TaxTMI 
TaxTMI 
2021 (8) TMI 634
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....Appeals) is erroneous on facts of the case and in law. 2. Whether on the facts and in the circumstances of the case, the Id. CIT(A) was correct in deleting the interest disallowance of Rs. 4,39,58,399/-? 3. Whether on the facts and in the circumstances of the case, the Id. CIT(A) was correct in not appreciating the fact that the general reserve and balances in Profit and Loss account cannot be considered as liquid cash available for immediate disbursement? 4. Whether on the facts and in the circumstances of the case, the Id. CIT(A) was correct in not appreciating the fact that the general reserve and balances in P8& L account being non-liquidable, immediate source for interest free advances is from its CC account ....
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....interest incurred on loans cannot be disallowed. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 5. The learned DR appearing for the Revenue submitted that learned CIT(A) has erred in deleting interest disallowance without appreciating fact that the assessee has diverted interest bearing funds to related parties for non-business purposes and hence, proportionate interest relatable to diversion of funds needs to be disallowed. The learned DR further submitted that learned CIT(A) was not correct in holding that the assessee has given loans out of its own funds being general reserves without appreciating the fact that general reserve and balance of profit & loss account cannot be considered as liquid cash availabl....
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....ficient to cover loans given to related parties without any interest and hence, no interest could be disallowed for diversion of funds to related parties. The relevant findings of the Tribunal are as under:- "6. We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that the loan extended by the assessee company to its sister concerns are less than the aggregate of the assessee's equity share capital, general reserves, accumulated profits and Reserves and the same is not in dispute. It is also apparent that the assessee company has been consistently utilizing the cash generated from equity share capital, general reserves, accumulated profits and surplus for its ....
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....the sum of Rs. 213 crores was invested out of the assessee's own funds and Rs. 147 crores was invested out of borrowed funds and therefore disallowed interest amounting to Rs. 4.4 crores calculated at 12% per annum for 3 months from Jan' 2000 to Mar' 2000, the Hon'ble Bombay High Court had held that: "if there were finds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible....
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....ed that there were sufficient funds with the firm to cover the entire advance to the private limited company. The Revenue had not made any attempt before the Tribunal to show that the firm had paid interest on the amount outstanding in the accounts of the partner. There was no finding either by the assessing authority or by the Appellate Assistant Commissioner or by the Tribunal that the firm had paid interest to the partners on the credit balance. In such a situation, the position that remained was that the firm had its own funds as well as borrowed fiends. It was not clear that the firm had not advanced money out 0/its own funds and in the absence of any materials to indicate that the firm had advanced moneys to the private limited compan....
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....ource(own source) and interest bearing source such as equity share capital, general reserves, accumulated profits, Reserves and interest bearing loan received are mixed up by way of introducing them in the books of accounts then there is a presumption that when interest free loan is extended they are firstly sourced out of interest free funds and if it not sufficient to cover up the entire extend of interest free loan the balance is met out of interest bearing funds. In the case of the assessee, the assessee's equity share capital, general reserves, accumulated profits and Reserves exceeds the interest free loan extended during the relevant assessment years and the same is not in dispute. Therefore the facts in the case of the assessee are ....