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TMI Blog2022 (12) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be that the investments were made out of surplus funds. Thus, there is an apparent contradiction in the stand taken by the assessee. It is not clearly brought out either from the assessment order or from the Ld. CIT(A)'s order as to whether there is a direct nexus or link between the borrowed funds and the investments. A clear and direct nexus has to be established between the loan funds and the investments before a disallowance u/s. 56(1)(iii) of the Act is made. If there is a direct nexus between the loan funds and such investments, then the proposition that if the assessee had surplus funds with it, then the investment would be presumed to have been made from such surplus funds would not hold good and then the disallowance u/s. 36(1)(iii) of the Act would be fully justified. However, if there is no direct link between the borrowed funds and the investments, then the presumption would were in favour of the assessee. Restore this issue to the file of the AO with a direction to verify as to whether there is any direct link or nexus between the borrowed funds and investment in shares. If it is so found, then the impugned disallowance shall hold good. Appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort 'the Act'], the deduction for interest was admissible only when the capital is borrowed directly for the purpose of business whereas, the investment in unquoted shares was not relating to the business of the assessee. The AO proceeded to make a disallowance of Rs. 27,59,600/- u/s. 36(1)(iii) of the Act and completed the assessment at the taxable income of Rs. 30,73,490/-. 2.2. Aggrieved, the assessee preferred an appeal before the Ld. Ld. First Appellate Authority. However, the Ld. CIT(A) also dismissed the appeal of the assessee by holding that the interest expenditure incurred by the assessee for acquiring the shares of the sister concern cannot be said to have been utilized for the purpose of business and that the AO had rightly disallowed the interest claimed by the assessee. 2.3. Aggrieved, the assessee has now approached this Tribunal challenging the order of the Ld. CIT(A) by raising the following grounds of appeal:- 1. That the Ld. CIT(A) has erred in confirming the addition of Rs. 27,59,600/- in respect of disallowance of interest u/s. 36 (1)(iii). 2. That the disallowance have been made, though, it was explained to the Ld. CIT(A) that sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment. The Ld. AR placed reliance on numerous judicial precedents in support of this contention which have been compiled in the form of the paper book and have been taken on record. 3.2. The Ld. AR further argued that the conclusion drawn by the lower authorities that the investments in the group concerns were not related to the business activities of the assessee company was also wrong in as much as it is for the businessman to decide as to what investments would be furthering the ends of its business and the Department cannot direct and decide on the issue of investments which can be said to be related or unrelated to the business of the assessee. 4. Per contra, the Ld. Sr. DR placed heavy reliance on the concurrent findings of both the lower authorities and submitted that the AO has given a very categorical finding that the assessee could not substantiate that the investment in the sister concern was a strategic business investment. It was further submitted that the Funds Flow Statement of the earlier assessment years clearly establishes that the borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, I fully agree with such contention. The Balance Sheet of the assessee shows non-current investments as on 31.03.2015 as well as 31.03.2016 at Rs. 9,24,86,388/-. However, the Ld. CIT(A), while referring to the assessment order, in para 4.1 of the impugned order at page 9 has mentioned that the amount of unsecured loan of Rs. 3,91,49,000/- taken during the Financial Year 2014-15 from M/s. A.B. Continental Commodities was invested in purchasing the equity shares of group companies on the same day on which the loan amount is credited in the assessee's bank account. Thus, the basic contention of the Ld. AR that interest free funds were not utilised for the purpose of investing in shares of the sister concern does not stand proved. Taking the logic further, the inference that if the assessee has sufficient surplus funds, then it is to be assumed that the investments were made from surplus funds would also hold not true. 5.1. I also note that on one hand it is the assessee's contention that the borrowings were made for the purpose of investing in shares coupled with the arguments that these investments were strategic in nature and on the other hand, it has been c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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