TMI Blog2021 (9) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... any used the same funds to advance to the related parties from year to year as seen from its annual accounts reproduced in earlier para. Being so, the CIT(Appeals) rightly held that the assessee company and subsidiary are in two different business being land development construction and hospitality and the assessee has not been able to establish any business advantage derived by the assessee by advancing such loan to Amethyst Hospitality (P) Ltd. - CIT(Appeals) is justified in sustaining the addition made by the AO by invoking the provisions of section 36(1)(iii) of the Act.- Decided against assessee. - ITA No. 314/Bang/2019 - - - Dated:- 7-9-2021 - Chandra Poojari, Member (A) And Beena Pillai, Member (J) For the Appellant : N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 6. The Ld. CIT(A) and the Ld. Assessing Officer has failed to comprehend the fact that the Appellant had advanced interest free loans to its subsidiary, Amethyst Hospitality (P) Ltd., on the grounds of commercial expediency and the same was utilized by Amethyst Hospitality (P) Ltd for their business operations. 7. The Ld. CIT(A) and the Ld. Assessing Officer has failed to appreciate the fact that the transaction was in the nature of shareholders' activity or stewardship activities. 8. The Ld. CIT(A) erred in upholding the levy of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction' and hospitality done by the other company. In such circumstances, the payment of interest by the assessee on loans which were utilized by its subsidiaries for some other unrelated field of business is not allowable as per AO. 3. On appeal, the CIT(Appeals) observed that as per the facts on record by the AO vis- -vis the proposition of law laid down by the Supreme Court in Dalmia's case that since the sister concern was a subsidiary and the assessee company being the holding company had interest in its subsidiary, hence the loan advanced to subsidiary was out of commercial expediency. From the perusal of the balance sheet, he found that there was increase in loans and fixed assets, therefore it could not be said that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospitality (P) Ltd. and ₹ 6.9 crores to Davanam Constructions Sdn Bhd, Malaysia. With regard to amount advanced to the subsidiary, Davanam Constructions, the AO allowed the interest on loan holding that there was commercial expediency. However, with regard to the amount advanced to Amethyst Hospitality (P) Ltd. which is in hospitality business the AO observed that there was no connection between assessee's business of land development and construction and the hospitality business done by the subsidiary, as such payment of interest such loan was disallowed by the AO and the CIT(Appeals). We have carefully gone through the financial statements of M/s. Amethyst Hospitality (P) Ltd. for the year ended 31.3.2013 at page 282 of PB which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation, but it is allowable as business expenditure, if it was incurred on grounds of commercial expediency. Thus, whether the business funds was diverted for interest free loans to subsidiaries, the main criterion for allowability of those funds are based on whether it was on grounds of commercial expediency or not. The phrase commercial expediency has following important trites as established by this case law (supra):- (1) Such purpose as is expected by the assessee to advance for its business purpose. (2) Measures taken for preservation, protection or advancement of its business expenditure. (3) To be distinct from the personal interest of its directors or partners, as the case may be. (4) There has to be nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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