Arun Excello Urban Infrastructure Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1145/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9193 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 16-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Business expenditure; Commercial expediency; Onus to prove

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1 14 5 /MDS/2014 / ASSESSMENT YEAR : 20 0 8 - 09 M/S. ARUN EXCELLO URBAN INFRASTRUCTURE PVT. LTD., BHATTAD TOWERS, 18, WEST COTT ROAD, CHENNAI 600 0 14 . [PAN: A A G C A2312Q ] VS. THE DEPUTY COMMISSIONER OF INC OME TAX , COMPANY CIRCLE I (1) , C HENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI B. RAMAKRISHNAN , C.A. / RESPONDENT BY : SHRI A.V. SREEKANTH , J CIT / DATE OF HEARING : 1 6 . 0 3 .201 6 / DATE OF P RONOUNCEMENT : 15 . 0 6 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I , C HENNAI , DATED 1 8 . 03 .20 1 4 RELEVANT TO THE ASSESSMENT YEAR 20 0 8 - 09 . THE ONLY GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS AMOUNTING TO .61,77,008/ - . I.T.A. NO . 1145 /M/ 14 2 2. BRIEF FACTS OF THE CA SE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008 - 09 ON 08.01.2009 ADMITTING A TOTAL LOSS OF .2,53,18,670/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT ]. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 14.08.2009. 2.1 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS PAID HUGE INTEREST OF . 61,77 , 008 / - ON ITS B ORROWED FUNDS OF .6,22,20,086/ - , WHILE ON THE OTHER HAND IT HAS GIVEN INTEREST FREE LOANS AMOUNTING TO .18,24,93,492/ - TO ITS SISTER CONCERNS. THE ASSESSEE HAS CLAIMED THAT THERE WAS NO DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN THE SI STER CONCERNS AND THE INVESTMENT MADE IN THE SISTER CONCERNS WERE ONLY OUT OF THE SHARE CAPITAL AND RESERVES AND SURPLUSES. THE ASSESSING OFFICER HAS NOT BELIEVED THAT THE ENTIRE INTEREST AS AN EXPENDITURE INCURRED WAS FOR THE ASSESSEE'S OWN BUSINESS. SIN CE THE AMOUNT ADVANCED TO SISTER CONCERNS WAS MORE THAN THE AMOUNT BORROWED, THE ENTIRE INTEREST WAS DISALLOWED HOLDING THAT THE ENTIRE INTEREST PAYMENT WAS ATTRIBUTABLE TO THE FUNDS DIVERTED TO THE SISTER CONCERNS. THE ASSESSING OFFICER HAS FURTHER OBSERV ED THAT THE ASSESSEE HAS PAID INTEREST ON THE BORROWED FUNDS, BUT IT HAS NOT CHARGED ANY INTEREST ON THE INVESTMENTS MADE IN THE SISTER CONCERNS. AS PER SECTION 36(1)(III) OF THE ACT, THE LOANS RAISED FOR I.T.A. NO . 