TMI Blog2013 (7) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the interest payable by the assessee company on sub-debt to NHAI was given under business expediency and the same is allowable u/s 36(1)(iii) - the addition be deleted by allowing interest paid to NHAI on sub-debts. Whether the regular assessment in this case was completed at an income u/s 143(3) - the addition was made on the basis of auditor's remarks in item no. 2(vii) in the auditor's report - no effort has been pressed in action for verifying confirmation from the creditors - appeal is restored to AO with a direction that he shall re-decide the issue de novo by affording due opportunity of hearing to the assesse – appeal decided in favour of revenue. - ITA No.2133/Del/2011 - - - Dated:- 12-7-2013 - Shri G. D. Agrawal And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an taken from NHAI. b) Rs.87927/- on the ground that the assessee has reduced its liability. The addition was deleted by CIT(A) on the ground that the amount has not been claimed as expenditure. c) Rs.437638/- u/s 41(1) of the I.T. Act as claim of current liability of Rs.437638/- pertaining to F.Y.2004- 05 payable towards financial advisory fees has been written off and the same was required to be added back on the total income of the assessee in the light of provisions of section 41(1) of LT. Act, 1961. The CIT (A) confirmed this addition on the ground that this amount has been written off and the liability has not been proved." 3. Briefly stated the facts giving rise to this appeal are that the assessee is a fully owned subsidiary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e simply drawn our attention to the account position with NHAI where there was a sub-debt from NHAI amounting to Rs.3,64,00,000/- and at the same time there was an amount recoverable from parent organization amounting to Rs.8,83,76,886/-. The AR further submitted that the assessee company is a wholly owned subsidiary company of NHAI established for the purpose of development or roads around Tuticorin port area, therefore, the amount received from parent company as seed capital on nominal interest rate i.e. 6.5% per annum is obviously related with the commercial expediency of the company and the amount of interest paid thereon cannot be disallowed on this basis that the assessee company has shown recoverable amount from NHAI in the final acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on loans for business purpose is deductible u/s 36(1)(iii) of the Act. 6. From careful perusal of above citation, we observe that in the case of Bharti Televenture Ltd. (supra), it has been held that advances to its subsidiary companies found to be made for business consideration, onus to prove commercial expediency is discharged and deduction of interest is allowable. In the case in hand, we clearly observe that the authorities below have taken cognizance of auditor's report wherein it has been pointed out that when the company has already given interest free advance to NHAI, the payment of interest on sub-debt is not a prudent commercial practice. 7. As we have observed from the final accounts of the assessee that as per Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was rejected without any basis and addition was made. The AR further submitted that during the first appellate proceedings, the assessee submitted that the provisions of section 41(1) of the Act are not applicable to the case since the first condition of this provision is that an allowance of deduction has been made in the assessment made for any year in respect of loss, expenditure or trading liability incurred by the assessee. The AR further submitted that the assessee has not made any such claim. In the year 2004-05, whole of the expenditure was capitalized as work in progress because the company was in the construction stage. The AR further submitted that second condition for addition u/s 41(1) is that the assessee has obtained either i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial advisory fees pertaining to year 2004-05 as revenue or as capital expenditure. In this situation, we are of the opinion that this issue deserves verification at the end of Assessing Officer. 12. In view of above, we set aside the impugned order and the issue involved in ground no. 3 of this appeal is restored to the file of Assessing Officer with a direction that he shall re-decide the issue de novo by affording due opportunity of hearing to the assessee. The Assessing Officer is also directed that he shall verify the confirmation in this regard and shall also verify whether the impugned current liability was claimed by the assessee as revenue or the assessee had the intention to capitalize the same. With these observations, gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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