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2016 (1) TMI 657 - ITAT HYDERABAD

2016 (1) TMI 657 - ITAT HYDERABAD - TMI - Disallowance of interest - amounts diverted to subsidiary company - Held that:- As the entire money in a business entity comes in a common kitty Monies are received as share capital or as term loan or working capital loan or as internal accruals do not have different colour. Whatever the receipts in the business, have the colours of business receipts and have no separate identification. The only thing sufficient is to disallow the interest paid on the bo .....

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e 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 pres .....

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ders of the Commissioner of Income-tax (Appeals) IV, Hyderabad dated 11.7.2014 on the issue of deletion of disallowance of interest of ₹ 23,04,880. 2. Revenue has raised the following grounds- 1. …. 2. The Learned CIT(A) failed to appreciate the fact that the loans borrowed by the assessee are for the business of the sister concern and not for its own business and hence three is no commercial expediency as such to the assessee. 3. The Learned CIT(A) has not appreciated the fact that .....

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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 .....

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shed that the advance to sister concern was made as a measure of commercial expediency of the assessee. As can be seen from the financial statements, the assessee had effected sales of ₹ 3.12 Crores to M/s. Suryavanshi Textiles Ltd. as against the total sale of the assessee at ₹ 231.84 Crores and the purchases from M/s. Suryavanshi Textiles amounted to ₹ 7.41 Crores as against the total purchase of finished goods of the assessee at ₹ 63.61 crores. In fact Sruyavanshi Text .....

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facts and circumstances of the cases. Suryavanshi Textiles Limited is not a subsidiary 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 disallowe .....

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ired to be examined from the point of view of commercial expediency. While doing so, the Supreme Court made the following specific observations which are relevant to the facts of the appellant s case: We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the .....

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byte eh subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. These observations are relevant because the advances have been given by the appellant to its subsidiary which had become a sick company and which 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. .....

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sessment year 2004-05 and the Revenue has not preferred any appeal for that year. In view of this, it is submitted that the order of the CIT(A) is justified on the facts of the case. The learned counsel also relied on the cases cited supra and also placed on record, the decision of the coordinate bench of the Tribunal in the case of SSPDL Ltd. V/s. Dy. CIT Circle 3(2), Hyderabad (2013)33- taxmann.com.447(Hyderabad-Trib) for the proposition that in the absence of clear cut nexus between the amoun .....

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et aside. 8. We have considered the issue and examined the orders placed on record. Coordinate bench of this Tribunal in assessment year 2003-04 on Revenue s appeal, has reversed the order of the CIT(A), by stating as under- 9. We have heard both the parties and perused the materials on record and carefully gone through the case laws cited by the parties. The main plea of the assessee s counsel herein is that M/s SVTL as become a sick company, as such interest was not charged. The contention of .....

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essing 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 should be very onus on the assessee to discharge before the assessing officer to the effect that in spite of borrowing loans on which the assessee is incurring liability to pay interest, there was justification to advance .....

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y in a business entity comes in a common kitty Monies are received as share capital or as term loan or working capital loan or as internal accruals do not have different colour. Whatever the receipts in the business, have the colours of business receipts and have no separate identification. The only thing sufficient is to disallow the interest paid on the borrowing to the extent of amount lend to subsidiary company without carrying any interest would be that the assessee has some loans or intere .....

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