1145 /M/ 14 3 BUSINESS PURPOSES SHOULD BE USED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS. EVEN IF IT WERE TO BE ACCEPTED THAT THE INVESTMENTS IN THE SISTER CONCERNS WERE ADVANCED OUT OF OWN FUNDS, THE ASSESSEE COMPANY OUGHT TO HAVE FIRST UTILIZED THE SURPLUS IN THE OWN FUNDS ACCOUNTS TO SETTLE ITS IN TEREST BEARING LOANS RATHER THAN INVESTING IN ITS SISTER CONCERNS. IN VIEW OF THE DECISION OF PUNJAB & HARYANA H IGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD VS. C I T (286 ITR 1) , THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST ON BORROWED FUNDS CLA IMED U/S.36(1)(III) OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. AR OF THE ASSESSEE HAS SUBMITTED AS UNDER: 1. THE APPEL L ANT IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE FINANCIAL YEAR 200 7 - 08, THE ASSESSEE BORROWED FUNDS FOR BUSINESS PURPOSE FROM FINANCIAL INSTITUTIONS AND OTHERS AND INCURRED INTEREST EXPENDITURE OF RS. 61,77,008/ - ON THE ABOVE LOANS. 2. DURING THE SAME YEAR, THE APPELLANT OUT OF BUSINESS INTEREST, MADE INTEREST FREE AD VANCE TO ITS SISTER CONCERNS AND AS ON 31.3.2008, THE TOTAL VALUE OF ADVANCES WAS AS UNDER: PARTICULARS ADVANCE L& T ARUN EXCEL L O REALLY PVT. 2,46,00,00 ARUN EXCELLO FOUNDATIONS PVT. 4,23.21,17 ANRN FABRICATORS 1,25,35,48 A RU N CONST RU CTIONS 30,36,839 TOTAL 18,24 , 93,4 3. THE AO CONTENDED THAT THE ASSESSEE ADVANCED THE BORROWED FUNDS TO THE SISTER CONCE RN S (WITHOUT INTEREST) AND HENCE DISA LL OWED THE ENTIRE INTEREST ON BORROWED FUNDS AMOUNTING TO RS. 61 , 77,008/ - CLAIM ED U/S.36(1)(III). I.T.A. NO . 1145 /M/ 14 4 4. IT IS SUBMITTED THAT THE APPELLANT HAD MADE THE ABOVE ADVANCES MADE TO THE SISTER CONCERNS OUT OF ITS OWN FUNDS AND NOT THE BORROWED FUNDS. THE APPELLANT HAD TOTAL FUNDS OF RS. 53.09 CRORES (SHARE CAPITAL + RESERVES) ON 1.4.2007). THE ADVANCES TO SISTER CONCERNS WERE MADE OUT OF THESE FUNDS. HENCE THE CONTENTION OF THE AO IS ERRONEOUS. 5. ADMITTING BUT NOT ACCEPTING THE CONTENTION OF THE A O , EVEN IF THE ADVANCES WERE MADE BY THE APPEL L ANT TO ITS SISTER CONCERNS OUT OF BORROWED FU NDS, THE SAME WERE MADE IN CONNECTION WITH THE ASSESSEE'S BUSINESS AND OUGHT TO BE VIEWED IN THE LIGHT OF COMMERCIAL EXPEDIENCY. 6. AS PER SECTION 36(1 )(III) OF THE IT ACT, THE AMOUNT PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PR OFESSION IS AN ALLOWABLE EXPENDITURE. 7. ADVANCE TO L& T ARUN EXCELLO REALTY PVT. LTD WAS MADE FOR THE PURPOSE OF PURCHASE OF LAND AND TO MEET THE SUPPLY COST FOR CONSTRUCTIONS. 8. THE ADVANCES MADE TO ARUN EXCELLO FOUNDATIONS PVT. LID AND ARUN FABRI CATORS WERE ENTIRELY TO MEET THE EXPENSES IN TH E ORDINARY COURSE OF BUSINESS. 9. IN THE CASE OF ARUN CONSTRUCTIONS, THERE HA S BEEN NO OUTFLOW OF FUNDS FROM THE APPELLANT TO ARUN CONSTRUCTIONS. ARUN CONSTRUCTIONS WAS PAID BY MARG CONSTRUCTIONS LTD INSTEA D OF PAYING THE APPELLANT. H ENCE, THE APPELLANT HAS DEBITED THE ACCOUNT OF ARUN CONSTRUCTIONS IN I TS BOOKS AND TREATED THE SAME AS ADVANCES MADE. 10. FROM THE ABOVE, IT IS ESTABLISHED THAT THE APPELLANT HAD LENT FUNDS TO THE SISTER CONCERNS WITH THE SOL E MOTIVE OF PROMOTING ITS BUSINESS INTEREST AND IN AIDING THEM TO CONDUCT THE BUSINESS ACTIVITY HASSLE - FREE AND EFFICIENTLY. 