TaxTMI 
TaxTMI 
2019 (1) TMI 754
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....ted 15.06.2016 for the assessment year 2008-09. 2. This appeal has been filed raising the following substantial questions of law:- "A. Whether on the facts and circumstances of the case the Appellate Tribunal was right in confirming the disallowance of interest on borrowed funds in view of Section 36(1)(iii) of the Act, when there is no direct nexus between the borrowed funds and the investment in the sister concerns, which were made only out of share capital reserves and surpluses ? B. Whether on facts and circumstances of the case the Appellate Tribunal was right in disallowing the entire interest paid by the Appellant, even when the loans were utilized exclusively and wholly for business purposes ? 3. Heard Mr.R.S....
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....L&T Arun Excello realty Pvt. Ltd 2,46,00,000 Arun Excello Foundations Pvt. Ltd 4,23,21,170 Arun Fabricators 1,25,35,483 Arun Constructions 30,36,839 Total 18,24,93,492 3. The AO contended that the assessee advanced the borrowed funds to the sister concerns (without interest) and hence disallowed the entire interest on borrowed funds amounting to Rs. 6177,008/- claimed u/s.36(1)(iii). 4. It is submitted that the appellant had made the above advances made to the sister concerns out of its own funds and not the borrowed funds. The appellant had total funds of Rs. 53.09 crores (share capital+Reserves) on 01.04.2007). The advances to sister concerns were made out of these funds. Hence the contention o....
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....are capital and reserves and surplus in possession of the assessee company. Though the Assessing Officer held that there is no direct nexus between the assessee and the sister concerns, came to the conclusion that the assessee cannot claim that the entire loans advanced to the sister concerns have been given out of its own funds and the funds in the business comes in a common kitty. 7. The Tribunal while testing the correctness of the order passed by the First Appellate Authority has not given any elaborate independent reasoning but has quoted the order passed by the CIT(A) in para 5 of the impugned order. The assessee claimed that these funds were given to the sister concerns bearing in mind the commercial expediency and relied upon the....
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....ived any benefit out of such advances to the sister concern. If that is so, the exercise that is required to be done is to examine whether any part of the borrowed funds was diverted to its sisters concerns. This exercise appears to have not been done to the fullest extent. Further more, the decision in the case of Abhishek Industries (supra) is no longer good law in the light of the decision of the Hon'ble Supreme Court in Hero Cycles (P) Ltd v. Commissioner of Income-Tax (Central), Ludhiana [2015 379 ITR 347 ], wherein, it has been held as follows:- "Once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the revenue ca....
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....supra) cannot be applied to the facts of the present case. 11. The learned counsel for the appellant placed reliance on the decision of the High Court of Bombay in the case of Commissioner of Income-tax Vs. Reliance Utilities & Power Ltd, [2009 313 ITR 340 (Bombay)], wherein, it has been held that if there are funds available both, interest-free and overdraft and/or loans are taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds are sufficient to meet the investments. 12. Thus, considering the facts and circumstances of the case, we deem it appropriate that the Assessing Officer has to take a fresh look into the matter, as we ar....