TaxTMI 
TaxTMI 
2021 (9) TMI 882
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....thout prejudice to each other: On the facts and in the circumstances of the case, the Learned CIT(A) has :- Disallowance of notional Interest of Rs. 78,87,000/- under section 36(1)(iii) of the Act on Loan given to subsidiary General Ground 1. erred in confirming the action of AO in disallowing the notional interest of Rs. 78,84,000/- on the ground of interest free advance given to subsidiary company (i.e SlCOM Realty Pvt. Ltd); Sufficient own funds available 2. erred in con filming action of the AO in disallowing notional interest of Rs. 78,84,000/-under section 36(1)(iii) of The Act on the ground [hat interest bearing funds were advanced to subsidiary company (i e. SlCOM Realty Pvt. Ltd.) without charging any interest without appreciating that appellant had sufficient own funds; Commercial expediency forgiving interest free advance; 3. erred in upholding action of the AO that appellant failed TO prove the commercial expediency for providing loan To subsidiary company without appreciating That the commercial expediency along with rationale for entire transaction were explained during the proceeding; 4.....
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....00/- was sustained by him. 4. The assessee being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset submitted, that the indulgence of the Tribunal was sought for adjudicating the maintainability of the assessee's claim for deduction of interest expenditure under Sec. 36(1)(iii) of the Act. Elaborating on his contention, it was submitted by the ld. A.R that the A.O had failed to appreciate the settled position of law that if there be interest-free funds available with an assessee that were sufficient to meet its interest free investments, then, without prejudice to the fact that the assessee had raised interest bearing loans it was to be presumed that the investments in question were made by the assessee from the interest-free funds available with it. It was submitted by the ld. A.R that the aforesaid issue was squarely covered in favour of the assessee by the order of the Hon'ble High Court of Bombay in the case of CIT Vs. Reliance Utilities and Powers Ltd. (2009) 313 ITR 340 (Bom). 5. Per contra, the ld. Departmental Representative (for short 'D.R') ....
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....the assessee had sufficient self-owned funds to have sourced the aforementioned interest-free advance of Rs. 6.57 crore that was given to its subsidiary company. On a perusal of the records, we find that the assessee had summarized the details of owned funds, borrowed funds, and advances that were made by the assessee on 31st March, 2009, as under: Own Funds (Rs in lakhs Particulars 31st March, 2009 31st March 2008 Increase Share capital 6,287.00 6,287.00 - General reserve 9,969.94 9,731.24 238.70 Surplus in Profit & Loss account 19,041.79 12,188.23 6,853.56 Total (A) 35,298.73 28,206.47 7,092.26 Borrowed Funds Rs in lakhs Particulars 31st March 2009 31st March 2008 Increase Secured Loans 2,21,089.03 1,90,553.21 30,535.82 Unsecured Loans 23,301.56 18,494.13 4,807.43 Total (B) 2,44,390.59 2,09,047.34 35,343.25 Loans& Advances Rs in lakhs Loans advanced 2,53,730.81 2,03,222.75 50,508.06 Advances and deposits 17,539.31 15,725.89 1,813.42 Total (C) 2,88,043.62 2,44,895.6....
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.... the interest-free funds available, in our opinion the Supreme Court In Fast India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that In essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Wootcomber's case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, th....