TaxTMI 
TaxTMI 
2022 (4) TMI 1225
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....and on the facts and circumstances of the case, the Ld. CIT(A) has erred in disallowing interest expense under section 36(1)(iii) of the Act without appreciating the fact that the Appellant had given advances to four unrelated parties (outstanding as on April 1, 2014) out of own funds and internal accruals of previous years and accordingly, disallowance ought to be restricted to the amount advanced during the year under consideration. 1.3. Without prejudice to Ground No. 1.1 & 1.2 above and on the facts and circumstances of the case, the Ld. CIT(A) has disregarded the fact that the Appellant has given advances to three parties and charged interest at a rate of 6.11% and accordingly no disallowance under section 36(1)(iii) is warranted on advances given to these three parties. 1.4. Without prejudice to Ground No. 1.1, 1.2 & 1.3 above and on the facts and circumstances of the case, the Ld. CIT(A) has disregarded the fact that the Appellant has given advances to three parties and charged interest at a rate of 6.11% and thereby erred in not restricting the disallowance on amounts advanced during the year to the fourth party by adopting such rate of 6.11%. 1.5....
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....ainst disallowance u/s 36 (1) (iii) of Rs. 23,997,017/-. 07. During the course of assessment proceedings the learned Assessing Officer noted that assessee has debited financial expenditure of Rs. 17,31,34,000/-. The learned Assessing Officer noted that assessee has given a loan to one company M/s Beyond Pharma Ltd. of Rs. 6, 47, 91,216/- without charging any interest. In absence of any information forthcoming from the assessee, the learned Assessing Officer held that as assessee has paid interest on loan fund and has given interest free loan therefore, he computed the interest disallowance of Rs. 77,74,946/- @ 12% and disallowed the same under provisions of section 36(i)(iii) of the income tax Act, 1961 (the Act). This addition was challenged before the learned CIT - A. He found that assessee has also advanced loans to various other parties without charging interest or charging interest at lower rate. Therefore he issued notice for enhancement u/s 251 (2) of the act on 31st of December 2018. He tabulated the information as Under:- Serial number name of the borrower opening balance fresh loan Repaid closing balance interest charged Rate of interest 1 ....
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....ee does not have interest free funds available. vii. The general market rate of interest on which monies are lent is 12% 08. The learned Authorized Representative, Mr. Madhur Agarwal, Advocate, took us to the assessment order as well as the order of the learned CIT (A). He submitted that according to the annual accounts of the assessee, the loan of the three different parties as well as the loan considered by the learned Assessing Officer is far less than the share capital and reserves and surplus of the assessee. He submitted that these are interest free funds available with the assessee at the beginning of the year. He also submitted that the loans are advances given to all these 4 parties at the time of opening balance is far less than the amount of interest free share capital and free reserve available with the assessee. He therefore, submitted that presumption would be available in favour of the assessee that no interest bearing funds are used for advances to these parties. For this proposition, he referred to audited annual accounts of assessee wherein it has share capital of Rs.1996.93 lakhs and reserve and surplus of 8912.85 lakhs totaling to Rs. 10,909.78 lakhs....
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....val contention and perused the orders of the lower authorities. We find that as on 31/3/2014 assessee has advanced loan to four different parties amounting to Rs. 23,84,34,532/-. This is the opening balance of loans and advances outstanding in the account of these parties as advances. No doubt, the assessee has charged interest at the rate of 6.10% on these advances. However, we find that as on 31st of March 2014, assessee has non-interest-bearing funds available with it of Rs. 10,909.78 lakhs, which is far in excess of the loan advanced of Rs. 23.84 crores. Therefore, the presumption would be available in the favour of the assessee that assessee has advanced these interest free funds or lower interest bearing funds to these parties out of the interest free funds available with them. 012. Further, during the year assessee has given a fresh loan of Rs. 64,791,216 to beyond Pharma Ltd. As on 31st of March 2015, the fund position of the assessee has changed and share capital is amounting to Rs. 1996.93 lakhs whereas the reserve and surplus has turned negative to Rs. 18,821.69 lakhs. This has resulted because of the exceptional items written off in the profit and loss account as per....