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TMI Blog2021 (8) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... e, no interest could be disallowed for diversion of funds to related parties. We are of the considered view that there is no error in the findings recorded by the CIT(A) to delete disallowances made by the Assessing Officer towards proportionate interest and hence, we are inclined to uphold findings of the CIT(A) and dismiss appeal filed by the Revenue. - I.T.A. No. 3358/Chny/2019 - - - Dated:- 9-8-2021 - Shri Mahavir Singh, Vice-President And Shri G.Manjunatha, Accountant Member For the Appellant : Mr. G.Johnson, Addl.CIT For the Respondent : Mrs.S.Vidya, C.A ORDER PER G.MANJUNATHA, AM: This appeal filed by the Revenue is directed against the order of the learned CIT(A)-18, Chennai dated 13.09.2019 and pertains to assessment year 2005-06. 2. The Revenue has raised the following grounds of appeal:- 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. Whether on the facts and in the circumstances of the case, the Id. CIT(A) was correct in deleting the interest disallowance of ₹ 4,39,58,399/-? 3. Whether on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o diversion of funds needs to be disallowed. The learned DR further submitted that learned CIT(A) was not correct in holding that the assessee has given loans out of its own funds being general reserves without appreciating the fact that general reserve and balance of profit loss account cannot be considered as liquid cash available for immediate disbursement. 6. The learned AR for the assessee, on the other hand, submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT in assessee s own case for assessment year 2004-05 in ITA No.1629/Chny/2018, where the Tribunal by following decision of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd. (313 ITR 340) held that when mixed funds are used for giving loans and advances, a general presumption goes in favour of the assessee that loans and advances are given out of its own funds, and consequently, no disallowance can be made towards proportionate interest expenses. 7. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The issue is squarely covered in favour of the assessee by the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 - Rs,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 finds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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 MIs. 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 presumption that interest free loan was extended sourced from its interest free funds. 6.3 It is a well known fact that when funds are pooled in together they get intrinsically mixed up and cannot be physically identified as to from which source such funds have been sourced. Itis akin to a situation when a pile of water is accumulated from diff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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