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2016 (2) TMI 744 - ITAT KOLKATA

2016 (2) TMI 744 - ITAT KOLKATA - TMI - Interest paid on loans utilized for advancing to sister concern - commercial expediency - Held that:- We hold that the advances were made by the assessee to its wholly owned subsidiary company during the course of its business and is a strategic investment and as a measure of commercial expediency to protect its business interests. Accordingly we donít find any infirmity in the order of the Learned CIT(A) in deleting the addition . - Decided against revenu .....

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d that there is no mistake in the claim of the assessee - Decided against revenue - I.T.A No. 1747/Kol/2012 - Dated:- 20-1-2016 - Shri Mahavir Singh,Judicial Member, and Shri M. Balaganesh, Accountant Member For The Appellant: Shri R.K Kureel, JCIT, ld.Sr.DR For The Respondent: Shri Prasun Kumar Bhattacharya, Advocate, ld.AR ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A), XII, Kolkata in Appeal No. 969/XII/Cir-10/09-10 dated 08-08-2012 for th .....

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ormation Technology Training Business, IT Enabled Services and Contact Centre Business including Health Care BPO activities and software development. The assessee had effected acquisition of Transcription South, Inc. (TSI) as 100% subsidiary company based in United States of America. TSI is also engaged in IT and IT Enabled Services including Contact Center, Healthcare BPO activities and software development. The assessee explained that the main objective of this acquisition was to expand and co .....

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nager - Marketing is also placed at TSI office on L1 visa as the Country Head - USA to look after business development for the group. This marketing initiative of TSI has helped the assessee to bag many new projects. Incidentally, this apart, the assessee has a co-location in USA and the Contact Center in Navi Mumbai and the co-location is connected through a 2 MBPS IPLC circuit for voice and data transfer required for functioning of the Contact Center. This co-location is also maintained with t .....

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343.64 lacs during the year under appeal while non-interest bearing unsecured loans from its shareholders and directors had increased by ₹ 219.59 lacs. The assessee paid interest to banks amounting to ₹ 1,50,63,000/- and the Learned AO sought to disallow ₹ 99,99,780/- by applying average rate of 10.38% on the investments made in subsidiary company. 2.2. On first appeal, the Learned CITA found that the assessee had earned substantial income from its wholly owned subsidiary compa .....

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ediency of loan given to sister concern without giving reason in his order? 2.3. The Learned DR argued that the subsidiary company is in foreign location which is accessible to easy loans at cheap cost. While this is so, why should the assessee herein paying huge interest in India to banks should divert its funds to its subsidiary company. The business expediency herein is not understandable. In response to this, the Learned AR argued that the investments and advances to subsidiary company are s .....

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erials available on record including the paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated for the sake of brevity. We find that the Learned AO had disallowed the interest payments to banks only on the sole ground that interest free funds were advanced to subsidiary company by the assessee. He had not brought on record the nexus between the borrowed funds and the amounts advanced to subsidiary company which is one of the main pre-requisite before .....

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o find that the assessee had deputed its employees in TSI who are working as Chief Operating Officer and Senior Manager Marketing to take care of the new business opportunities and develop the business. These efforts have yielded fruits to the assessee in the form of new businesses and expanded global presence in USA. This itself goes to prove that the business interests of the assessee beyond doubt. With regard to the arguments of the Learned DR that the subsidiary company is accessible to chea .....

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Hero Cycles (P) Ltd vs CIT reported in (2015) 63 taxmann.com 308 (SC) vide order dated 5.11.2015, it was held : 12. In so far as loans to the sister concern/subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of S.A. Builders Ltd. v. CIT reported in (2007) 288 ITR 1 (SC). After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner:- '26. The expression "commercial e .....

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ercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. 28. Thus, the .....

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business" is wider in scope than the expression "for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc.' 13. In the process, the Court also agreed that the view taken by the Delhi High Court in CIT v. Dalmia Cement (P.) Ltd. [2002] 254 ITR 377/121 Taxman 706 wherein the High Court had held that once it is established that there is nexus between the expen .....

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assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 14. Applying the aforesaid ratio to the facts of this case as already noted above, it is manifest that the advance to M/s. Hero Fibres Limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assessee to the effect that it would provide additional margin to M/s. Hero Fibres L .....

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shown as income and offered for tax. 16. In so far as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of ₹ 34 lakhs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilise those funds for giving advance to its Directors. 17. On the basis of .....

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gly we don t find any infirmity in the order of the Learned CIT(A). Accordingly, the ground no. 1 raised by the revenue is dismissed. 3. The last ground to be decided in this appeal is as to whether the Learned CIT(A) is justified in allowing the deferred revenue expenditure of ₹ 76,000/- towards Technical Information Reference Material (TIRM). 3.1. The brief facts of this issue is that the assessee had written off in its books a sum of ₹ 76,000/- towards expenses relating to TIRM an .....

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