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TMI Blog2017 (3) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... was made very clear by the Hon’ble Supreme Court that to consider whether deduction u/s 36(1)(iii) should be allowed on the amount borrowed by Assessee for advancing to sister concern, the authorities and courts should examine the purpose for which the Assessee advanced the money and what the sister concern did with the money. It was also further held that what is relevant is to see whether the amount was advanced as a measure of commercial expediency but not whether the Assessee advanced those for earning profits. The lower authorities have not examined the facts and the above aspect of the matter in this case so as to arrive at a conclusion that there is commercial expediency. The Assessee also did not give any explanation as to how there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced funds to the tune of ₹ 148 crores to its sister concerns in the form of share application money. Therefore, the Assessee was required to explain as to why interest paid on unsecured loans should not be disallowed under the provisions of section 36(1)(iii) of the IT Act as the same were found to be diverted for share application money of sister concerns. However, the Assessee has not offered any explanation or valid reason for the money advanced to sister concerns. It is the finding of the Assessing Officer that the Assessee has not been able to establish any commercial expediency while advancing such huge amount in the form of share application money. Therefore, since the Assessee advanced funds to the tune of ₹ 148 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as diverted the borrowed funds to sister concerns and invested as share application money and at the same time Assessee was incurring interest expenditure on such borrowed funds, the Assessee did not file any explanation. Further it has not been established any commercial expediency in advancing such huge amount to sister concerns. The Ld. DR further inviting our attention to the findings of the Ld. CIT (Appeals) submits that the Ld. CIT (Appeals) simply relying on the decision of Supreme Court in the case of SA Builders Ltd. (supra) allowed the claim of the Assessee. The Ld. DR submits that the Ld CIT (Appeals) has not examined as to whether the amounts advanced by the Assessee were for the commercial expediency of the business or not. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 33,53,425/- incurred by the Assessee on unsecured loans. 7. It was the submission of the Assessee before Ld. CIT (Appeals) that the Assessee engaged in the business of generating, transmitting, distributing and supplying electrical power. The Assessee Company borrowed funds from Bright Impex and Agencies Private Limited and advanced the same as share application money to Bajaj Energy Private Limited which was at that time setting up the power generating plant of 450MW in the state of Uttar Pradesh. It was submitted that the Assessee company incurred interest expenditure on the borrowed funds and claimed the same as business expenditure u/s 36(1)(iii) of the Act. The Assessee never addressed the aspect of commercial expedienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on amounts borrowed by it for advancing to a sister concern, the authorizes and the courts should examine the purpose for which the assessee advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the assess in its own business but had been advanced as interest free loans to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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