3.1 AFTER CONSIDERING THE ABOVE SUBMISSIONS AND BY FOLLOWING THE DECISIONS IN THE CASE OF P.R.M.S. RAMANATHAN CHETTIAR V. CIT 72 ITR 534 (MAD) AND IN THE CASE OF M.P.S. RAJA V. CIT 105 ITR 295 (MDS), THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I.T.A. NO . 1145 /M/ 14 5 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. COUNSEL FOR THE ASSESSEE HA S REITERATED THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. TH E ASSESSEE HAS BORROWED FUNDS OF .6,22,20,086/ - AND PAID INTEREST OF . 61,77,008/ - , WHILE ON THE OTHER HAND IT HAS GIVEN INTEREST FREE LOANS AMOUNTING TO .18,24,93,492/ - TO ITS SISTER CONCERNS. THE ASSESSEE CLAIMED THAT THERE WAS NO DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN THE SISTER CONCERNS AND THE INVESTMENT MADE IN THE SISTER CONCERNS WERE ONLY OUT OF THE SHARE CAPITAL AND RESERVES AND SURPLUSES. THE ASSESSING OFFICER HAS OBSERVED THAT SINCE THE ASSESSEE HAS NOT UTILIZED THE LOAN S OBTAINED FOR ITS BUSINESS PURPOSES WHOLLY AND EXCLUSIVELY, IN VIEW OF THE SECTION 36(1)(III) OF THE ACT, HE DISALLOWED THE ENTIRE INTEREST PAID BY THE ASSESSEE. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE AR OF THE ASSESSEE, THE LD. CIT(A) HAS OBSE RVED AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR AND THE AO. THE AO HAS DISALLOWED THE ENTIRE INTEREST SINCE THE AMOUNT ADVANCED TO SISTER CONCERN IS MORE THAN THE AMOUNT BORROWED. SHE RELIED ON THE DECISION OF ABHISHEK INDUSTRIES LTD (SUPRA). THE MAIN REASON FOR DISALLOWANCE WAS THAT THE APPELLANT HAS DIVERTED THE FUND WITHOUT CHARGING THE INTEREST WHEREAS ON THE OTHER I.T.A. NO . 1145 /M/ 14 6 HAND IT PAID I NTEREST ON ITS BORROWINGS. SHE FELT THAT, HAD THE AMOUNT NOT BEEN DIVERTED THERE WAS NO NECESSITY TO BORROW INTEREST BEARING FUNDS. SHE ALSO FELT THAT, IF AT ALL SUFFICIENT OWN FUNDS ARE THERE, THEY SHOULD HAVE BEEN USED FOR CLEARING THE LOANS FIRST RATHER THAN DIVERTING THEM FOR NON - BUSINESS PURPOSES. THE ID AR DIDN'T AGREE WITH THE AO. HE STATED THAT THERE WAS 'COMMERCIAL EXPEDIENCY' TO GIVE LOANS. HE ALSO ARGUED THAT THE LOANS WERE GIVEN OUT OF OWN FUNDS AS THE APPELLANT COMPANY WAS 'HAVING SUFFICIENT R ESERVES AND SURPLUSES. THE ID.AR HAS OPPOSED DISALLOWANCE BY STATING THAT THE AO HAS UNREASONABLY DISALLOWED WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE ADVANCES MADE TO SISTER CONCERNS. 4.2.1 WITH REGARD TO DISALLOWANCE OF NOTIONA L INTEREST ON DIVERSION OF FUNDS FOR NON - BUSINESS PURPOSES, THE FOLLOWING ISSUES ARE TO BE KEPT IN MIND. I) WHETHER THE AMOUNT BORROWED, ON WHICH INTEREST PAID BY THE ASSESSEE, WAS USED FOR THE PURPOSE OF THE ASSESSEE, SO THAT INTEREST DEBITED CAN BE A LLOWED AS BUSINESS EXPENDITURE? [CIT VS. CALCUTTA AGENCY LTD 19 ITR 191 (SC)] II) WHETHER THE LOANS WERE GIVEN BY THE BANKS FOR ANY SPECIFIC PURPOSE? III) WHETHER THERE WAS A 'COMMERCIAL EXPEDIENCY' TO ADVANCE LOANS TO THE CONCERNS INCLUDING SISTER C ONCERNS? [S.A.BUILDERS LTD VS. CIT 288 ITR 1 (SC)] IV) WHETHER THERE IS A NEXUS BETWEEN THE FUNDS BORROWED AND THE FUNDS ADVANCED. 