TMI Blog2016 (1) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... ring debts to be repaid. In case, the assessee had a surplus which according to it could not be immediately, it would either be required to be circulated and utilized for the purpose of business or to be invested in a manner in which it generates income and not diverted towards subsidiary free of interest. Otherwise it amounts to not presenting the true and correct income of the assessee and the subsidiary company would be enjoying the benefit at the cost of assessee. In our opinion, interest incurred by the assessee to the extent amounts are diverted to subsidiary company on interest free basis on whatever reason may be are to be disallowed. If there is any chance of recoverability, then there is a provision in the Act to claim the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee during the year. Assessee had given an interest free loan of ₹ 255 lakhs to its subsidiary, Survayavanshi Textiles Ltd. (STL). It was submitted that STL has been set up in 1994 and it had suffered continuous losses and that in view of erosion of its net wealth, a reference had been made to BIFR under case No.69/2003 and that monies were advanced to support the assessee s subsidiary for commercial use. The assessee relied on the ratio laid down by the Supreme Court in SA Builders Ltd. V/s. CIT (288 ITR 1) and Munjal Sales Corp. V/s. CIT (298 ITR 298). The Assessing Officer did not agree and noted as under:- In support of its contention the assessee placed reliance on the decision in the cases of SA Builders Ltd. V/s. CIT (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary of the assessee during the previous year relevant to the Asst. Year 2006-07 and the facts and circumstances of the case do not entitle the assessee for such deduction. The assessee advanced ₹ 196.16 lakhs to Survayavasnshi Textiles Limited. The interest that is being paid by the assessee is 11.75%. Therefore, the interest on ₹ 196.16 lakhs works out to ₹ 23,04,880/- and the same is disallowed. 4. Assessee contested the above disallowance before the learned CIT(A) and relied on the decision of the Hon'ble Supreme Court in the case of SA Builders (supra). The learned CIT(A) accepted the assessee s contention and deleted the disallowance made by the Assessing Officer for the following reasons- 5.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised the advances for its business purposes. Respectfully following the decisions of the Supreme Court in the case of S.A. Builders Ltd., the disallowance of interest is directed to be deleted. 5. Revenue in this appeal is contending that the ITAT in an earlier assessment year, viz. 2003-04 has upheld the disallowance of interest under similar conditions. 6. The learned counsel in reply however, submitted that the assessee has originally advanced funds way back in 1996-97 and 1997-98 and no disallowance was made in the initial years. He has further submitted that following the view taken in assessment year 2003-04 by the CIT(A), the learned CIT(A) allowed the assessee s contentions in assessment year 2004-05 and the Revenue ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee cannot foresee the sickness of SVTL and thereby cannot take a plea that it has not charged the interest. If the SVTL going to become sick unit, then it will very much claim the same as bad debt. We find force in the argument of the departmental representative. The sec.36(1)(iii) of the IT Act provides for deduction of interest on loans raised for business purposes. Once the assessee claims any such deduction, the onus will be on the assessee to satisfy the assessing officer that whatever leans were raised by the assessee was used for the purpose of business. If in the process of examination of such deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards subsidiary free of interest. Otherwise it amounts to not presenting the true and correct income of the assessee and the subsidiary company would be enjoying the benefit at the cost of assessee. In our opinion, interest incurred by the assessee to the extent amounts are diverted to subsidiary company on interest free basis on whatever reason may be are to be disallowed. If there is any chance of recoverability, then there is a provision in the Act to claim the same as bad debt. Various case law relied by the assessee's counsel is of no relevance to the facts of the present case. In view of this, we are of the opinion that CIT(A) not justified in deleting the disallowance proportionate interest on the loan advanced to the sister con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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