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2015 (6) TMI 797 - AT - Income TaxDisallowance of interest under section 36(1)(iii) - CIT(A) deleted the addition - Held that:- Where the assessee had established availability of funds of its own and also where the investment was made in 100% subsidiary of the assessee, which in turn was engaged in the same line of business and had utilised the funds for its business, the existence of commercial expediency stands proved. In case the connection between the lender and the borrower is of commercial expediency, then in view of the ratio laid down by the Hon'ble Supreme Court in SA Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT), no disallowance is warranted under section 36(1)(iii) of the Act. In view thereof we hold that there is no justification for disallowing interest under section 36(1)(iii) of the Act and uphold the order of the CIT(A) - Decided in favour of assessee. Disallowance of remuneration paid to the Directors - CIT(A) allowed claim - Held that:- A.O. has disallowed the remuneration on the ground that much less remuneration was paid in the case of sister concern. Although, this could be a starting point to suspect that excessive remuneration was paid but for effecting an addition the suspicion has to be grounded on fair market value of services rendered. The A.O. however, did not carry out such exercise. On the other hand the appellant has explained that the appellant is a 35 year old company whereas the subsidiary is only in business for last 4 years. It has also been mentioned that the subsidiary is export oriented unit which is mainly automated and located in single building with less overheads. The A.O. has not indicated as to how the turnover could be a sound basis for comparison of remuneration. Even if it is so, there could be a case for examining the lesser remuneration paid in the case of subsidiary company. The remuneration of around ₹ 25 lakhs paid to three directors who were promoters of the company in 35 year old company does not seem to be excessive and thus the disallowance of ₹ 22,80,000/- is directed to deleted. - Decided in favour of assessee.
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