4.2.2 WITH REGARD TO THE FIRST QUESTION, THE ID.AR'S ARGUMENT WAS THAT SINCE THE APPELLANT WAS HAVING SUFFICIENT OWN FUN DS AND THE SAME WERE USED FOR THE PURPOSE OF ADVANCE TO SISTER CONCERNS , THE BORROWED FUNDS WERE USED BY THE APPELLANT FOR ITS OWN BUSINESS ONLY AND THE INTEREST DEBITED IS A BUSINESS EXPENDITURE. I DO NOT AGREE WITH THIS ARGUMENT OF THE ID. AR. IF THE AR GUMENT OF THE ID. AR IS TRUE, THEN THERE IS NO NEED FOR BORROWALS. I HAVE SEEN THE BALANCE SHEET OF THE COMPANY AND FOUND THAT BY THE YEAR END 31.3.2008, RS 52.17 CRORES OF RESERVES AND SURPLUSES WERE AVAILABLE BESIDES SHARE CAPITAL OF R S .91.80 LAKHS. NO D OUBT THAT THE REVENUE CAN NOT DICTATE THE APPELLANT HOW IT SHOULD USE ITS OWN FUNDS ARISEN OUT OF ITS INTERNAL ACCRUALS, BUT IT DEFINITELY WANTS AN ANSWER WHY THE APPELLANT COMPANY HAS GONE FOR BORROWINGS TO THE I.T.A. NO . 1145 /M/ 14 7 EXTENT OF RS. 6,22,20,086, FROM BANKS AND OT HER INDIVIDUALS WHILE ON THE OTHER HAND IT HAS GIVEN INTEREST FREE LOANS AMOUNTING TO RS. 18,24,93,4921 - , MORE SO WHEN IT HAS AN INTEREST BURDEN OF R S .61 , 77,008 ON SUCH BORROWALS. FURTHER, THE WHOLE FUNDS WILL BE IN A COMMON KITTY AND THE APPELLANT CAN NOT SUBSTANTIATE THI S FACT AS IT CAN NOT SEPARATE CLEARLY WHAT FUNDS HAVE GONE AND WHERE. 4.2.3 WITH REGARD TO THE PURPOSE OF LOANS TAKEN, IT IS NOTICED FROM THE SCHEDULES OF THE BALANCE SHEET THAT SOME OF THE LOANS WERE MEANT FOR VEHICLES AND SOME ARE WITHO UT ANY SPECIFIC PURPOSE, ESPECIALLY WITH REGARD TO UNSECURED LOANS. IT WAS ALSO NOTICED THAT SOME OF THE LOANS BORROWED FROM BANKS WERE FOR PURCHASE OF MOTOR VEHICLES. THE APPELLANT COULD NOT EXPLAIN WHY IT HAS NOT BOUGHT THEM FROM OWN FUNDS. WHETHER OWN F UN DS WERE NOT AVAILABLE AT THAT POIN T O F TIME D U E TO D IVE RS ION OF FUNDS WAS ALSO NOT EXPLAINED. THEREFORE, THE ARGUMENT OF THE AO IS WELL TAKEN AS THE APPELLANT WOULD NOT HAVE GONE FOR BORROWINGS HAD T HE FUNDS WERE NOT DIVERTED TO SISTER CONCERNS. 4.2.4 WITH REGARD TO 'COMMERCIAL EXPEDIENCY' AS WAS STATED IN THE CASE OF S . A . BUILDERS(SUPRA), THE !D.AR HAS SUBMITTED IN ITS WRITTEN SUBMISSIONS THAT ADVANCE TO L&T ARUN EXCELLO REALTY PVT. LT D . WAS MADE FOR THE PURPOSE OF PURCHASE OF LAND AND TO MEET THE SUPP LY COST FOR CONSTRUCTIONS; TO ARUN EXCELLO FOUNDATIONS PVT. LTD AND ARUN FABRICATORS IT WAS ENTIRELY TO MEET THE EXPENSES IN THE ORDINARY COURSE OF BUSINESS. SIMILARLY IN THE CASE OF ARUN CONSTRUCTIONS, THERE HAS BEEN NO OUTFLOW OF FUNDS FROM THE APPELLANT