RAJESH BINDAL, J. - (1.) 'A' (for short, "the Tribunal"), in ITA Nos. 342/Chandi/1996 and 384/Chandi/1996, for the asst. yr. 1992 -93, raising the following substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding the expenses of Rs.86,914 spent on silver wares for distribution to the dealers and foreign visitors as business expenditure ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance of interest of Rs. 2,43,000 on the grounds that there is no direct nexus between the borrowing and interest -free advances made to certain parties ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding to exclude ST and CST from the total turnover for computation of deduction under s. 80HHC ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding the expenses of Rs. 2,10,142 spent for distribution of Titan watches to the employees, as business expenditure ? (v) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the new industrial undertaking began to manufacture or produce articles in the previous year relevant to the asst. yr. 1985 -86 and not the asst. yr. 1984 -85, and thereby allowing the benefit of deduction under s. 80 -I in this year - Question No. (i)
(2.) IT is not disputed before us that, similar question has been gone into in the assessee's own case in ITA No. 73 of 2005 H] for the asst. yr. 1993 -94, wherein the same has been decided against the Revenue and in favour of the assessee. Accordingly, for the reasons recorded in the above referred case, the present question is also decided against the Revenue and in favour of the assessee. Question No. (ii)
(3.) IT was found as a fact that during the year in question, the assessee had advanced a sum of Rs. 13,50,000 to Shri Hans Raj Pahwa without any business consideration and without carrying any interest. It was further found that during the year, the assessee incurred interest liability of Rs. 2,19,86,611. The Tribunal accepted the plea raised by the assessee that there being no direct nexus between the borrowing and the interest -free advances made, the interest component on interest -free advances made to certain parties cannot be disallowed. We have already considered an identical issue in CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H), wherein this Court held as under (pp. 12, 13, 14) : "As far as the issue of establishment of nexus of the funds borrowed vis -a -vis the funds diverted towards sister concern on interest -free basis is concerned, in our view, 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 is on the Revenue is not correct. Sec. 36(1)(iii) of the Act 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 AO that whatever 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 without any interest, there would be very heavy onus on the assessee to be discharged before the AO to the effect that in spite of pending term loans and working capital loans on which the assessee is incurring liability to pay interest, still there was justification to advance loans to sister concerns for non -business purposes without any interest and accordingly, the assessee should be allowed deduction of interest being paid on the loans raised by it to that extent. In our view, even the plea of nexus of loans raised by the assessee with the funds advanced to the sister concerns on interest -free basis, may be it is pleaded to be out of sale proceeds or share capital or different account cannot be accepted. The entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc., do not have any different colour. Whatever are the receipts in the business, that have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. The only thing sufficient to disallow the interest paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non -business purposes would be that the assessee has some loans or other interest - bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest. This would result in not presenting true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non -business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under s. 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts were diverted to sister concern on interest -free basis are to be disallowed. If the plea of the assessee is accepted that the interest -free advances made to the sister concerns for non -business purposes were out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee will show the figures of capital introduced by it as a margin for loans being raised and after the loans are raised, when substantial amount is diverted to sister concerns for non -business purposes without interest, a plea is sought to be raised that the amount advanced was out of its capital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans had been raised by the assessee at the time of disbursement of funds. This would depend on facts of each case. Sec. 106 of the Indian Evidence Act or the principles analogous thereto places the burden in respect thereof upon the assessee, as the facts are within its special knowledge. However, a presumption may be raised in a given case as to why an assessee who for the purpose of running its business is required to borrow money from banks and other financial institutions would be giving loan to its subsidiary companies and that too when it pays a heavy interest to its lenders, it would claim no or little interest from its subsidiaries." ;