2024 (11) TMI 1312

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....ome Tax Act, 1961 (hereinafter referred to as "the Act"). The said order was passed in connection with the assessment order under Section 143(3) of the Act dated 27-11-2019, passed by the Assessing Officer (hereinafter referred to as "AO"), Circle 4(1)(1), Ahmedabad, for the Assessment Year (AY)2017-18. Facts of the Case: 2. The assessee Siwana Agri Marketing Limited (now merged with "Vital Connections LLP"), filed its return of income for AY 2017-18, declaring a total income of Rs. 31,91,560/-. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS), and notices under Sections 143(2) and 142(1) of the Act were issued. After examining the submissions and documents, the AO completed the assessment under....

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....sallowance of sundry balance written off of Rs. 8,002/- and therefore the learned AO be directed to allow the same while computing Total Income. 3. That the appellant craves liberty to add, amend and alter any ground of appeal before the final hearing. 5. During the course of hearing before us, the Authorised Representative (AR) of the assessee stated that the assessee has sufficient own funds to advance the loan. The AR pointed out from the sufficiency of own funds from the financial statements which are detailed as follows: Particulars   As on 31-3-2017 As on 31-3-2016 Share Capital in Rs. 1,025,000 1,365,400 Reserves and Surplus in Rs. 270,037,683 301,768,032 Total in Rs. 271,....

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....s 37 of the Act. 5.4. On the other hand, the Departmental Representative relied on the orders of lower authorities. 6. We have carefully considered the submissions of both parties, the findings of the AO and CIT(A), the judicial precedents relied upon by the assessee and the Revenue, and the material placed on record. The primary issues under consideration are: * The disallowance of Rs. 65,86,200/- under Section 36(1)(iii) on the grounds that interest-free advances were made without establishing a business purpose or demonstrating the nexus between interest-free funds and such advances. * The disallowance of Rs. 8,002/- on account of sundry balances written off, citing non-compliance with Section 36(2) of the Act.....

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.... the assessee's financial statements clearly indicated the sufficiency of interest-free funds. The CIT(A)'s reliance on S.A. Builders v. CIT (supra) is misplaced. While that case emphasizes the requirement of commercial expediency, the principles laid down in CIT v. Reliance Industries Ltd. (supra), a subsequent Hon'ble Supreme Court's decision, clarify that where sufficient interest-free funds are available, the presumption arises that such advances are made from those funds. Following the principle established in CIT v. Reliance Industries Ltd. (supra), it is presumed that such advances are made from interest-free funds. The Revenue has failed to establish a direct nexus between borrowed funds and these advances. Therefore, the disallowan....