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2023 (12) TMI 204 - AT - Income TaxDisallowance u/s 14A - non recording any satisfaction note the AO made disallowance u/s 14A - suo-moto addition made by assessee ignored - HELD THAT:- The tax authorities below have not at all taken into consideration the fact of suo moto disallowances and giving any reasons for not accepting the same. As fresh investment have been made out of the own funds raised by issuance of fresh equity and that accumulated balance of reserve and surplus of the assessee company or the borrowed funds have not been utilized for the purpose of investment. Consequently the issue needs to be restored to the files of Ld. AO, to take into consideration the principles of law recognized in Maxopp Investments Ltd. Case [2018 (3) TMI 805 - SUPREME COURT] and assessee’s own case by Hon’ble Delhi High Court in [2018 (3) TMI 1718 - DELHI HIGH COURT] and pass a fresh order for claim of disallowance of assessee u/s 14A of the Act. These grounds are decided in favour for statistical purposes. Allowability of deduction u/s 36(1)(vii) - interest free loans to subsidiary companies - Assessee contended that when there are funds available, both interest free or loan taken, then a presumption would arise that investments would be out of interest free funds generated or available with the company provided said funds are sufficient to meet investments - HELD THAT:- Primarily questioning the commercial expediency of interest free loans allowability of deduction u/s 36(1)(vii) of the Act was examined. However, it transpires from record and as discussed above the assessee had sufficient surplus funds and had raised capital during the year by issuance of shares. Thus, merely because the assessee had also raised loans or paid interest against loans that does not justify the disallowance. The investment in subsidiary and related entities has to be made for commercial purpose to earn future profits. It is not the case of revenue that investment were made in any entity not having any nexus with the principal object of assessee company. The judgment of South Indian Bank Ltd. vs. Commercial of Income Tax [2021 (9) TMI 566 - SUPREME COURT]also comes to the assistance of assessee where Hon’ble Supreme Court recognized the principle that if interest free own funds are available with the assessee or exceeds investment, investment would be presumed to be made out of assessee’s own fund. Thus, the Bench is convinced that the disallowance was not justified the same deserves to be deleted. The grounds are sustained.
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