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2014 (11) TMI 1255 - HC - Income TaxDisallowance of Interest - investment by assessee in the share capital of its 100% subsidiary company - profits of the entire business and the sale proceeds were all deposited in the mixed overdraft account - AO held that borrowed funds were utilized for the purpose of the aforesaid investment and therefore, interest at the rate of 18% amounting was disallowed - HELD THAT:- Tribunal missed the fact that in case the assessee had put in the amount of income earned during the year, which in this case was ₹ 12 crores approximately, in a separate account which the assessee was entitled to do, the debit balance as at the last day of the accounting year would have been further increased by ₹ 12 crores. The fact that the liability on account of secured loan and unsecured loan increased is not ipso facto evidence of the fact that the company is running through an unhealthy financial position. When a profit making company has increased its liability on account of secured or unsecured loan, that may be a pointer to show that the company has increased its capital asset. In this case, there can be no denial that the company earned ₹ 12 crores which was offered for taxation. It cannot in the circumstances be said by looking at the secured or unsecured loan account or by the constant increase thereof that borrowed funds were utilized for the purpose of investment in question which was evidently for a sum of less than ₹ 1 crore. That can possibly be said if it is a loss making company. Therefore, it has to be held that the investment was made from out of the profits of the year and not from out of the overdraft account. There is, as such, no question of making any disallowance on account of any interest - in a case where the profit of the entire business including the sale proceeds were deposited in the mixed overdraft accounts and in case the investment is less than the amount of profit earned or which could reasonably be deemed to have been earned, regard being had to the date of expenditure, it has to be presumed that the investment was from out of the profits. Question raised is answered in the affirmative
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