9911796707
TMI Blog2016 (3) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... brief, are that the assessee company is in the business of manufacturing, assembling and trading in power equipments, electronic equipments, etc. The ld. Assessing Officer disallowed Rs. 22,47,100/- u/s 36(1)(iii) and assessed the income at Rs. 8,09,20,910/-. On appeal, before the ld. Commissioner of Income Tax (Appeals), the addition was affirmed, against which the assessee is in further appeal before this Tribunal. It is noted that for A.Y. 2006-07, which is the lead year, identical addition was made by the ld. Assessing Officer and finally, it travelled to the Tribunal, wherein, vide order dated 23/12/2011 (ITA No.3313/Mum/2010), the issue was decided in favour of the assessee. The relevant portion of the same is reproduced hereunder for ready reference:- "5. The only other ground which survives for our consideration is against the confirmation of disallowance of Rs. 5,36,520 made by the Assessing Officer u/s 36(1)(iii) of the Act. Briefly stated the facts of the case are that the assessee had made certain loans and advances totaling to Rs. 11.95 crore which included a sum of Rs. 21,58,000 advanced to M/s. Intel Instrument & Systems Limited and Rs. 23,13,002 to M/s. Aplab Seba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for some business purpose or not. 8. From the above judgment, it can be noticed that the ratio decidendi of the judgment is that interest on borrowed loans advanced to a sister concern without interest is allowable as deduction, if there is a commercial expediency in advancing such loan. To decide the commercial expediency in the hands of holding company, it is vital to examine the purpose for which the assessee advanced the money to the sister concern and what the sister concern did with this money. Thus, it is obvious that when a holding company has advanced borrowed money to its subsidiary, which is used by the subsidiary for some business purpose, there cannot be denial of deduction on account of interest. 9. The Hon'ble Supreme Court, in this case, after laying down the broad parameters helpful in taking decision about the deductibility or otherwise of interest in the hands of the holding company, being the purpose for which the funds were ultimately used by the subsidiary company, remitted the matter to the file of the Tribunal and not granted deduction at its own. It is not crux of the judgment that in each and every case of the holding company advancing loan to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding company to subsidiary company had been sufficient enough for granting deduction of interest to the holding company, there was no need to restore the matter. The Hon'ble Supreme Court, in such a situation, would have itself granted deduction of interest in the hands of holding company. 11. From the above judgment, it is manifest that the assessee has to prove the commercial expediency for advancing the loans to its subsidiary company. The onus is on the assessee to prove the business usefulness. It is the primary duty of the assessee, on inquiry by the AO, to lead evidence demonstrating the user of funds by the subsidiary for business purpose. Only when such initial burden is discharged, that it becomes incumbent upon the AO to accept or reject such evidence with cogent reasons. Principal duty is always of the assessee. Adverting to the facts of the instant case, it is observed that the assessee failed to produce any evidence either before the AO or the ld. CIT(A) to prove the commercial expediency by demonstrating as to how the funds received by the subsidiary from the assessee company were utilized. Position is same before the Tribunal as well since there is no documentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e borrowed funds had been utilized for the purpose of making investment in the sister concern and the disallowance of interest was rightly called for. The Tribunal, on appreciation of facts, recorded a finding that the assessee had sufficient funds of its owns for making investment without using the interest bearing funds. Accordingly, the order of CIT(A) was upheld. When the matter came up before the Hon'ble jurisdictional High Court, it was contended by the Department that the shareholders' funds stood utilized in the purchase of fixed assets and hence could not be construed as available for investment in sister concern. Repelling this contention, the Hon'ble High Court observed that : "In our opinion, the very basis on which the Revenue had sought to contend or argue their case that the shareholders' fund to the tune of over Rs. 172 crores was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious." In upholding the order of the Tribunal, the Hon'ble High Court held that : "If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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