TaxTMI 
TaxTMI 
2020 (4) TMI 213
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....ssing officer on the ground that there was no commercial expediency in advancing loans to sister concerns and therefore the ratio of the Apex Court in S.A. Builders Ltd. Was not applicable in the appellant's case. 2. Without prejudice to Ground No.1 and strictly in the alternative, the Learned Commissioner of Income Tax (Appeals) failed to appreciate that the principle of Reliance Utilities and Power Ltd. Is anyway applicable to the appellant and to the extent the appellant possesses interest-free funds to advance interest free loans, the interest on borrowed capital should not be disallowed. 3. Without prejudice to Ground NO.1 and Ground NO.2 and strictly in the alterative, the learned Commissioner of income tax erred in confirming the computation of the learned assessing officer without considering the actual utilization of funds during the year for the purpose of disallowances of interest on borrowed capital. 4. The appellant craves leave, to add alter or amend any of the grounds of appeal at any time before or at the time of hearing. 3. The brief facts of the case extracted from ITA No.7232/Mum/2018 for AY 2013-14 are that the ass....
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....worked out interest disallowances of Rs. 50,13,990/-. However, by taking note of the fact that a sum of Rs. 20,73,421/- has already been disallowed u/s 40(a)(ia), the balance sum of Rs. 29,40,569/- has been disallowed u/s 36(1)(iii) of the Act. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has reiterated its submissions made before the Ld. AO along with the decision of Hon'ble Supreme Court, in the case of SA builders Ltd. vs CIT (supra) and argued that loans and advances are given to sister concerns/associates towards business purpose and the element of commercial expediency is involved in giving loans and therefore, no interest can be disallowed u/s 36(1)(iii) of the I.T.Act, 1961. The assesee had also taken an alternative argument, in light of the decision of Hon'ble Bombay High Court, in the case of CIT vs Reliance Utilities and Power Ltd. 178 taxmann.com 135 (bom.) and submitted that if, there are funds available both, interest free and over draft and, or loans are taken, then a presumption would arise that loans and advances are out of interest free funds generated are available with th....
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....t explaining how said judgment is not applicable to the facts of the assessee case. The Ld. AR further referring to financial statements filed for the year submitted that the assessee has interest free funds of Rs. 203.58 crores, which is available for explaining loans and advances, but the Ld. AO has rejected the explanation furnished by the assessee without recording any reasons. The Ld. AR has also made an alternative arguments, in light of total loans and advances considered by the Ld. AO to disallow interest u/s 36(1)(iii) and submitted that if you go through the schedule of short term loans and advances, only a sum of Rs. 2,58,72,000/- has been given to related parties and other loans and advances are either for security deposits, loans and advances to employees and other obligations in the normal course of business . Therefore, if at all interest needs to be disallowed, the Ld. AO may be directed to restrict interest disallowances to the extent of utilization of funds to advances and loans to related parties. 8. The Ld. DR , on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the assessee has failed to make out a case of business expediency and al....
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....ncreased substantially. From the above, it is very clear that there is no interest free fund available with the assesee to explain loans and advances given to sister concerns. Therefore, we are of the considered view that the ratio laid down by the Hon'ble Bombay high court, in the case of Reliance utility power ltd, is also not applicable to the facts of the present case. As regards, another arguments of the assesee, in light of financial statements for the year that the Ld. AO has incorrectly taken loans and advances as per schedule of short term loans and advances of Rs. 3,34,26,601/- as against actual amount of loans and advances to related parties is only at Rs. 2,58,72,330/- and therefore, if at all interest disallowances is required to be made ,then the Ld. AO may be directed to interest disallowances to the extent of loans and advances actually given to sister concerns. We find that, as per financial statements filed for the year, the assessee has given loans and advances to related parties of Rs. 2,58,72,330/-, whereas the Ld. AO has taken the figure of Rs. 3,34,26,600/-, which includes other advances given in the normal course of business. It is an undisputed fact that....