Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2017 (3) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (3) TMI 1254 - PUNJAB AND HARYANA HIGH COURTDisallowance of interest expenditure under section 36(1)(iii) - Held that:- Admittedly, the assessee company had given interest free loans and advances amounting to ₹ 2297.83 lacs upto the end of the relevant year including ₹ 704 lacs during the relevant year to its three subsidiary companies. The Assessing officer did not make any disallowance in respect of expenditure incurred on borrowed funds under section 36(1)(iii) of the Act in relation to interest free loans and advances given to the said three subsidiary companies in the earlier years. After perusing the cash flow statement of the assessee company for the assessment year in question, the Tribunal observed that the assessee company had received substantial proceeds from preferential issue of shares capital amounting to ₹ 99999.98 lacs. It had also received dividend income of ₹ 166.13 crores from various investments. After giving interest free loans of ₹ 7.04 crores to its subsidiary companies, the assessee was left with surplus interest free funds of ₹ 53.86 crores which were utilized for giving interest free advances. Thus, there was no nexus of interest expenditure incurred during the year with the aforesaid loans/advances given to the subsidiary companies, warranting disallowance under section 36(1)(iii) of the Act. After considering the relevant provisions and the case law on the point, the Tribunal correctly deleted the disallowance of interest expenditure made under section 36(1)(iii) of the Act. - Decided in favour of assessee Addition u/s 14A - Expenditure related to exempt income - Held that:- The issue is covered by the decision in the case of the assessee in Commissioner of Income Tax, Jalandhar I, Jalandhar vs. M/s Max India Limited [2016 (11) TMI 1012 - PUNJAB AND HARYANA HIGH COURT] as held Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interest free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interest free funds towards other assets merely on account of the interest free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest free funds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force.- Decided in favour of assessee
|