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TMI Blog2024 (9) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be made. Since, admittedly the assessee in the instant case is having sufficient own capital and free reserves surpluses which far exceeds the amount of interest free advance given to the sister concern, therefore, we are of the considered opinion that no disallowance of interest u/s 36(1)(iii) of the Act is called for. Assessee appeal allowed. - Shri R. K. Panda, Vice President And Ms Astha Chandra, Judicial Member For the Assessee : Shri Sanket M Joshi For the Department : Shri Ramnath P Murkunde ORDER PER R.K. PANDA, VP : This appeal filed by the assessee is directed against the order dated 17.01.2024 of the CIT(A)/NFAC, Delhi relating to assessment year 2021-22. 2. The grounds raised by the assessee are as under: 1. The learned CIT(A) erred in confirming the disallowance of entire interest of Rs. 52,59,935 made by the A.O. on the ground that the appellant company had borrowed interest bearing loan funds of around Rs. 5.40 Crs. And on the other hand, it has advanced interest free funds of Rs. 14 Crs. To its sister concern without appreciating that the said disallowance was not justified on facts and in law. 2. The learned CIT(A) failed to appreciate that interest free own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Nil. The case was selected for scrutiny under CASS to verify and examine the following issues: Very low PBDIT ratio in specific business code and turnover range where deficiency in audit report.-The assessee has claimed large business expenses, which may be verified. 6. Accordingly, statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) were issued and served on the assessee, to which the assessee filed certain details before the Assessing Officer. The Assessing Officer during the course of assessment proceedings noted that the assessee has paid Rs. 14 crores to M/s. Anishka Developer Pvt. Ltd. and has shown the same in its financials as interest free loan / advance. He noted that although the assessee has debited interest cost of Rs. 52,59,935/- being the loan availed from YES Bank, however, it has not charged any interest from Anishka Developer Pvt. Ltd. on the amount of advance of Rs. 14 crores given. Since the assessee was availing the interest bearing loan from the bank whereas it has advanced interest free funds to the sister concern for non-business purpose, therefore, the Assessing Officer confronted the assessee to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohammed Ali (1964) 53 ITR 165 (SC) wherein it was held that the onus is on the assessee to prove that the interest is deductible, sustained the addition on the ground that the assessee had failed to establish the direct nexus between the interest-free funds available as on the date of advance and the loan given to the sister concern by observing as under: The assessment order and the submission have been carefully examined and found that the appellant had advanced loan to its sister concern M/s. Anishka Developers which continued even during the A.Y. 2021-22. Either at the time of assessment or at the time of appellate proceedings, the appellant has failed to substantiate the availability of interest-free funds for advancing loan to sister concern. Whatever the loan availed, the same thing continued in the subsequent assessment years that necessitated the liability of interest payment to the appellant. The case laws relied upon are not directly on the issue, hence it is different and distinguishable. It must be stated that when the appellant advances loan it is for it to prove with the bank/cash book that as on the date of advance there was sufficient balance available. Otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest-free funds and partly of interest bearing funds and payment for investment is made out of that mixed fund, the investment must be considered to have been made out of interest-free funds. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessee in bonds/shares using interest-free funds u/s 14A of the Act. In other words, if investment in tax-free securities is made out of common funds and the assessee has available, non-interest bearing funds larger than the investments in tax-free securities, in such cases, the disallowance of interest u/s 14A of the Act cannot be made. He accordingly submitted that since the assessee has sufficient own capital and free reserves surpluses, therefore, the interest-free advance made to the sister concern of Rs. 14 crores which is much less than the amount of own capital and free reser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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