TMI Blog2016 (5) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... g out its business activities through its subsidiaries and the assessee company was having interest free funds to the tune of ₹ 99.27 crores and ₹ 101.11 crores available with the assessee company in the beginning and end of the financial year respectively under consideration as per balance sheet not disputed by the AO when the assessee has claimed to have paid loan amount to its subsidiary from the mixed fund, then, it should be assumed that payment was made out of interest free funds. So, when the AO has not disputed the fact that the assessee company has used interest free funds only for advancing money to M/s. Bharti Infotec Ltd., the question of making disallowance on prorata basis does not arise. Following the ratio of the judgment in the case of Hero Cycles Pvt. Ltd. (2015 (11) TMI 1314 - SUPREME COURT OF INDIA), we are of the considered view that when the assessee has made investment for business expediency to promote the business of its subsidiary, the interest paid thereon has to be allowed and as such, AO as well as CIT (A) have erred in making disallowance of assessee’s claim of deduction on account of interest on prorata basis - Decided in favour of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee declared total loss of ₹ 36.33 crores as compared to ₹ 37.72 crores in the immediately preceding year. The AO disallowed the expenditure claimed by the assessee on account of interest paid amounting to ₹ 48,08,518/- on the ground that assessee has utilized its interest bearing funds to advance loans to its subsidiary companies which has also been affirmed by the CIT (A). 4. The assessee carried the matter before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal. 5. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 6. The ld. AR for the assessee challenging the impugned order contended that AO as well as CIT (A) have erred in disallowing the depreciation of goodwill amounting to ₹ 126,56,250/- u/s 32 of the Act and relied upon the order passed by ITAT, Delhi Bench A , New Delhi in case cited as ACIT, Circle 2 (1), New Delhi vs. Bharti Teletech Ltd. in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion `any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). In the circumstances, we are of the view that `Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 11. Following the law laid down by the Hon ble Apex Court, we are of the considered view that when the AO has not disputed the fact that the assessee has no goodwill to claim the depreciation, disallowance made by the AO and affirmed by the CIT (A) is not sustainable in the eyes of law. Moreover, in assessee s own case qua the AYs 2008-09 and 2009-10, the coordinate Bench of the Tribunal in Bharti Teletech Ltd. (supra) has already held that the assessee is entitled to claim depreciation on goodwill which is an asset u/s Explanation (3b) to section 32(1) of the Act. Consequently, ground no.1 is determined in favour of the assessee. GROUND NO.2 12. Assessee claimed expenditure to the tune of ₹ 91,40,242/- out of which AO has disallowed an amount of ₹ 48,08,518/- on account of interest on prorata basis. 13. Undisputedly, assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Explosive 147 ITR 392, Woolcom Bers 134 ITR 219 and British Paints 190 ITR 196. The appellant has also submitted that except for payment of interest to Bharti enterprises all other interest was paid on secured loans as well as against overdraft facilities. According to the appellant it was also in the business of advancing and that it had earned income by way of interest in preceding previous years which were offered to tax. The appellant has harped on the ground that the amount advanced to subsidiary was out of mixed funds and hence no disallowance should be made. 4.3 I have gone through the contention of the appellant and do not find any merit in its case. It is well settled now that onus lies with assessee to prove its claim with cogent material whereas in the instant case the appellant has not produced any evidence to prove that interest free funds were only used for advancing money to Bharti Infotrac Limited. Further appellant's argument that it was investing in subsidiaries to harmonize its business activities and therefore amount invested in subsidiaries should be treated as for business purpose can also not be accepted for the reason that appellant has fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC )],if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial 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 ratio of Madhav Prasad Jatia's case [1979 (118) ITR 100 (SC)] is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under section 36(1)(iii) of the Act. 29. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. 30. It has been repeatedly held by this court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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