TMI Blog2022 (2) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO to disallow proportionate interest expenses for the simple reason that once it is an established fact that there is a business connection between the assessee and its groups/subsidiary companies, then merely for the reason that the assessee has not charged any interest on loans and advances given to those groups/subsidiary companies, interest paid on borrowed money, cannot be disallowed u/s. 36(1)(iii). It is a well-established principles of law that when there is a business expediency, then the assessee is at liberty to deal with its finance in accordance with its business requirements. AO cannot sit in arms chair of the businessman to decide its business affairs and direct how to deploy its funds. As long as the assessee esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondents : A.R.V. Sreenivasan, Addl. CIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-6, Chennai, dated 28.12.2017 and pertains to AY 2014-15. 2. The assessee has raised the following grounds of appeal: 1. The order of the learned CIT (Appeals) in as much as it confirms the disallowance of ₹ 73,05,596/- is erroneous and opposed to law and the facts of the case. 2. The learned. CIT (Appeals) erred in ignoring the feet that the loan was given to the appellant company's wholly owned subsidiary which is engaged in similar line of business and the loan was given out of considerations of comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice of Effluent Water Treatment Plants, filed return of income for the AY 2014-15 on 29.11.2014 declaring a total income of ₹ 1,18,90,850/-. During the course of assessment proceedings, the AO noticed that the assessee company had paid interest on various loans and advances. It was further noticed that the assessee company had also advanced loans and advances to groups/subsidiary companies, but not charged any interest on such loans. Therefore, the AO called upon the assessee to explain, as to why, interest paid on loans, cannot be disallowed u/s. 36(1)(iii) of the Act for diversion of interest bearing funds for non-business purpose. In response, the assessee submitted that the company has advanced loans and advances to groups/subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2015] 379 ITR 347 (SC) and argued that loans and advances given to groups/subsidiary companies in the course of normal business of the assessee, cannot be considered as diversion of funds for non-business purpose to disallow interest u/s. 36(1)(iii) of the Act. The Ld.CIT(A) after considering the relevant submissions of the assessee, rejected arguments of the assessee and uphold the findings of the AO towards addition made for disallowance of interest u/s. 36(1)(iii) of the Act for diversion of borrowed funds for non-business purpose to sister concern by holding that there is no rationale to advance huge interest free funds to the sister concern when assessee itself is incurring huge interest expenses to help those groups/subsidiary compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .DR, on the other hand, submitted that the AO as well as the Ld.CIT(A) brought out clear facts to the effect that the assessee had advanced loans to groups/subsidiary companies without charging any interest and at the same time, the assessee had paid huge interest expenses on loans and advances taken from Banks. Therefore, there is no error in the reasons given by the AO to disallow proportionate interest expenses u/s. 36(1)(iii) of the Act for diversion of interest bearing funds for non-business purpose. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The solitary issue that needs to be resolved in the given facts and circumstances of the case is whether loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenses u/s. 36(1)(iii) of the Act merely for the reason that no interest has been charged on loans and advances given to groups/subsidiary companies. In this case, the assessee had filed necessary evidences to prove that there is a business connection between the assessee and the company to whom loans and advances were given. Therefore, we are of the considered view that once it is an established fact that there is a commercial expediency, no interest can be disallowed u/s. 36(1)(iii) of the Act. 8. Be that as it may. We further noticed that the assessee has placed all evidences to prove that interest free loans given to groups/subsidiary companies is out of interest free funds available with the assessee at the relevant point of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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