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M/s SAMTEL GLASS LIMITED Versus ACIT, CIRCLE-7 (1) , NEW DELHI

2017 (3) TMI 318 - ITAT DELHI

Addition of notional interest on account of interest free loan given to subsidiary - Held that:- Facts and circumstances of the present case are exactly similar and identical to the assessment years 2010-11 & 2012-13, hence, the addition in dispute needs to be deleted. We also find that in the case of CIT vs. Dalmia Cement Bharat Ltd. [2009 (7) TMI 45 - DELHI HIGH COURT ] has held that “In the absence of anything to show that the interest free loan given by the assessee company to its subsidiary .....

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HI, ACCOUNTANT MEMBER For The Assessee : SH. D.C. GARG, CA For The Department : SMT. SHAVETA NAKRA DUTTA, SR. DR ORDER PER H.S. SIDHU, JM The Assessee has filed the Appeal against the impugned Order dated 2.12.2013 of Ld. CIT(A)-X, New Delhi pertaining to assessment year 2009-10. The assessee has taken the following grounds:- 1. That the Ld. CIT(A), New Delhi, has erred in law as well as on facts and in circumstances of the case in upholding the disallowance of ₹ 1,60,95,995/- out of inter .....

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of income declaring income of ₹ 4,91,90,884/- before set off of unabsorbed depreciation for AY 2002-03 and NIL income after partial set off of unabsorbed depreciation was filed on 29.9.2009 through E-filing. The case was processed u/s. 143 (1) of the I.T. Act, 1961 and selected for scrutiny assessment through CASS. Notice under section 143(2) of the I.T. Act, 1961 was issued on 18.8.2010. Thereafter notices u/s. 142(1) of the I.T. Act alongwith the detailed questionnaire were issued from t .....

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n why the interest payments made should not be disallowed in view of the interest free advances given to a sister concern. The AO has considered the reply of the assessee and has come to the conclusion that he assessee was not able to show that the interest free loan to the subsidiary company had been given out of the internal accrual and that the interest bearing funds have not been used for this purposes. The AO further observed that since the assessee is bearing interest cost @14%, to the ext .....

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the Tribunal. 5. At the time of hearing, Ld. Counsel of the assessee has filed the written Synopsis, the contents thereof read as under:- It is respectfully submitted before Hon'ble Bench that: 2. The appellant is a public limited company engaged in the business of manufacture and sales of glass shells and funnels used in color television picture tubes. This appeal is preferred against confirmation by the CIT(A) of the addition amounting to ₹ 1,60,95,995/- made by the Assessing Office .....

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tion, M/s Palka Investment Pvt. Ltd. became subsidiary of the appellant company which is evident from the financial statement of the appellant (Schedule - 5 'Investments' and copy of 'resolution' dated 18-08-2008). 4. On becoming of its subsidiary on 04-07-2008, for business considerations, the appellant company converted its existing loan of ₹ 13,44,00,000/- to interest free loan and granted further interest free loan amounting to ₹ 3,15,00,000/- to M/s Palka Investm .....

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he appellant is maintaining a bank account with common funds in which all the deposits and withdrawals were made. 7. The learned Assessing Officer calculated notional interest on presumptions without establishing any nexus between the funds procured and given to the subsidiary company. 8. There is no finding in the assessment order that the funds have been used for the personal benefit of the directors. 9. The Hon'ble Jurisdictional High Court in the matter of CIT Vs Dalmia Cement Bharat Ltd .....

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ompany." Copy of the decision is enclosed herewith at page no. 45 -50. 10. In another case of CIT Vs Bharti Televenture Ltd. [331 ITR 502] Hon'ble Jurisdictional High Court held that "Where the assessee was found to be having adequate non-interest bearing fund by way of share capital and reserves and there was no nexus between the borrowals of assessee and the advances given, no disallowance for interest was called for." Copy of the decision is enclosed herewith at page no. 51 .....

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ng with the term 'Commercial Expediency' held that Once it is established that there is nexus between the expenditure and the purpose of business, the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and to decide how much is reasonable expenditure having regard to the circumstances of the case. Copy of the decision is attached herewith at page no 36 - 44. 14. Hon'ble Hon'ble Supreme Court in the matte .....

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below. 7. We have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A), Written Synopsis. We find that the assessee is a public limited company engaged in the business of manufacture and sales of glass shells and funnels used in color television picture tubes. This appeal is preferred against confirmation by the CIT(A) of the addition amounting to ₹ 1,60,95,995/- made by the Assessing Officer as notional interest on account of interest fre .....

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evident from the financial statement of the appellant (Schedule - 5 'Investments' and copy of 'resolution' dated 18-08-2008). On becoming of its subsidiary on 04-07-2008, for business considerations, the assessee company converted its existing loan of ₹ 13,44,00,000/- to interest free loan and granted further interest free loan amounting to ₹ 3,15,00,000/- to M/s Palka Investment Pvt. Ltd. The loans given to M/s Palka Investment Pvt Ltd. were out of internal accruals .....

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sessing Officer calculated notional interest on presumptions without establishing any nexus between the funds procured and given to the subsidiary company. There is no finding in the assessment order that the funds have been used for the personal benefit of the directors. 7.2 We further find that in Assessee's own case, in the next Assessment Year i.e in AY 2010-11, the CIT(A) has deleted the same addition vide order dated 17-02-2015 by holding as under:- 4.2 I have consider the assessment o .....

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unt borrowed on interest. Hon ble Delhi High Court in the case of CIT vs. Dalmia Cement Bharat Ltd. 330 ITR 595 held that In the absence of anything to show that the interest free loan given by the assessee company to its subsidiary company was for personal benefit of any director or for any other personal reasons, it has to be held that the loan was given for the purposes of business and commercial expediency and, therefore, no portion of the interest paid by the assessee on its borrowed funds .....

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