TaxTMI 
TaxTMI 
2015 (9) TMI 1232
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....disposed of by this common order. 2. We have heard the Ld. Counsel for assessee and Ld.CIT-DR in detail and perused the Paper Books placed on record along with the orders of ITAT and Hon'ble High Court in various years. 3. The issue in these appeals is whether the amounts advanced by assessee to its sister-concerns was for commercial expediency? If not, whether the interest claimed by assessee should be disallowed to the extent of Rs. 2,76,68,393/- in AY. 2005-06 and Rs. 1,09,56,429/- in AY. 2006-07. 4. Briefly stated, assessee is a company engaged in manufacture of bulk drugs and formulations. In AY. 2005-06, it has filed return of income declaring profit of Rs. 7,42,85,132/- before set-off of brought forward depreciation losses in AY. ....
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.... the AO that the funds were given to sister-concerns for business purposes. AO did not agree and held that assessee has failed to prove the nexus between loans obtained and its utility entirely for the purpose of business. Assessee also contended that it has charged interest in a later year and since interest amount was already accounted for and assessed, there is no need for disallowance of the interest claim on borrowed funds during the assessment years. AO did not agree with the contentions and disallowed the interest attributable to the amounts advanced to the sister-concerns as above, as in the original order. 6. Ld. CIT(A) has summarized assessee submissions in para 7 of the order as under: "1. The advances were made out of own fun....
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.... different years". 7. Ld. CIT(A) considering the submissions of assessee and orders of the AO did not agree with assessee and upheld the additions made by the AO by stating as under: "8. The factual position as emanating from the Assessment order, the order of ITAT and its directions and the submissions of the assessee are considered. It is seen that the findings of the ITAT for the earlier years, the details regarding the sources of funds for interest free advances to M/s. Natco Organics Ltd., the assessee's contention regarding offering interest to tax in A.Y. 2008-09 were all before the Hon'ble ITAT while giving the directions as mentioned at para 3 supra. After considering the ITAT orders for the earlier years and various submis....
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.... same should be considered for the year under consideration, is not acceptable". 9. The above finding has not been controverted by the assessee nor any submission made in this regard. In view of the above, I uphold the addition made by the AO and the above grounds of appeal are dismissed". 8. Ld. Counsel submitted that ITAT in earlier years accepted that advances were given for the purpose of business and in later year also in AY. 2007-08 again, this was also accepted by the ITAT, further assessee has accounted for the interest from two of the companies which was accounted for in AYs. 2006-07 & 2008-09. It was further submitted that no amount of borrowed fund was diverted and there was a finding by the ITAT that assessee has its own fu....
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....8,72,63,000/- was advances given up to 31-03-2004. Therefore, to that extent, it was already established that the funds advanced were for the purpose of business. That leaves us with further advance of Rs. 4,33,06,947/- which was advanced during the year 2004-05 i.e., relevant for AY. 2005-06. As on 31-03- 2006 in fact, there was decrease in advances given by almost to the tune of Rs. 12.60 Crores from the outstanding amount of Rs. 23.05 Crores as on 31-03-2005. Advance was only Rs. 10,45,38,154/- as on 31-03-2006. This factual information indicates that out of Rs. 18.72 Crores advanced up to 31-03-2004 that was already established to be for the purpose of business. As far as AY 2006-07 is concerned the outstanding advance being less that a....
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.... share capital and reserves upto end earlier year. In view of this, it cannot be stated that assessee has advanced the borrowed funds. AO also never bothered to examine whether any of the loans obtained during the year were diverted for non-business purposes? He only disallowed on presumptions without examining the facts and establishing any nexus of advanced funds with borrowed funds. It can be understood that AO has mechanically invoked the provisions so as to disallow the amount, when in fact in AY. 2006-07, the advances given to sister-concerns have come down to the tune from Rs. 23.05 Crores to Rs. 10.45 Crores. As already stated, funds to the extent of Rs. 18.79upto 31-03-200 were already held to be for commercial expediency. Therefor....