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DCIT, Circle-1 (1) , Panaji Versus M/s. V.S. Dempo Holding Pvt. Ltd.

2015 (7) TMI 1102 - ITAT PANAJI

Addition on account of finance charges/interest on borrowed funds - whether assessee could not prove with evidence at the time of assessment that the borrowed funds are wholly exclusively used for business purpose or diverted to give interest free advance to sister concern - Held that:- The assessee purchased non-convertible debentures of ETHL Communications Series-A on 11/02/2010 being 171 number of units of face value of ₹ 10,00,000/- and deal value of ₹ 15,09,93,000/-. Thus, it is .....

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Held that:- We find that the Commissioner of Income Tax (Appeals) has observed that the assessee had given interest free advances to its subsidiaries in its business requirements. He placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT-7 Vs. Reliance Communications [2012 (5) TMI 160 - BOMBAY HIGH COURT ] and has held that where interest free borrowed funds are advanced as interest free loans to its subsidiaries for business expediency, the interest cannot be disall .....

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he Revenue: Shri S. Nataraj -DR O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER This is an appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals), Panaji, dated 21/11/2014. 2. Ground Nos. 1, 4 & 5 are general in nature, hence, requires no adjudication by us. 3. Ground No.2 of the appeal is directed against the order of the Commissioner of Income Tax (Appeals) deleting the addition of ₹ 70,93,991/- on account of finance charges/interest on borrowed funds whic .....

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ssee company has not proved whether the borrowed funds are wholly and exclusively used for business purpose or diverted to giving of interest free advances to sister concerns. Therefore, the entire interest of ₹ 70,93,991/- was disallowed by the Assessing Officer. 5. On appeal, Commissioner of Income Tax (Appeals) held that the Assessing Officer has made disallowance only because the interest free loans have been advanced to sister concerns without making any efforts to find whether the lo .....

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tive of the assessee supported the order of the Commissioner of Income Tax (Appeals). She also filed before us a copy of letter dated 05/02/2010 from Deutsche Bank confirming the loan advance to the assessee of ₹ 9,80,13,000/- for purchasing debentures. 8. We find from the aforesaid letter that the assessee purchased non-convertible debentures of ETHL Communications Series-A on 11/02/2010 being 171 number of units of face value of ₹ 10,00,000/- and deal value of ₹ 15,09,93,000/ .....

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re with the order of the Commissioner of Income Tax (Appeals) which is hereby confirmed and the ground of appeal of the Revenue is dismissed. 9. Ground No.3 of the appeal is directed against the order of Commissioner of Income Tax (Appeals) deleting the addition of ₹ 15,37,40,627/- made on account of interest free loans advanced to the sister concerns. 10. Brief facts of the case are that the Assessing Officer observed that the assessee has advanced interest free loans of ₹ 1,32,31,0 .....

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at the assessee advanced interest free loans of about ₹ 132,31,09,867/- to its subsidiaries. He felt that even if this amount was deposited in Banks, the assessee would have earned interest amounting to ₹ 15,37,40,627/- @ 12% per annum. The A.O. concluded that the assessee had advanced this loan to its subsidiaries, free of interest, because it wanted to save taxes on the income that would have arisen. The A.O. made addition of notional income, which never arose or accrued to the ass .....

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ng company and has major stakes in its subsidiaries. The sources of subsidiaries, income are not interest. The appellant company has its own reserves in excess• of 1000 crores. Giving loans to its subsidiaries is its business requirement. The appellant placed reliance on the decision of Hon. Bombay High Court in the case of CIT-7 Vs. Reliance Communications in Appeal No.3 155 of 2009 and delivered on 28.03.2012. In this case, the Hon. High Court of Bombay relied on the decision of Hon Supre .....

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istent with the judgment of the Supreme Court in S. A. Builders. Where the assessee, as in the present case, has significant interest in the business of the subsidiary and utilizes even borrowed money for furthering its business connection, there is no reason or justification to make a disallowance in respect of the deduction which is otherwise available under section 36(1)(iii). Counsel appearing on behalf of the Revenue submits that there is a distinction between an advance, which is a payment .....

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e. RIL in turn was to execute counter guarantees in favour of financial institution for the benefit of the discharge of the EPCG obligations by the asses see. That was a security for the guarantees which those institutions were required to execute under the EPCG Scheme. The funds which were invested in the wholly owned subsidiary were again for the purposes of the business of the assessee. There is evidently a significant interest of the assessee in the business of its subsidiary since both the .....

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of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or, as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists . - Thus, the Hon. Supreme Court and Hon. Bombay High Court decided that even if interest free borrowed funds are advanced as interest free l .....

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d Representative of the assessee supported the order of the Commissioner of Income Tax (Appeals). 14 We find that the Commissioner of Income Tax (Appeals) has observed that the assessee had given interest free advances to its subsidiaries in its business requirements. He placed reliance on the decision of the Hon ble Bombay High Court in the case of CIT-7 Vs. Reliance Communications in Appeal No. 3155/2009 dated 28/03/2012 and has held that where interest free borrowed funds are advanced as inte .....

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