TO ARUN CONSTRUCTIONS. ARUN CONSTRUCTIONS WAS PAID BY MARG CONSTRUCTIONS LTD INSTEAD OF PAYING THE APPELLANT. HENCE, THE APPELLANT HAS DEBITED THE ACCOUNT OF ARUN CONSTRUCTIONS IN ITS BOOKS AND TREATED THE SAME AS ADVANCES MADE. IT IS CLEAR FROM THE ABOVE THAT IN NONE OF THE ABOVE CASES THE APPELLANT COMPANY DERIVED ANY BENEFIT OUT OF SUCH ADVANCES. EVEN IF WE TAKE FOR A WHILE, THAT RETURN BENEFIT IS NOT AN ESSENTIAL REQUIREMENT AND IT IS SUFFICIENT IF THE HOLDING COMPANY (APPELLANT) HAS A DEEP INTEREST IN ITS SUBSIDIARY, THE APPELLANT SHOULD ABLE TO PROVE THAT THE APPELLANT'S SUBSIDIARY SISTER COMPANIES ARE SICK OR NOT HAVING REGULAR FUNDS AND ARE IN DIRE NEED OF HELP FROM THE APPELLANT COMPANY. THEY BEING THE GROUP CONCERNS, THEY COULD HAVE INDEPENDENTLY APPROACHED THE BANKS FOR FUNDS ON THE BASIS OF THE FINANCIAL STRENGTH OF THE APPELLANT COMPANY. THE SAME PACKAGE OF LOANS COULD HAVE VERY WELL BEEN OBTAINED FROM THE BANKS AND INDIVIDUALS BY THE SISTER CONCERNS, INSTEAD OF ROUTING THROUGH THE APPELLANT COM PANY AND DUMPING THE INTEREST BURDEN ON IT. AS STATED EARLIER, THE REVENUE CAN NOT DICTATE HOW THE BUSINESS HOUSES SHOULD BEHAVE, BUT ONUS IS ON THEM TO EXPLAIN THE I.T.A. NO . 1145 /M/ 14 8 CIRCUMSTANCES, MORE SO WHEN THE APPELLANT WANTS TO CLAIM AN EXPENDITURE ATTACHED TO IT . THE REFORE I HOLD THAT THE APPELLANT IN THE INSTANT CASE HAS FAILED TO ESTABLISH ANY COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST - FREE LOANS TO SISTER CONCERNS. HENCE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A BUILDERS PVT . LTD (SUPRA) DOES NOT COME TO THE RESCUE OF THE APPELLANT. 4.2.5 LAST BUT NOT THE LEAST ASPECT TO SEE IS WITH REGARD TO NEXUS OF FUNDS. THE ID.AR HAS ARGUED THAT THE AO HAS DISALLOWED INTEREST WITHOUT ESTABLISHING NEXUS BETWEEN BORROWED FUNDS AND THE AMOUNT ADVANCED TO SI STER CONCERNS. WITH REGARD TO THIS ISSUE THE DECISION RELIED ON BY THE AO IN T HE CASE OF ABHISHEK INDUSTRIES LTD (286 I TR 1) WILL COME TO HER RESCUE, WHICH STATES THAT, AS FAR AS THE ISSUE OF ESTABLISHMENT OF NEXUS OF THE FUNDS BORROWED VIS - A - VIS THE FUN DS DIVERTED TOWARDS SISTER CONCERN ON INTEREST FREE BASIS WAS CONCERNED, THE STAND OF THE ASSESSEE THAT THE ONUS OF PROVING THE NEXUS OF FUNDS AVAILABLE WITH THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERNS WITHOUT INTEREST WAS ON THE REVENUE WA S NOT CORRECT. SECTION 36(1)(III) PROVIDES FOR DEDUCTIONS OF INTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNT, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE ASSESSING OFFICER THAT WHA TEVER LOANS WERE RAISED BY THE ASSESSEE, THE SAME WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR ANY OTHER PERSON WITHOU T ANY INTEREST, THERE WOULD BE VERY HEAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE ASSESSING