TMI Blog2011 (1) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be made to the subsidiaries for business considerations which is nothing but the commercial expediency of assessee - That being the factual position reflected from the record of the assessee, the onus that laid on it stood discharged - Decided in favour of assesee the appeals deserves to the dismissed and are hereby dismissed with no orders as to costs. - IT APPEAL NOS. 1337, 1339 AND 1340 OF 2010 - - - Dated:- 3-1-2011 - A.K. SIKRI AND M.L. MEHTA, JJ. Ms. Prem Lata Bansal for the Appellant. Kaanan Kapur for the Respondent. JUDGMENT M.L. Mehta, J. ‑ These three appeals have been preferred by the revenue under section 260A of the Income-tax Act (hereinafter referred to as Act) against a common order dated 24th July, 2009 passed by learned Income-tax Appellate Tribunal (ITAT in short). Since the parties are common, the questions of law are common and the appeals have been preferred against the common order of the ITAT, we propose to dispose of these three appeals by this common order. 2. ITA 1340/2010 relates to Assessment Year 2001-02, ITA 1337/2010 to Assessment Year 2003-04 and ITA 1339/2010 to Assessment Year 2004-05. In all these cases co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and also because the Ld. AO has not brought any material on record to show that any amount of borrowed fund was advanced to the subsidiaries and that there is a direct nexus. The AO has also not established that the borrowings of the appellant company were not for the business purposes. The argument of the appellant that advances to wholly owned subsidiaries are even otherwise for business considerations only has considerable force." 4. The revenue preferred appeal against the order of the CIT(A). It may be noted that in ITA 1337/2010 pertaining to the AY 2003-04 also, the CIT(A) relied upon the order as passed by the CIT(A) for the AY 2001-02. CIT(A) noted that since the facts of the case as well as the law remaining the same, and also since the advances made to subsidiaries were part of opening balance brought forward from earlier year and that during the year under consideration (AY 2003-04), the appellant's additional borrowed funds were only used for purchasing the vehicles, following the order of AY 2001-02 the disallowances made by the AO during the year under consideration is also deleted. Similarly, the CIT(A) for the AY 2004-05 also relied upon the order as made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r business considerations only. Further, at the relevant time, the assessee company had adequate non-interest bearing funds by way of share capital and reserves. The advances were made out of the assessee's own funds." 7. Making same submissions before us as made before the ITAT, learned counsel for the revenue relied upon the judgment in 'Indian Metals Ferro Alloys Ltd. v. CIT [1992] 193 ITR 344 (Ori.) and also submitted that where the assessee sought to deduct certain items from business profits, the onus of proving the same fell on him. She submitted that section 36(1)(iii) relates to the amount of interest paid on capital borrowed for the purpose of business, profession or vocation and not for advancing interest-free amounts from the borrowed funds to its subsidiaries. Since admittedly, the interest-free advances had been given by the assessee to its subsidiaries, it was upon the assessee to show that the amounts so advanced were from its own funds. 8. On the other hand, the learned counsel for the assessee relied upon the judgment of Division Bench of the Hon'ble Supreme Court reported as S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 and submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the Tribunal and the Income-tax authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) as interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expression used is "for the purpose of business". It has been consistently held in the decisions relating to section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton v. British Insulated Helsby Cables Ltd. [1925]10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business. The abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 377/121 Taxman 706 was approved. It was further held that it all depends on the facts and circumstance of the case as to whether the directors of the sister concern utilized the amount advanced to it by the assessee for their personal benefit, which obviously could not be said to be an advance as a measure of commercial expediency. 12. In the instant case, from the order of the CIT(A) and that of ITAT, as reproduced above, in paragraphs 3 and 6, we note that the assessee was maintaining a bank account with mixed common funds in which all deposits and withdrawals were made. There was no specific instance noted by the Assessing Officer in respect of any direct nexus between the borrowed fund and the said advances made to the subsidiaries. The Assessing Officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest bearing borrowing was advanced to the subsidiaries or establishing that the borrowings made by the appellant were not for business purposes. Both the appellate authorities below were of the view that the assessee had explained the sources of the advances and investments made to the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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