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2013 (8) TMI 701 - AT - Income TaxDisallowance u/s 36(1)(ii) - Interest expenses on borrowed funds - loan/ advances to subsidiary companies - Held that:- AO made disallowance of interest of Rs.5,74,25,564/- in assessment year 2002-03 for similar reasons as stated in the assessment year under consideration. We observe that the ld. CIT(A) confirmed the action of AO. But the Tribunal in further appeal after considering the submissions of the assessee vide para 11 at page 9 of the order allowed the claim of the assessee. It is relevant to state that the Tribunal has stated that ld. CIT(A) in the next assessment year viz assessment year 2003-04 himself allowed the relief to the assessee. Tribunal allowed the claim of the assessee in AY 2002-03 after observing that in case business of subsidiary is collapsed it will have severe repercussions on the assessee company. That the synergies of the business operation of the assessee company and its subsidiaries were re-aligned and the functions of the various companies were made complimentary and supplementary to each other, so as to avoid duplication of interest and deriving maximum value in its operation. That each company is inter dependent on the other. That the survival of assessee is also at stake, if the subsidiaries fail. The Tribunal also observed that section 14A of the Act would also not come in the way for the reasons that the majority of the subsidiaries are foreign subsidiaries and the question of section 14A being applied for dividend received from them does not arise. The Tribunal also held that section 14A and section 36(1) (iii) operate in different fields - investment in shares in e-Capital Solution were through Share Swap and not shares investment were made in cash. That the assessee acquired shares in e-Capital Solution not by payment of cash but by issue of its own shares to the sellers of the said shares after taking approval from Reserve Bank of India. Thus, question of using of borrowed funds for acquiring shares in e-Capital Solution does not arise - there is no infirmity in the order of ld. CIT(A) in deleting the disallowance of interest expenditure made by AO - Decided against Revenue. Transfer Pricing adjustment - CIT deleted addition - Held that:- issue requires reconsideration by TPO and therefore matter be restored to AO to determine ALP including applicability of method to be adopted. Hence, the orders of authorities below is set aside and the matter is restored to the file of AO to determine ALP of transactions of the assessee with Associated Enterprises afresh after giving due opportunity of hearing to the assessee by a reasoned order and in accordance with law - Decided in favour of Revenue.
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