9911796707
TMI Blog2011 (12) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions and perused the relevant material on record. It is noted that the question of making disallowance u/s 14A is no more res integra in view of the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Ltd. Mfg. Co. VS. DCIT [(2010) 328 ITR 81 (Bom)] holding that the provisions of section 14A are applicable in circumstances as are prevailing presently and the disallowance has to be worked out by the AO on some Rs.reasonable basis' and not rule 8D. Under such circumstances, we set aside the impugned order and restore the matter to the file of the AO for deciding the quantum of disallowance, as per the afore-noted judgment, after allowing a reasonable opportunity of being heard to the assessee. 5. The only other ground which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial amount to its subsidiary company out of its cash credit account in which there was a huge debit balance. The AO held that the assessee had diverted its borrowed funds to a sister concern without charging any interest. Proportionate interest relating to the said amount, out of the total interest paid by that assessee to the Bank, was disallowed. The CIT(A) allowed partial relief but the Tribunal restored the action of the AO in sustaining complete disallowance of interest. The High Court dismissed the appeal filed by the assessee. When the matter came up before the Hon'ble Supreme Court, the assessee contended that interest was to be allowed in full as making of investment in subsidiary company is a business purpose. The Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 sister concern, entitles it to deduction of interest paid on the funds borrowed and in turn advanced to its subsidiary company. In other words, there are two questions which require answers. First is the advancing of loan to the subsidiary company and second is the utilization of such funds by the subsidiary company. The crucial criteria for deciding the second question is the commercial expediency, that is, "the user of such funds by the subsidiary for business purpose". It is only when answer to both the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser of funds by the subsidiary "for some business purpose". Unless "business purpose" is proved, the deduction cannot be allowed. That appears to be the sole reason for the Hon'ble Supreme Court to remit the matter to the file of the Tribunal for considering the commercial expediency or business purpose in the hands of the subsidiary company. If the mere fact of advancing loan by holding 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sister concerns. The assessee's balance sheet as on 31.3.2006 has been placed before us which shows that the amount of shareholders fund at Rs. 27,52,14,000 comprising of share capital of Rs. 5,00,00,000 and reserves and surplus of Rs. 22,52,14,000. As against this, the assessee has advanced only a sum of Rs. 44.71 lakh to its sister concerns without interest. 13. The Hon'ble jurisdictional High Court in the case of CIT vs. Reliance Utilities & Power Ltd. [(2009) 313 ITR 340 (Bom)] considered almost similar facts. In that case the AO recorded a finding that a sum of Rs. 213 crores was invested by the assessee out of their own funds and Rs. 1.74 crores out of borrowed funds. Accordingly, disallowance of interest was made to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 presumed that the investments were from the interest free funds available ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
