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2019 (3) TMI 1921 - ITAT HYDERABADDisallowance of interest u/s 36(i)(iii) - interest on the loans/advances made to subsidiary company should not be disallowed - HELD THAT:- As funds sanctioned by the bank were utilized in other group companies on the direction of the holding company. These funds were not utilized for any purpose of the object of the assessee company - exclusive utilisation of these funds were not for the purpose of the assessee’s business and the expenditure of interest is not for the purpose of assessee’s business and clearly for the purpose of other group companies. Coming to the question of business expediency in this transaction, any act carried out for the purpose of its own business or carried out for the benefit of the subsidiary as a share holder can be referred to as business expediency. In the given case, the assessee is in the business of consultancy and no business commitment to fund other sister concern and the action of the assessee to fund step down subsidiary will not fit into representing any share holder commitment. The actual share holders are the holding company, any holding company diverting its own funds to the subsidiaries will fit into business expediency as held in the case of SA Builders [2006 (12) TMI 82 - SUPREME COURT] - The assessee company was used as a source for funding the step down subsidiaries and the cost should also be transferred to the subsidiary who has utilized the funds and the burden of cost of funds on the assessee is unwarranted, may be beneficial to the overall group but not on the assessee. It clearly indicates that the transaction of funding the sister companies are not exclusively for the purpose of assessee’s business. Therefore, the ground raised by the assessee is dismissed. Disallowance u/s 14A - CIT(A) deleted the disallowance on the ground that no interest was incurred on the share capital invested and also assessee did not receive any dividend income - HELD THAT:- The Hon’ble Delhi High Court in the case of Cheminvest Ltd [2015 (9) TMI 238 - DELHI HIGH COURT] has held that section 14A will not apply where no exempt income is received or receivable during the relevant assessment year. Following the said decision, we find no infirmity in the order of CIT(A) in deleting the disallowance made by the AO u/s 14A of the Act. Accordingly, the ground raised by the revenue on this issue is dismissed.
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