TaxTMI 
TaxTMI 
2006 (10) TMI 89
X X X X Extracts X X X X
X X X X Extracts X X X X
....r vide Annexures P.1 to P.3 are based on mis-appreciation of facts and law involved in the case and liable to be set aside, especially when the provisions of Section 36(1)(iii) of the Income Tax Act, 1961 are not applicable in the instant case ? (ii) Whether in the facts and circumstances of the case, the action of the authorities below in disallowing the interest of Rs. 2,49,002/-being 15% of the total amount of Rs. 16.84 lacs advanced by the appellant/ assessee to its sister concern, without consideration of this important fact that the assessee/appellant is earning profits of more than 1 crore and therefore the interest free loan is far below than the amount of profit earned in the relevant assessment year 94-95, is liable to be set asi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... partly and not fully, is arbitrary and merits reconsideration ? (viii) Whether the action of the authorities below acting of its own presumption is legally sustainable ? (ix) Whether in the facts and circumstances of the present case, the advancement of the interest free loan by the assessee/appellant to its sister concern, is in due course of business, is legally sustainable ? (x) Whether the action of the assessing officer in excluding its jurisdiction by acting merely on its presumption and right in the eyes of law ? (xi) Whether in the facts and circumstances of the case, Annexures A.1to A.3 are legally sustainable?" 2. During the course of assessment, it was found that there were outstanding loans against M/s Brij Mohan Lal and A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of proving the nexus of funds available with the assessee with the funds advanced to the sister concerns without interest is on the Revenue is not correct. Section 36(1)(iii) of the Act provides for deductions of interest on the loans raised for business purposes. Once the assessee claims any such deduction in the books of accounts, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be very heavy onus on the assessee to be discharged bef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nvested in a manner in which it generates income and not that it is diverted towards sister concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non-business purposes. Rather, there should be nexus of use of borrowed funds f....