TMI Blog2011 (12) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the assessment year 2006-2007. 2. Ground nos.1 to 4 were not pressed by the learned A.R. which hereby stand dismissed. 3. Ground no.5 is against the confirmation of disallowance of ₹ 20,08,103 u/s 14A of the Act. 4. We have heard the rival 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 cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est be allowed as deduction as the advance was given to its subsidiary companies. However no material was placed on record to indicate as to how such amount was utilized by the sister concerns. 7. The assessee in the case before the Hon ble Summit court in S.A.Builders Ltd. (supra) transferred substantial 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 sustainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose, 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 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 adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously, it cannot be said that such money was advanced as a measure of commercial expediency . The gist of the judgment for allowing deduction on account of interest in the hands of holding company is the user 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its claim in this regard by any material or evidence, we are of the considered view that the assessee does not deserve to succeed on this issue. 12. Now we will come to the second contention raised by the learned A.R. to the effect that the assessee had sufficient own funds for the purpose of making advance 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 ₹ 27,52,14,000 comprising of share capital of ₹ 5,00,00,000 and reserves and surplus of ₹ 22,52,14,000. As against this, the assessee has advanced only a sum of ₹ 44.71 lakh to its sister concerns without interest. 13. The Hon ble jurisdictional High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 172 crores was utilized for the purpose of fixed assets in terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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