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February 2025

Where Revenue has failed to establish direct nexus between the borrowed funds and interest-free advances, the presumption is that the interest-free advances have been made out of interest-free funds available with the assessee.

By Jagdish T Punjabi, Chartered Accountant
Devendra Jain & Aditya Bhatt, Advocates
Reading Time 3 mins

69. SiwanaAgri Marketing Ltd. v. ACIT

ITA No. 1094/Ahd./2024

A.Y.: 2017-18

Date of Order: 27th November, 2024

Section: 36(1)(iii)

Where Revenue has failed to establish direct nexus between the borrowed funds and interest-free advances, the presumption is that the interest-free advances have been made out of interest-free funds available with the assessee.

FACTS

For A.Y. 2017-18, the assessee filed its return of income declaring a total income of ₹31,91,560. While assessing the total income of the assessee under section 143(3) of the Act, the Assessing Officer (AO) disallowed ₹65,86,200 under section 36(1)(iii) of the Act on the ground that the assessee had advanced interest-free loans of ₹5.48 crore while incurring significant interest expenses on unsecured borrowings. He held that the assessee failed to demonstrate the nexus of these advances with interest-free funds and did not demonstrate any business purpose.

Aggrieved, the assessee preferred an appeal to CIT(A) contending that interest-free advances were made out of

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