TMI Blog2018 (5) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee invested its own funds for making interest free advances to the tune of ₹ 79 lacs in its subsidiary company and for making investments to the tune of ₹ 6.50 crores in its subsidiary companies to acquire controlling interest. See CIT v. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) and HDFC Bank [2014 (8) TMI 119 - BOMBAY HIGH COURT] - Decided in favour of assessee. - I.T.A. No.5946/Mum/2016 - - - Dated:- 9-5-2018 - SHRI C.N PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri PRV Raghvan For The Revenue : Shri Rajat Mittal (DR) ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 5946/Mum/2016 , is directed against appellate order dated 22.07.2016 passed by learned Commissioner of Income Tax (Appeals)-12, Mumbai (hereinafter called the CIT(A) ), for assessment year 2008-09, appellate proceedings had arisen before learned CIT(A) from assessment order dated 19-03-2015 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) r.w.s. 254 of the Income-tax Act, 1961 (hereinafter called the Act ) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) 12, Mumbai (the learned CIT(A)) has erred in law and on facts, at para 9 on page 6 of her Appellate Order, in stating that ...It is also not clear as to whether it was argued / explained before the AO or not. Hence, such argument cannot be relied on and accordingly I am respectfully following the order passed by my predecessor in earlier year. There, the ground of appeal no. 3 is dismissed. d. The Hon'ble Commissioner of Income-tax (Appeals) 12, Mumbai (the learned CIT(A)) has erred in law and on facts in not granting this ground when on the same footing she had granted your appellants grounds of appeal on disallowance u/s 14A in para 7 of her same Appellate order. 3. Relief / Praver: - In view of the aforestated factual and legal position, we humbly request Your Honours to - a. delete the above mentioned disallowances made by the ITO and confirmed by the CIT(A) in her Appellate Order dated July 22, 2016; and b. any other relief as Your Honours may deem fit and appropriate, may please be granted. Your Appellants crave, leave to add, to amend, to alter, to substitute, to modify and / or to withdraw any or all of the foregoing grounds of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies and the assessee could not prove commercial nexus or commercial expediency in advancing aforesaid interest free advances/making investments in the subsidiary companies. Since, there were interest bearing borrowings which were made by the assessee , it led to disallowance of interest expenditure on the grounds that mixed pool of funds were used for making interest free advances/investments in subsidiary companies, thus disallowance of interest expenditure stood to the tune of ₹ 2,38,580/- for interest free advances of ₹ 79 lacs made and disallowance of interest expenditure stood to the tune of ₹ 19,63,590/- for making investments to the tune of ₹ 650.19 lacs in its subsidiary companies . This disallowance was upheld by learned CIT(A). The tribunal in first round set aside to the file of the AO for fresh adjudication but the same position continued even in second round of litigation both before the AO as well learned CIT(A) and that s how the matter is before the Bench in second round of litigation. 6. The Ld. Counsel for the assessee at the outset drew our attention to the Balance Sheet of the assessee which is placed in paper book filed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as at 31-03-2007 stood increased to ₹ 74.80 crores as at 31-03-2008. Our attention was drawn to schedule of loan funds to show mainly all the loans are tied up towards working capital, packing credit for exports , vehicle loans , term loans and none of the loans were raised for making investments in subsidiary companies or for advancing money to these subsidiary companies. Our attention was drawn to the cash flow statement which is placed in paper book/page 228 to reflect that the assessee had earned net profits from operating activities. . The learned DR on the other hand relied upon the orders of the authorities below and it was submitted that no appeal was filed with ITAT for AY 2007-08 due to low tax effect. 7. We have considered rival contentions of both the parties and perused the material on record including case laws relied upon. We have observed that assessee is engaged in the business of manufacturing , trading and sale of water treatment plants, chemicals and related consumer products . We have observed that this is second round of litigation. The main controversy is w.r.t. disallowance by Revenue of interest expenses incurred by the assessee on the allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aggregate of interest free advances/investments in subsidiary companies which cumulatively stood at ₹ 7.29 crores as at 31-03-2008. There are no fresh advances/investments in subsidiary companies except minor amount of ₹ 6.10 lacs invested in subsidiary companies during financial year 2007-08 , while major enhancement to the tune of ₹ 177.06 lacs as is reflected in investment in subsidiary companies as at 31-03-2008 vis-a-vis 31-03-2007 was due to reversal of provisions to the tune of ₹ 177.06 lacs created in preceding year towards diminution in the value of investments. Thus, the advances/investments in subsidiary companies to the tune of ₹ 7.29 crores is a minor investment (less than 10%) vis-a-vis owned funds to the tune of ₹ 126.86 crores. Under these circumstances and factual matrix of the case as is detailed in extenso above, presumption shall apply that the assessee has invested its own interest free funds towards advancing money to its subsidiary company to the tune of ₹ 79 lacs as well for making investments in subsidiary companies to the tune of ₹ 6.50 crores and no disallowance of interest expenses are warranted. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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