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TMI Blog2019 (5) TMI 1895X X X X Extracts X X X X X X X X Extracts X X X X ..... ase regarding the equity share capital, general reserves, and accumulated profits and Reserves of the assessee company to be in excess of the interest free loan extended. - Decided in favour of assessee. - I.T.A.Nos.1627 to 1629/Chny/2018 - - - Dated:- 8-5-2019 - SHRI A.MOHAN ALANKAMONY AND SHRI DUVVURU RL REDDY, JJ. Appellant by : Ms. S. Vidya, CA Respondent by : Shri R. Clement Ramesh Kumar, Addl. CIT ORDER A. Mohan Alankamony, J. These appeals by the assessee are directed against the common order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 25.01.2018 in ITA No.1147, 1148 1143/15-16 for the assessment years 1997-98, 1998-99 2004-05 passed U/s.250(6) r.w.s. 143(3) 254 of the Act. 2. The assessee has raised several identical grounds in its appeals however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed the interest on borrowed funds amounting to ₹ 20,66,400/- each for the assessment years 1997-98 1998-99 and ₹ 2,12,75,000/- for the assessment year 2004-05 being the proportionate interest on the interest free loan extended to the sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster companies. The Ld.AR further argued stating that the assessee s funds arising from its equity capital, general reserves, accumulated profits and surplus are interest free funds of the assessee company and there is no prohibition under the Act to divert such funds for any other purpose and yet carry on its business sourced from interest bearing funds. The Ld AR further submitted that there is also no provision under the Act for disallowing such interest as allowable deduction. The Ld.AR further pointed out that there is no dispute with respect to the fact that the assessee s equity capital, general reserve, accumulated profits and surplus exceeds the loan extended to its sister concern at any point of time during the relevant assessment year. The Ld.AR further explained that the only grievance of the Ld.Revenue Authorities was that, the assessee s own funds such as equity capital, general reserve, accumulated profits and surplus were already deployed by the assessee company in its business and there was no liquid cash available and in such situation the assessee company has borrowed interest bearing funds and extended the same as interest free loan to its sister concerns and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for the assessee company to conduct its business entirely out of borrowed funds and in such situation, the interest expenditure incurred by the assessee is allowable as deduction as per the provisions of the Act. Further the assessee company is also at liberty to deploy its entire interest free funds in whatsoever manner it deems fit subject to the sanctions granted under the Memorandum of Association of the assessee company and yet carry out its business sourced from interest bearing funds. In an identical situation in the case CIT vs. Reliance Utilities And Powers Ltd., reported in 313 ITR 340 wherein the assessee had equity share capital of ₹ 180 crores, reserves surplus ₹ 120.80 crores, depreciation reserves of ₹ 95.39 crores aggregating to ₹ 398.19 crores, the Assessing Officer had recorded a finding that the sum of ₹ 213 crores was invested out of the assessee s own funds and ₹ 147 crores was invested out of borrowed funds and therefore disallowed interest amounting to ₹ 4.4 crores calculated at 12% per annum for 3 months from Jan 2000 to Mar 2000, the Hon ble Bombay High Court had held that:- if there were funds availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm had its own funds as well as borrowed funds. It was not clear that the firm had not advanced money out of its own funds and in the absence of any materials to indicate that the firm had advanced moneys to the private limited company out of funds borrowed for business purposes, the presumption would arise, where there was a common fund, that the money advanced came only out of its own funds. The Tribunal was right in holding that no part of the interest should be disallowed especially in the absence of any finding that the money borrowed was advanced to the private limited company free of interest. 6.2 Further on similar situation this Bench of the Tribunal on identical situation in the case M/s. TIL Healthcare Pvt. Ltd. in ITA No. 2416/Chny/2017 vide order dated 17.04.2018 following the decision of the Hon ble Jurisdictional Madras High Court in the case CIT vs. Hotel Savera and the decision of the Hon ble Bombay High Court in the case CIT vs. Reliance Utilities Power Ltd., deleted the addition made by the Ld.AO when the assessee had interest free funds such as share capital and reserves surplus in excess to the interest free loan extended based on the presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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