AI Drafter 
TaxTMI 
TaxTMI 
2024 (4) TMI 93
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....d funds to make advances to the Director; that this was evident from the fact that the assessee had raised further loans of Rs. 3,75,40,720/- during the year; that had there been liquid assets with the assessee, need for taking further loan would not have arisen. 3. By virtue of the impugned order, the ld. CIT(A) has confirmed the disallowance, bringing the assessee in further appeal before us. 4. Heard. Before the AO, the assessee had stated that it had with it share capital of Rs. 5,82,57,000/- and Rs. 35,52,38,985/- by way of reserves and surplus, whereas the advance amount was of Rs. 7,80,19,515/-. The AO, however, did not take into consideration this assertion of the assessee. The assessee stated that the advance had been given for business purposes, out of commercial expediency. The AO, however, held that the assessee could not prove any nexus between the advance given to the Director and the business of the assessee. The AO also held that no interest free funds were available with the assessee while making the advance, and that on the contrary, interest bearing funds had been borrowed during the year. 5. The ld. CIT(A) has held that the assessee had given interest f....
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..../s Synergy Thrislington, in which, Shri Harpal Singh was a partner, Partnership Deed of M/s Synergy Thrislington, PAN card of M/s Synergy Thrislington, and the assessee's balance sheet for Financial Year 2013-14, relevant to assessment year 2014-15. The assessee has contended that it was due to multiplicity of pending tax proceedings that these documents inadvertently could not be placed before the taxing authorities. It has been contended that from the Form 26AS (APB II, page 139) for Financial Year 2013-14, it is evident that the assessee had received an Income Tax refund of Rs. 2,97,85,560/- for assessment year 2012-13, on 21.12.2013, constituting an interest free receipt. It has been contended that from the bank statement of State Bank of India Account No.30177990423 (APB, page 88), it is available that after receipt of the aforesaid interest free funds, by way of Income Tax Refund, of Rs. 2,97,85,560/-, this amount was immediately transferred to M/s Synergy Thrislington, where Shri Harpal Singh, Director of the assessee company is a partner. It has been contended that the Partnership Deed (APB II, page 144) and PAN Card (APB II, page 148) of M/s Synergy Thrislington are cl....
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....ness; that this capital is typically used for the operations and growth of the firm; that therefore, the authorities below went wrong in disallowing the interest u/s 36(1)(iii) of the Income Tax Act. It has been contended that the assessee adhered strictly to the provisions of Section 36(1)(iii) of the Act and it was justified in claiming the interest expenditure of Rs. 5,00,97,515/- for the year under consideration. It has been contended that from the balance sheet (APB II, page 171) of the assessee, it is patent that the assessee had total interest free funds available amounting to Rs. 41,37,65,985/- at the relevant time, comprising of share capital of Rs. 5,82,57,000/-, reserves and surplus of Rs. 35,52,38,985/- and unsecured loans of Rs. 2,70,000/-. It has been stated that the total transfer made to the firm during the year under consideration amounted to Rs. 2,97,85,560/-; that the total debit balance as per the ledger of Shri Harpal Singh in the books of the assessee was of Rs. 7,80,19,515/- as on 31.03.2014 and of Rs. 4,82,33,955/- as on 01.04.2013; that the AO computed the advances made over to Shri Harpal Singh by an average of the opening balance and the closing balance, ....
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....r had been granting loans and advances to its sister and associate concerns from assessment year 2003-04; that it was held that even in assessment years 2004-05 to 2008-09, the Revenue had not made any disallowance of interest expenditure in those years, thereby accepting that the deployment of funds was for business purpose; that it was held that the disallowance made for assessment year 2003-04 had been set aside in appeal by the ld. CIT(A)as well as the ITAT; that it was held that moreover, there can be no other reason but commercial expediency for the petitioner to give loans and advances and capital to ICON; that it was held that the Revenue cannot justifiably claim to put itself in the armchair of the businessman, or in the position of the Board of Directors and assume the role to decide as to how a prudent businessman should act; and that it was held that the authorities must not look at the matter from their own point of view, but that of a prudent businessman. 6.4 It has been contended that in "Kissan Fats Ltd. Vs Dy. CIT, Central Circle-I, Ludhiana", [2017] 77 taxmann.com 82 (CHD-Trib), the Tribunal held that if there are sufficient interest free funds available to the....
