TaxTMI 
TaxTMI 
2022 (10) TMI 1026
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.... 1961 by the Learned Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Learned Assessing Officer in disallowing a sum of Rs. 4,04,200/- out of interest account by resort to the provisions of Section 36(1)(iii)." 2. The brief facts of the case are that a search action was carried out at the business and residential premises of M/s Longowalia Group on 04.09.2014 and assessee was one of the persons whose premises were searched u/s 132 of the Act. Consequentially, the case of the assessee was assessed u/s 153A/143(3) of the Act dated 13.12.2017. During the course of assessment proceedings, the AO asked the assessee to furnish details ....
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....ed to substantiate the same. Thereafter, a show cause was issued to the assessee as to why disallowance of proportionate interest may not be made u/s 36(1)(iii) of the Act. In response, the assessee filed its submissions relying on certain decisions which were considered but not found acceptable to the AO. As per the AO, the assessee had paid so called capital advance from its cash credit account and the assessee has not submitted any documentary evidence like vouchers, communication letter between the parties regarding payment of advance for capital goods, detail regarding capital asset to be acquired and the capacity of M/s Mirage Infrastructure to provide the capital assets. It was accordingly held by the AO that interest bearing funds h....
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....ined. Against the said findings and order of the ld CIT(A), the assessee is in appeal before us. 5. During the course of hearing, the ld AR reiterated the submissions made before the ld CIT(A) and drawn our reference to the balance sheet of the assessee company and submitted that from the balance sheet, it is clearly evident that the assessee had sufficient share capital and reserves which were much more than the amount advanced and therefore, the ld CIT(A) was not justified in sustaining the disallowance so made by the AO invoking provisions of section 36(1)(iii) of the Act. 6. Per contra, the ld CIT DR submitted that the amount has been advanced from the assessee's cash credit bank account and it is thus evident that there is a direct n....
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....ity of funds at the time of advancing the funds to M/s Mirage Infrastructure Private limited. As generally understood, the cash credit limit is in nature of a credit facility provided by the banks for working capital purposes to its clients and there are withdrawals and deposits from time to time for meeting business expenditure and receipts from business operations. Depending on the position of the funds in the said cash credit account on a given day, where the withdrawals are more than the deposits, the surplus withdrawals are in the nature of short term borrowings from the bank on which the bank charges interest at the prescribed rate. Where such borrowings are used for the purposes of giving the loans/advances, then there is clearly a n....