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2017 (10) TMI 677 - ITAT BANGALOREInterest expenditure proportionately addition u/s. 36(1)(iii)/37(1) - advances given to subsidiary companies - Held that:- All advances given to subsidiary companies cannot be considered as diversion of interest bearing funds. We further observe that the assessee has sufficient interest free funds in the form of share capital to explain the advances given to its subsidiaries. Though assessee is having borrowings from banks and financial institutions, during the financial year its borrowings have substantially come down. Therefore it is clearly evident that the assessee has not diverted its interest bearing funds to its subsidiaries. We further observe that if there are funds available, both interest free funds and interest bearing funds, then the presumption would arise that its advances would be out of interest free advances generated or available with the assessee, if the interest free funds were sufficient to meet the advances given to the subsidiaries. In this case, on perusal of facts available on record, we find that the assessee has demonstrated with evidence that it has sufficient interest free funds to cover the advances given to its subsidiaries. Therefore, considering the facts and also relying upon the judgment of the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) we are of the view that the AO has erred in disallowing interest expenditure u/s. 36(1)(iii) / 37(1) of the Act towards advances given to assessee’s subsidiaries companies. Therefore, we direct the AO to delete the additions made towards disallowance of interest expenditure u/s. 36(1)(iii) / 37(1) of the Act. Appeal filed by the assessee is allowed.
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