TMI Blog2019 (8) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... roves that the transactions entered by the concern are for commercial expediency and in the regular course of business. No inconsistency in the order of Ld. CIT(A) deleting the addition of notional interest made - Decided in favour of assessee. - ITA Nos.329 And 330/Ind/2017 - - - Dated:- 21-8-2019 - Kul Bharat, Judicial Member And Manish Borad, Accountant Member For the Assessee : S/Shri Ronak Doshi Rajiv Garg, ARs For the Revenue : Smt. Ashima Gupta, CIT ORDER PER MANISH BORAD, AM. The above captioned appeals of revenue pertaining to Assessment Year 2004-05 2005-06 are directed against the orders of Ld. Commissioner of Income Tax (Appeals), Ujjain (in short CIT(A) ), dated 17.02.2017, which is arising out of order u/s 143(3) r.w.s. 254 of the Income Tax Act (In short the Act ) dated 11.03.2013 framed by DCIT-2(1), Ujjain. 2. Brief facts of the case as culled out from the records are that the assessee is a non banking financial company engaged in long term investments in shares, securities etc and giving/taking loans from/to body corporate. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest. The matter is covered under the exception as mention in para 8(c ) of Circular 21/2015 4. At the outset both the Ld. Counsel for the assessee and Ld. Departmental Representative agreed that the issues as well as facts raised in both the appeals are same. We therefore proceed to adjudicate the grounds for Assessment Year 2004-05 and our decision shall apply mutandis mutandis on the issues raised by the revenue for Assessment Year 2005-06. 5. Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O and submitted that the assessee took loan from various financial institutions and advanced it in the form of loan and investment only to its sister/group concerns and the assessee failed to advance any explanation to show that such loans were given for business purposes to the sister concerns. 6. On the other hand Ld. Counsel for the assessee along with relying on the submissions filed before Ld. CIT(A) and finding of the Ld. CIT(A) also placed reliance on the decision of Hon'ble Apex Court in the case of S.A. Builders Ltd V/s CIT(A), Chandigarh (2007) 158 Taxman 74(SC) conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ₹ 3 ,56,46,484/-. 4.1.1 The Hon'ble Supreme Court while deciding the case of S.A. Builders dealt with the issue that the appellant has borrowed the fund from the bank and lent it to its sister concern on interest free loan. The test in such a case is really whether this was done as a measure of commercial expediency. It has been held by Hon'ble Supreme Court that where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. Interest on borrowed funds cannot be disallowed if the assessee has advanced interest-free loan to a sister concern as a measure of commercial expediency; what is to be seen is business purpose and what the sister-concern did with the money advanced. In this connection we may refer to s.36( 1 )(iii) of the I.T. Act, 1961 (hereinafter referred to as the' Act') which states that the amount of the interest paid in respect of capital borrowed for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6- 07, dated 29-04-2008 and as discussed above, the AO is not justified in making the addition. The AO himself allowed the relief of Rs.l,14,08,4811- while giving the appeal affect of ITAT's order against miscellaneous application no.121/Ind/2012, dated 16.04.2013. Therefore, the remaining addition made by the AO amounting to ₹ 3,56,46,484/- (₹ 4,70,54,965/- - ₹ 1,14,08,481/-) is deleted. Therefore, the appeal on these grounds is allowed . 8. From perusal of the finding of Ld. CIT(A) and on the examining the facts of the case we find that there is not much difference in the interest rate paid by the assessee on the loan taken vis-a-vis interest charged to the loans and advance given to sister/group concerns. One of such incidence is that assessee has received interest from Birla Global Financial Ltd for a short period @14% and has also received interest @6.5% from Birla TMT Holding Pvt. Ltd. In the same year assessee has obtained loan from Infrastructure Leasing Finance Ltd @6.3%. So the allegation of the Ld. A.O that lower interest rate is charged and higher interest rate is paid is devoid of any merit and therefore the addition for notion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but that has not been done. 31. It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest-free loan to its sister-concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister-concern as a measure of commercial expediency. 32. Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom) in which it was held that deduction under s. 36(1)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. 36. In view of the above, we allow these appeals and set aside the impugned judgments of the High Court, the Tribunal and other authorities and remand the matter to the Tribunal for a fresh decision, in accordance with law and in the light of the observations made above. 10. From perusal of the judgment of Hon'ble Supreme Court in the case of S.A. Builders Ltd. (Supra) and the facts placed before us in the instant appeal, we understand that merely giving loans and advances or making investment in the group/sister concerns per se will not make the transaction out of the field of commercial expediency . What needs to be examined is that the fund which have been advanced have been given for business purposes or not. The assessee in the instant appeal is a non banking financing company (NBFC) registered with its object of taking loans and advancing loans for earning interest or other income from investments. In both the years in appeal the assessee has taken loans from financial i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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