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2013 (11) TMI 225 - ITAT HYDERABADDisallowance of Expenditure - Investment in subsidiary company - CIT upheld disallowance - Held that:- Assessing Officer and the CIT(A) erred in not considering the allowance of expenditure, which has a direct nexus with the investments made in subsidiary companies by way of redeemable non-convertible debentures. Out of Rs.508.72 crores received from M/s. Platex Ltd. Mauritius from issue of 14.5% redeemable fully convertible debentures of Rs.1 lakh each, assessee has invested Rs.410.85 crores in subsidiaries as stated earlier. As there is direct nexus to the interest earned, which was brought to tax, assessee's claim of for corresponding proportionate interest and incidental expenditure has to be allowed, not only on facts, but also under the provisions of S.57. Accordingly, we allow grounds No.11 and 12 of the assessee, and direct the Assessing Officer to allow proportionate interest, out of Rs.5,30,31,148, paid to M/s. Platex Ltd. and also any other incidental expenditure that might have been incurred towards legal and corporate expenditure allowable under S.57(1)(iii) of the Act - Decided in favour of assessee. Reopening of assessment - Change in effective date for calculation of interest - Held that:- there is no basis for changing the effective date for calculation of interest from 26th February, 2007, when the funds are not provided to the other company, prior to that date. Since there is no dispute with reference to the date of funds being made available to the subsidiary company, i.e. only from 26.2.2007, we agree with the assessee's contention that the interest accrued only from 26.2.2007, though the debentures were dated 21.2.2007. Unless the funds are made available, no body would pay interest. Therefore, the assessee's calculation of interest is upheld and the addition made by the Assessing Officer in this behalf is deleted. Since it is one of the basic issue on facts, we do not intend to consider the legal issues raised by the parties, on various principles of law. The Assessing Officer is directed to delete the addition so made on this count - Decided in favour of assessee. The issue relating to validity of reopening of assessment has become academic. However, for the sake of record, the original assessment under S.143(3) was completed by the Assessing Officer, after due examination of the interest received on the redeemable debentures. It is already on record, that the assessee has received share premium and it was disclosed in the Balance Sheet. Assessing Officer after noticing that the assessee has not offered any income, which was in fact adjusted in the pre-operative expenses, brought to tax interest as income from other sources. Since he has examined the issues in detail, including the investments made thereon, it cannot be said that the Assessing Officer has not applied his mind while considering the amounts he intend to bring to tax. Therefore, reopening of the assessment on the reason that some of the accrued income was not offered to tax does not arise, as the assessee has validly accounted interest from the time monies were placed at the disposal of the subsidiary company. Therefore, reopening of assessment per se is bad in law. On this reason also, the assessee gets relief - Decided in favour of assessee.
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