OFFICER TO THE EFFECT THAT IN SPITE OF PENDIN G TERM LOANS AND WORKING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, STILL THE RE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON - BUSINESS PURPOSES WITHOUT ANY INTEREST AND, ACCORDINGLY, THE ASSESSEE SHOULD BE AL L OWED DEDUCTION OF INTEREST BEING PAID ON THE LOANS RAISED BY IT TO THAT EXTENT. EVEN THE PLEA OF NEXUS OF LO ANS RAISED BY THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERNS ON INTEREST FREE BASIS MIGHT BE PLEADED TO BE OUT OF SALE PROCEEDS OR SHARE CAPITAL OR DIFFERENT ACCOUNT COULD NOT BE ACCEPTED. [PARA 14] . IT WAS FURTHER HELD IN THIS JUDGMENT THAT , I.T.A. NO . 1145 /M/ 14 9 ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAD BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY TAX IS BEING INCURRED AND ON THE OTHER HAND, CERTAIN AMOUNTS HAD BEEN ADVANCED TO SISTER CONCERNS OR OTHERS WITHOUT CARRYING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE, THE INTEREST TO THE EXTENT THE ADVANCE HAD BEEN MADE WITHOUT CARRYING ANY INTEREST IS TO BE DISALLOWED UNDER SECTION 36(1) (I II). SUCH BORROWINGS TO THAT EXTENT CANNOT POSSIBLY BE HELD FOR THE PURPOSE OF BUSINESS BUT FOR SUPPLE MENTING THE CASH DIVERTED WITHOUT DERIVING ANY BENEFIT OUT OF IT. ACCORDINGLY, THE ASSESSEE WOULD NOT BE ENTITLED TO CLAIM' DEDUCTION OF THE INTEREST ON THE BORROWINGS TO THE EXTENT THOSE WERE DIVERTED TO SISTER CONCERNS OR OTHER PERSONS WITHOUT INTEREST. [PARA 38]. THUS THE ONUS TO PROVE THAT THE BORROWED FUNDS HAVE NOT BEEN DIVERTED IS ON THE APPELLANT. THE ONUS WAS NOT DISCHARGED BY IT. IT HAS ALSO NOT EXPLAINED WHY IT NECESSITATED TO GO FOR BORROWINGS WHEN OWN FUNDS ARE AVAILABLE WITH IT. 4.2.6 ABO VE ALL, THE JURISDICTIONAL HIGH COURT IN THE CASES OF P.R.M.S. RAMANATHAN CHETTIAR V. CIT( 72 ITR 534) (MAD) AND M.P.S.RAJA V.CIT (105 ITR 295) (MAD), HAS HELD THAT INTEREST PAID ON BORROWED CAPITAL WILL BE ALLOWED AS DEDUCTION ONLY IF THE CAPITAL WAS USED FOR THE PURPOSE OF BUSINESS. IF IT IS USED FOR A PURPOSE OTHER THAN THAT OF ITS OWN BUSINESS, THEN INTEREST TO THAT EXTENT TO WHICH CAPITAL WAS SO USED, WILL NOT BE ALLOWED. 4.2.7 IN VIEW OF THE ABOVE DISCUSSION AND JUDICIAL RULINGS, I HOLD THAT IT WOU LD BE THE COMMERCIAL IMPROPRIETY TO BORROW FUNDS BEARING INTEREST COST WHEN SUFFICIENT OWN FUNDS ARE AVAILABLE ON HAND. IT IS STILL IMPROPER TO ADVANCE INTEREST FREE LOANS TO SISTER CONCERNS WHEN THE COMPANY ITSELF NEEDS MORE MONEY FOR RUNNING ITS BUSINESS . FURTHER, IT WAS ALSO NOTICED FROM THE P&L ACCOUNT THAT THE INTERNAL ACCRUALS DURING THE YEAR ARE A LOSS OF RS. 1.70 CRORES. THEREFORE, THERE ARE NO SUFFICIENT OWN FUNDS AVAILABLE DURING THE YEAR. THUS, THE AO WAS RIGHT IN DISALLOWING THE ENTIRE INTEREST DEBITED WHEN THE LOANS ADVANCED ARE MORE THAN THE AMOUNT BORROWED FROM THE BANKS AND OTHER INDIVIDUALS, I CONFIRM THE ADDITION MADE BY THE AO. THE GROUND IS DISMISSED. 