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TMI Blog2022 (4) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in disallowing interest expense under section 36(1)(iii) of the Act without appreciating the fact that the Appellant had given advances to four unrelated parties (outstanding as on April 1, 2014) out of own funds and internal accruals of previous years and accordingly, disallowance ought to be restricted to the amount advanced during the year under consideration. 1.3. Without prejudice to Ground No. 1.1 & 1.2 above and on the facts and circumstances of the case, the Ld. CIT(A) has disregarded the fact that the Appellant has given advances to three parties and charged interest at a rate of 6.11% and accordingly no disallowance under section 36(1)(iii) is warranted on advances given to these three parties. 1.4. Without prejudice to Ground No. 1.1, 1.2 & 1.3 above and on the facts and circumstances of the case, the Ld. CIT(A) has disregarded the fact that the Appellant has given advances to three parties and charged interest at a rate of 6.11% and thereby erred in not restricting the disallowance on amounts advanced during the year to the fourth party by adopting such rate of 6.11%. 1.5. Without prejudice to Ground No. 1.1, 1.2, 1.3 & 1.4 above and on the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee has debited financial expenditure of Rs. 17,31,34,000/-. The learned Assessing Officer noted that assessee has given a loan to one company M/s Beyond Pharma Ltd. of Rs. 6, 47, 91,216/- without charging any interest. In absence of any information forthcoming from the assessee, the learned Assessing Officer held that as assessee has paid interest on loan fund and has given interest free loan therefore, he computed the interest disallowance of Rs. 77,74,946/- @ 12% and disallowed the same under provisions of section 36(i)(iii) of the income tax Act, 1961 (the Act). This addition was challenged before the learned CIT - A. He found that assessee has also advanced loans to various other parties without charging interest or charging interest at lower rate. Therefore he issued notice for enhancement u/s 251 (2) of the act on 31st of December 2018. He tabulated the information as Under:- Serial number name of the borrower opening balance fresh loan Repaid closing balance interest charged Rate of interest 1 Metallica enterprises private limited 6,42,37,450 Nil 2,12,70,203 4,29,67,247 39,22,936 6.10 2 Anjay shares and securities private limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the order of the learned CIT (A). He submitted that according to the annual accounts of the assessee, the loan of the three different parties as well as the loan considered by the learned Assessing Officer is far less than the share capital and reserves and surplus of the assessee. He submitted that these are interest free funds available with the assessee at the beginning of the year. He also submitted that the loans are advances given to all these 4 parties at the time of opening balance is far less than the amount of interest free share capital and free reserve available with the assessee. He therefore, submitted that presumption would be available in favour of the assessee that no interest bearing funds are used for advances to these parties. For this proposition, he referred to audited annual accounts of assessee wherein it has share capital of Rs.1996.93 lakhs and reserve and surplus of 8912.85 lakhs totaling to Rs. 10,909.78 lakhs as on 31st of March 2014. He therefore submitted that if opening balance of which are listed by the learned and CIT - A is considered it comes to only Rs. 23.84 crores, which is far less than the amount of interest free funds available with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of these parties as advances. No doubt, the assessee has charged interest at the rate of 6.10% on these advances. However, we find that as on 31st of March 2014, assessee has non-interest-bearing funds available with it of Rs. 10,909.78 lakhs, which is far in excess of the loan advanced of Rs. 23.84 crores. Therefore, the presumption would be available in the favour of the assessee that assessee has advanced these interest free funds or lower interest bearing funds to these parties out of the interest free funds available with them. 012. Further, during the year assessee has given a fresh loan of Rs. 64,791,216 to beyond Pharma Ltd. As on 31st of March 2015, the fund position of the assessee has changed and share capital is amounting to Rs. 1996.93 lakhs whereas the reserve and surplus has turned negative to Rs. 18,821.69 lakhs. This has resulted because of the exceptional items written off in the profit and loss account as per note number 30 of Rs. 24,176.32 lakhs. Out of that Rs., 8941.48 Lacs are provision for doubtful debts and Rs. 15,234.84 lakhs are because of provision for diminution in value of investment. We find that accounting entry of Rs. 15,234.84 lakhs of writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully considered rival contention and perused the orders of the lower authorities. We find that during the year, the assessee has not earned any exempt income and further assessee denied that it has incurred any expenditure. Now therefore it is mandatory on part of the learned assessing officer to record a satisfaction that the claim of the assessee is not correct. Such is the mandate of the provisions of Section 14 A (2) of the act. We find that the learned assessing officer has merely on the basis of the investment shown in the annual accounts of the assessee has invoked the provisions of Section 14 a read with rule 8D and issued notice to the assessee. When assessee has categorically replied that it has not incurred any expenditure during the year the learned assessing officer is duty-bound to record a satisfaction that why the explanation furnished by the assessee is incorrect. Such satisfaction also has to be based on accounts of the assessee. If assessing officer merely says that as the investment decision are very complex the assessee should have incurred certain expenditure cannot satisfy the requirement of Section 14 A (2) of the act. This shows that there is no refere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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