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2021 (12) TMI 1248 - AT - Income TaxAddition u/s 36(1)(iii) - disallowance of interest expenses mainly on the basis that total available interest free funds in the hands of the Assessee as on 31st March, 2015 were less as the Assessee has invested in non-business assets - Assessee do not have available interest-free funds and/or not to the extent of investment then the addition can be made under Section 36(1)(iii) of the Act on account of disallowance of interest expenses - HELD THAT:- Hon’ble Apex Court in S. A. Builders Ltd. Case [2006 (12) TMI 82 - SUPREME COURT] dealt with the identical issue in broader terms and observed that ‘once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the Assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.’ Coming to the contention of the Ld. D R that the Assessee was not having sufficient interest-free funds available to the extent of investment and therefore the addition made under Section 36(1)(iii) of the Act on account of disallowance of interest expenses is liable to be sustained. We find the Hon’ble Apex Court in S. A. Builders Ltd. Case (supra) itself dealt with deduction of interest on borrowed funds given to subsidiary company and held that ‘where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the Assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans.’ Even Hon’ble Madras High Court in CIT Vs. Spencers & Co. Ltd. & Co. Ltd. [2014 (2) TMI 237 - MADRAS HIGH COURT] and in CIT Vs. Phil Corporation Ltd. & Anr. [2011 (6) TMI 187 - BOMBAY HIGH COURT] has allowed deduction of interest u/s 36(1)(iii) of the Act, paid on borrowings and overdraft which were utilized for investment in subsidiary company. Hence in view of the aforesaid judgments of the Hon’ble High Courts also,the contention of the Ld. DR is untenable. - Decided against revenue. TP Adjustment on account of providing corporate guarantee by the Assessee to its overseas associated enterprises companies - ‘International Transaction’ or not - treating the interest rate of 1.3% based on average fees charged by State Bank of India - HELD THAT:- In identical issue in hand in the case of Pr. CIT Vs. M/s. Redington (India) Ltd.[2020 (12) TMI 516 - MADRAS HIGH COURT] and has clearly held that the ‘corporate guarantee’ is covered within the definition of ‘International Transaction’. The Hon’ble High Court in the said case has also considered the Explanation introduced in Section 92B of the Act with effect from 1st April, 2002 by the Finance Act (2012) wherein it is clarified that the expression ‘International Transaction’ shall include ‘guarantee’ and held the same as retrospective.As per judgment of the Hon’ble Madras High Court, the addition can be made qua‘corporate and bank guarantee’. Considering the undisputed fact to the effect that Hon’ble Bombay and Madras high Court in the cases referred above held the ‘Corporate Guarantee’ as ‘International Transaction’, we do not find any reason to interfere with the findings of the Ld. Commissioner for partly sustaining the addition under consideration and therefore the same is upheld. Consequently the Appeal of the Assessee is dismissed.
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