrect. The Ld. DR has pointed out that in the case of Bright Enterprises Pvt. Ltd. (supra) the High Court had first established that the advance was made for business purpose and had thereafter applied the presumption of utilization of own funds and deleted the interest paid under the provisions of section 36(1)(iii) of the Act. On the contrary, a perusal of the order of the High Court would reveal that in the first place the question of law before it was as under : Whether under the facts and circumstances of the case, while arising at the 'chargeable income' u/s 29 considering the provisions of Section 36(l)(iii), the disallowance of interest paid to banks is mandatory on the true and correct interpretation of the words 'for the purpose of business? 15. For answering the aforestated question, the High Court dealt with business purpose of the advance and held that it was established as a matter of fact that advance was made for business purpose. It further went on to state, at para 16, that in any case, the assessee had surplus funds to make the impugned advance and thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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