TaxTMI 
TaxTMI 
2016 (3) TMI 1492
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....between the borrowed funds and the interest free advances given to the sister concern, however ld. CIT(A) has failed to specify as to how and in what manner the AO has discharged this onus of establishing the said 'nexus' nor can any such indication be gathered from the A.O. Therefore, the addition so sustained by the CIT(A) deserves to be deleted. (1.2) That the ld. CIT(A) has further erred in ignoring the fact that the aforementioned 'nexus' does not get established ipso facto merely by pointing out the fact that the assessee had taken loans from banks & financial institution, especially when the assessee was having sufficient funds of its own in the shape of share capital/surplus reserves/ unsecured loans to advance the same to sister concern, thus the AO had failed to discharge his onus to establish the nexus and therefore, the addition so sustained by the ld. CIT(A) deserves to be deleted. 2. On the facts and in the circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs. 2,49,713/- made by the AO on a/c of disallowance out of following expenses, beiong10% by alleging personal user: (a) Out of telephone, vehicle, repair & mai....
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....from and it is under such business expediency that the advance payments were made towards purchase of the raw material. Thus, since the advances were made for business purpose and under commercial expediency, thus the same cannot be tagged as interest free funds given for non-commercial purpose. It was further submitted that the Ld. CIT(A) has not accepted this contention of assessee and has tried to distinguish the order of Hon'ble ITAT in the facts and circumstances of the present case solely by observing that in the year under consideration, purchases were not made from the said sister concern and thus, he went on to held that there was no commercial expediency. In this regard, it is submitted that merely because in the year under appeal, no transaction had taken place, it cannot be alleged that the assessee had no business relations with the sister concern. The fact of existence of business relations cannot be determined on year to year basis, but has to be examined as a whole and during a period of time and not year to year basis. It is submitted that Hon'ble ITAT has already recorded a finding that the assessee has business relations with its sister concern and the advance....
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....g years hence the decision of the Hon'ble ITAT in the earlier years should not be applicable for the year under consideration. It was further submitted by ld. DR that from the perusal of the account of M/s Andhi Marble Pvt. Ltd. Jaipur, it is clear that the funds have been advanced out of the cash credit account of the assessee maintained with Bank of Rajasthan Ltd. as well as account maintained with ICICI bank Ltd. Basis that, he submitted that nexus has been clearly established in terms of borrowing from the banks and the advances given to M/s AMPL. Further, during the year, no purchases have been made from M/s AMPL. Accordingly, the test of commercial expediency is not satisfied in the instant case. 1.4 We have heard the rival contentions and perused the material available on record. The AO noted that the assessee has given additional interest free advances of Rs. 1,44,67,000/- during the year to M/s AMPL. Further no purchases have been made either against opening debit balance of Rs. 1,58,04,153/- or against the additional advances given to M/s AMPL during in the year. The AO further observed that the assessee company has taken loans from financial institutions such as SIDBI....
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.... amount borrowed from the financial institutions and advances given to M/s AMPL, it is unclear as to how such an nexus has been established by merely stating that the cheques have been issued to M/s AMPL from the cash credit account of the assessee maintained with Bank of Rajasthan Ltd. It is unclear whether at the time of issuing cheques and making payment to M/s AMPL, there was a debit or a credit balance in the cash credit account. It is likely that there are sales realization and other deposits received by the assessee prior to making such advances to M/s AMPL and out of which such advances have been paid. Here, what needs to be examined is at the point of time when the funds were actually advanced to M/s AMPL, what was the position of funds actually available with the assessee in terms of the borrowed funds to establish the necessary nexus. In absence of such a finding, it cannot be said that the nexus has been established between the borrowings from the financial institutions and advances to AMPL. 1.8 Secondly, where a nexus has not been established between the borrowings and the interest free advances, the Courts have held that where the assessee has sufficient interest f....
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....sallowance of interest in the hands of the assessee. We have gone through the order of Co-ordinate Bench for AY 2006-07 and noted the following findings of the Co-ordinate Bench: "We have considered the arguments of both the parties and have perused the material available on record. The contention of the assessee that it had business relationship with the sister concern is a fact proved from the records as the AO in the assessment order have admitted that during the year under appeal the assessee had received goods of Rs. 28,77,791/- from its sister concern M/s Andhi Marble Pvt. Ltd. The contention of the assessee that there is no diversion of the funds and the circumstances explaining the business expediency having arisen due to closer of its marble mining area also inspires confidence and prove the necessity of acquiring raw material of the nature of marble blocks required to keep its marble cutting establishment running." 1.10 In this regard, the ld. CIT(A) has noted that during the year under consideration, there are no purchases made by the assessee from M/s AMPL hence the alleged decision of Co-ordinate Bench are distinguishable on facts. As we have noted above, t....
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....Considering the entirety of facts and circumstances of the case and in light of Hon'ble Supreme Court in case of S.A. Builders 158 Taxmann 74, in our view, the contention of both sides needs to be adequately demonstrated through appropriate documentation and in absence thereof, the matter require further examination and we accordingly set-aside this issue to the file of the AO to examine the same afresh after giving reasonable opportunity to the assessee. 2. Regarding grounds of appeal no. 2 and 2.1, the assessee has challenged the action of Ld. CIT(A) in sustaining the addition of Rs. 2,49,713/- made by the AO on a/c of disallowance out of following expenses, being 10% by alleging personal use: Name of Expenses Amount claimed Amount disallowed Telephone & Vehicle Running & Maintenance Exp., Depreciation on car 9,68,423/- 96,842/- Staff welfare exp. 60,868/- 6,087/- Travelling Expenses 3,93,774/- 39,377/- Bonus paid 1,07,407/- 1,07,407/- 2.1 Ld AR submitted that the appellant being a private limited company, such disallowance for the personal use or for non business purposes cannot be made. Further, during the course of assessme....