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TMI Blog2017 (2) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sheet as on 31.03.2010 as against interest bearing funds offered at ₹ 10.74 crores. Hence, interest-free funds of ₹ 34.52 crores have been utilised for giving interest-free advances to aforesaid above parties on which no interest was charged. Thus interest-free advance were given out of interest-free funds available with the assessee during the year for which sufficient interest-free funds were available. Therefore, we are of the view that the Ld. A.O. has failed to establish that interest free advances to above stated four parties were out of interest bearing funds. We find that the AO has not been able to establish the nexus between interest bearing funds utilized for non business purpose as held in SA BUILDERS LTD. VE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 1.1. It was proved before the lower authorities that the assessee had sufficient capital and interest-free funds. No nexus has been proved; by the Ld. AO, that borrowed funds have been utilized for interest free advances. 1.2. The Ld. CIT (A) did not consider the cases cited before him. 2. The addition of ₹ 11,60,840/- may please be deleted or in the alternative restricted to reasonable figure. 3. The Ld. CIT(A) has erred in maintaining the addition of ₹ 86,346/- being the undervaluation of stock. The same may be deleted or in the alternative the AO may be directed to reduce the income in the subsequent year. 1. Ground no. 1 and 2 relate to confirmation of disallowance of interest of ₹ 11,60,840/- hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Being, aggrieved the assessee filed an appeal before the ld. CIT (A). However, ld. CIT(A) confirmed the action of the AO by observing that the assessee has failed to controvert the finding of the AO. The contention of the assessee that it had sufficient interest-free funds available out of which interest-free funds advances were given was not found acceptable. 1.3. Being, aggrieved the assessee filed this appeal before the Tribunal. The Ld. A.R. submitted that the observation of the AO is not correct on the facts of the case. The Ld. A.R. submitted a table demonstrating that the assessee has substantial interest-free funds of ₹ 34,42,80,122/- (consisting of partners capital of ₹ 11,10,75,722/- and loans deposit from relativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free advances can be considered flowing from such profits. 1.3.2. The Ld. A.R. also place reliance on the judgement of Hon`ble Bombay High Court in the case of CIT vs. Reliance Utilities Power Ltd. (2009) 313 ITR 340(Bom) wherein it was held that if there are fund available both interest free and interest bearing, then a presumption would arise that investment were out of interest free funds generated or available with the assessee. If the interest-free funds were sufficient to meet the investment no disallowance of interest paid on borrowed funds would be necessary. Once such presumption is established claim of interest was allowable. 1.3.3. The Ld. A.R. also placed reliance on the judgement of Hon`ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, hence, finding of the AO/Ld. CIT(A) may be upheld. 1.5. We have heard the rival submissions of both the parties and have perused the material available on record. We find that the ld. A.O. has failed to establish that interest free advances to above stated parties were out of interest bearing funds. It is the contention of the assessee that it had sufficient non-interest bearing funds to the tune of ₹ 34.42 crores as per balance sheet as on 31.03.2010 as against interest bearing funds offered at ₹ 10.74 crores. Hence, interest-free funds of ₹ 34.52 crores have been utilised for giving interest-free advances to aforesaid above parties on which no interest was charged. Thus interest-free advance were given out of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as per balance sheet of the assessee. We further rely on the decision of Hon`ble Punjab Haryana High Court in the case of CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518(P H) wherein it was held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. Therefore, by applying the ratio as laid down by the Hon ble Bombay High Court in in the case of CIT vs. Reliance Utilities Power Ltd. (2009) 178 Taxman 135 (Bom) and the decision of CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P H) and other judgements as cited above, we are of the considered opinion that no disallowance of interest is warranted in this case. In view of these facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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