6. FROM THE ABOVE FINDINGS OF THE LD. CIT(A), IT IS VERY CLEAR THAT INTEREST PAID ON BORROWED CAPITAL WILL BE ALLOWED AS DEDUCTION ONLY IF THE CAPITAL WAS I.T.A. NO . 1145 /M/ 14 10 USED FOR THE PURPOSE OF BUSINESS. IF IT IS USED FOR A PURPOSE OTHER THAN THAT OF ITS OWN BUSINESS, THEN INTEREST TO THAT EXTENT TO WHICH CAPITAL WAS SO USED, WILL NOT BE ALLOWED. SO FAR AS 'COMMERCIAL EXPEDIENCY' IS CONCERNED, AS STATED IN THE CASE OF S.A. BUILDERS(SUPRA), THE ADVANCE TO L&T ARUN EXCELLO REALTY PVT. LTD. WAS MADE FOR THE PURPOSE OF PURCHASE OF LAND AND TO MEET THE SUPPLY COST FOR CONSTRUCTIONS; TO ARUN EXCELLO FOUNDATION S PVT. LTD AND ARUN FABRICATORS IT WAS ENTIRELY TO MEET THE EXPENSES IN THE ORDINARY COURSE OF BUSINESS. SIMILARLY IN THE CASE OF ARUN CONSTRUCTIONS, THERE HAS BEEN NO OUTFLOW OF FUNDS FROM THE ASSESSEE TO ARUN CONSTRUCTIONS. ARUN CONSTRUCTIONS WAS PAID BY MARG CONSTRUCTIONS LTD INSTEAD OF PAYING THE APPELLANT. HENCE, THE ASSESSEE HAS DEBITED THE ACCOUNT OF ARUN CONSTRUCTIONS IN ITS BOOKS AND TREATED THE SAME AS ADVANCES MADE. IT IS CLEAR FROM THE ABOVE THAT IN NONE OF THE ABOVE CASES THE ASSESSEE COMPANY IS FOUND TO HAVE DERIVED ANY BENEFIT OUT OF SUCH ADVANCES. EVEN IF WE TAKE FOR A WHILE, THAT RETURN BENEFIT IS NOT AN ESSENTIAL REQUIREMENT AND IT IS SUFFICIENT IF THE HOLDING COMPANY (ASSESSEE) HAS A DEEP INTEREST IN ITS SUBSIDIARY, THE A SSESSEE SHOULD ABLE TO PROVE THAT THE ASSESSEE S SUBSIDIARY SISTER COMPANIES ARE SICK OR NOT HAVING REGULAR FUNDS AND ARE IN DIRE NEED OF HELP FROM THE APPELLANT COMPANY. THEY BEING THE GROUP CONCERNS, THEY COULD HAVE INDEPENDENTLY APPROACHED THE BANKS FOR FUNDS ON THE BASIS OF THE FINANCIAL STRENGTH OF THE ASSESSEE COMPANY. THE SAME PACKAGE OF LOANS COULD HAVE VERY WELL BEEN OBTAINED FROM THE BANKS AND INDIVIDUALS BY THE I.T.A. NO . 1145 /M/ 14 11 SISTER CONCERNS, INSTEAD OF ROUTING THROUGH THE ASSESSEE COMPANY AND DUMPING THE INTER EST BURDEN ON IT. THOUGH, THE REVENUE CANNOT DICTATE HOW THE BUSINESS HOUSES SHOULD BEHAVE, BUT ONUS IS ON THEM TO EXPLAIN THE CIRCUMSTANCES, MORE SO WHEN THE ASSESSEE WANTS TO CLAIM THE EXPENDITURE ATTACHED TO IT. THEREFORE WE HOLD THAT THE ASSESSEE HAS FAILED TO ESTABLISH ANY COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST - FREE LOANS TO SISTER CONCERNS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS RIGHTLY CONFIRMED BY THE LD. CIT(A) AND THUS, WE UPHOLD THE ORDE R OF THE LD. CIT(A) AND DISMISS THE GROUND RAISED BY THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 15 TH JUNE , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) J UDICIAL MEMBER CHENNAI, DATED, THE 15 . 0 6 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.