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....ng the Cash Flow Statement of the assessee company for the assessment year in question, the Tribunal observed that the assessee company had received substantial proceeds from preferential issue of share capital, amounting to Rs. 99999.98 lacs, that it had also received dividend income of Rs. 166.13 Cr from various investments, that after giving interest free loans of Rs. 7.04 Cr to its subsidiary companies, the assessee was left with surplus interest free funds of Rs. 53.86 Cr, which were utilized for giving interest free advances and that thus, there was no nexus of the interest expenditure incurred during the year with the said loans/advances given to the subsidiary companies, warranting disallowance u/s 36(1)(iii) of the Act. 8. It has been contended that the ld. CIT(A) has erred in holding against the assessee by observing that since all the interest free funds available with the assessee stood already applied in different assets, they were not available with the assessee as on the date when the advance was given to Shri Harpal Singh, Director, and that the assessee could not establish business purposes for the same. It has been contended that in the case of "PCIT Vs Malhotr....
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....es of Directors and sister concerns in which the Directors had substantial interest, without charging any interest, whereas at the same time, the assessee company was paying interest on loans taken from banks and other financial institutions. 8.2 It has been asserted that in the case of "ACIT, Panchkula Vs Janak Global Resources (P) Ltd.", [2019] 102 taxmann.com 472 (CHD-TRIB), it was held that where the assessee had sufficient own interest free funds to make investments, a presumption would arise that the advances made by the assessee to its sister concerns were out of interest free funds and, therefore, interest expenses could not be disallowed u/s 36(1)(iii) of the Act, in the light of the decision of the Hon'ble Supreme Court in the case of "Hero Cycles" (supra). 9. The ld. DR, on the other hand, has strongly opposed the admission of the additional evidence sought to be produced on record by the assessee. It has been contended that as available from the order under appeal, the assessee did not furnish copy of the bank statement in order to show availability of funds in its bank account as on the dates when the amounts had been advanced to Shri Harpal Singh, Director, ....
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....ear 2014-15, are required to be adduced as evidence, and the Form 26AS would show the veracity of the assessee's contention that it had received Income Tax refund on 21.12.2013, as contended. Transfer of such refund to M/s Synergy Thrislington would also be reflected in the bank statement. The factum of Shri Harpal Singh, Director, being a partner in M/s Synergy Thrislington would be evincible from the Partnership Deed and PAN Card of M/s Synergy Thrislington. Further, perusal of the bank statement would also divulge as to whether the funds were given out from the debit balance or the credit balance in the bank account and would also allow ascertainment of the truthfulness or otherwise of the assessee's contention that its bank account is devoid of drawing power and it maintains a credit balance and that the interest rate charged is 'zero'. Still further, the ledger of "Harpal Singh Capital Account" in the books of M/s Synergy Thrislington would show as to whether indeed interest free funds were credited in the capital account in instalments, or not. In fact, the perusal of the partner's capital account juxta-posed with the assessee's account would evince the flow of fu....
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....com 11 (Bom), the Tribunal had treated a certain amount expended by the assessee as unexplained expenditure and it had not considered the assessee's application seeking leave to produce additional evidence at the stage of appeal. The Hon'ble High Court held that under Rule 29 of the ITAT Rules, 1963, the Tribunal does have the power to permit production of additional evidence before the Tribunal, if the case for the same is now made out; that this means that the Tribunal is duty bound to consider the application seeking leave to produce additional evidence at the appellate stage, in accordance with law and on its own merits. 11.2 In "Haryana State Roads & Bridges Development Corporation Ltd. Vs Commissioner of Income Tax, Panchkula", [2016] 75 taxmann.com 104 (P&H), the assessee sought to produce a Challan before the Tribunal showing that payment of tax was deducted at source in the Government Treasury, but the Tribunal did not permit it to do so. The Hon'ble High Court held that it was a fit case for the Tribunal to have exercised its powers under Rule 29 of the Appellate Tribunal Rules, 1963, requiring the production of the Challan evidencing the payment of the tax....