TMI Blog2022 (4) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... e business, which need not necessarily be the business of the assessee itself, revenue could not disallow the claim assuming what was reasonable. Assessee is successful in establishing that there was sufficient cash generation to make the aforesaid investments. In fact, overall interest free loans have reduced from ₹ 3605.38 Lacs to ₹ 3337.22 Lacs during the year. As against this, there was sufficient cash generation to source this investment. Therefore, as per the ratio of Hon ble Supreme Court in the case of CIT V/s Reliance Industries Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] it could be presumed that the investments were made from interest free funds available with the assessee. the assessee has sufficient cash generation to advance loans. In the present case, the loans have been advanced in furtherance of assessee s business interest and the assessee has sufficient cash generation to fund those advances. These facts have already been noted by us in the preceding paragraphs. - Decided against revenue. - ITA No.3437/Chny/2019 And ITA No.3438/Chny/2019 - - - Dated:- 1-4-2022 - Hon ble Shri Mahavir Singh, Vice President And Hon ble Shri Manoj Kumar Aggarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,70,52,088/-, as relatable to interest free loans granted by the assessee to its subsidiary. 21. Before us, the ld. Departmental Representative submitted that assessee could not show commercial expediency for the loans given to its subsidiaries. As per ld. Departmental Representative, the assessee had borrowed ₹ 43,860/- lakhs of which it had given free interest loan of ₹ 3,379/- lakhs. Ld. Departmental Representative submitted that interest of ₹ 2,958/- lakhs was paid by the assessee on the loans taken by it. As per ld. Departmental Representative the amount of interest free loans were utilized by Sundaram Fasteners Investment Ltd (SFIL) which in turn gave loans to certain other companies. Thus, as per ld. Departmental Representative assessee could not demonstrate how the loans given were commercially expedient. 22. Per contra, the ld. Authorised Representative supported the orders of the Commissioner of Income Tax (Appeals) and submitted that by virtue of judgment of Apex Court in the case of S.A. Builders Ltd vs. CIT (A) and Another (2007) 288 ITR 1(SC) loans given to subsidiary were always deemed commercial expedient. According to him, M/s. SFIL was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as given by assessee to SFIL were further utilized by SFIL to grant loans to other entities. Therefore, the test of commercial expediency was not satisfied since the receiver did not utilize the loan for its business purposes. The assessee also failed to prove that the advances were given out of non-interest- bearing funds. Finally, the interest of ₹ 270.52 Lacs as computed in the original assessment proceedings was again disallowed and added back to the income of the assessee. Appellate Proceedings 5.1 During appellate proceedings, drawing attention to submissions as made during original assessment proceedings, the assessee submitted that loans were advanced out of own funds and it was in furtherance of its own business interest. The loans were advanced out of commercial expediency and the same were advanced out of sufficient cash generation available with the assessee. 5.2 The attention was also drawn to the fact that SFIL was wholly owned subsidiary of the assessee and was incorporated as on investment arm of the assessee. As an investment company, it promoted new ventures and made investments on behalf of the assessee, granted loans and acquired shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport SFIL by granting loans for furtherance of its own business interest and therefore, the test of commercial expediency was duly satisfied. 5.4 As per tabulation, the opening interest free loans as granted to SFIL were ₹ 3605.38 Lacs and fresh loan of ₹ 497.35 Lacs were granted to this entity during the year. However, there was repayment of loans of ₹ 765.51 Lacs and the closing balance of loans stood at ₹ 3337.22 Lacs. The assessee also submitted that it had sufficient cash generation and net worth to grant interest free loans during AY 2005-06 in which the loans were granted. As per the Annual Report for AY 2005- 06, the assessee generated funds of ₹ 6895 Lacs. Accordingly, the assessee relied on various decisions including the decision of Hon ble Supreme Court in the case of CIT V/s S.A.Builders (288 ITR 1), the decision of Hon ble Madras High Court in CIT V/s Hotel Savera (239 ITR 795) and the decision of Hon ble Bombay High Court in CIT V/s Reliance Utilities (313 ITR 340) in support of various arguments. 5.5 The Ld. CIT(A), after due consideration of factual matrix, noted that this issue was recurring in nature. In AYs 2003-04 and 2005-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced to M/s Upasana Engineering Ltd. which is in the same line of business as that of assessee. A part of the loans and equity investments have been made in M/s TVS Infotech Ltd. which facilitated IT operations for the assessee. The earlier loans as granted to M/s SFZL were utilized to expand overseas market. It is also an undisputed fact that all these entities generated dividend and the assessee was benefitted by way of dividend, capital appreciation and ease of operations. Thus the test of commercial expediency, in our opinion, was duly satisfied by the assessee. It could be said that the investments were made in furtherance of business interest and the ratio of decision of Hon ble Supreme Court in the case of CIT V/s S.A. Builders (288 ITR 1) would favor the case of the assessee. In this decision, it was held that once nexus was established between the expenditure and the purpose of the business, which need not necessarily be the business of the assessee itself, revenue could not disallow the claim assuming what was reasonable. 10. Another aspect of the matter is that the assessee is successful in establishing that there was sufficient cash generation to make the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the assessee has sufficient cash generation to fund those advances. These facts have already been noted by us in the preceding paragraphs. 12. Lastly, we find that similar issue stood covered in assessee s favor by the decision of this Tribunal for AYs 2003-04 2005-06, ITA Nos.956/Mds/2011 ors. order dated 15.07.2016. Nothing has been shown to us that the aforesaid order has been reversed by any judicial authority, in any manner or the ratio of the same is not applicable to the facts of this year. 13. In view of the foregoing, the impugned order would not require any interference on our part. By confirming the stand of Ld. CIT(A), we dismiss the appeal. Appeal for AY 2007-08 14. It is undisputed position that similar are the facts in AY 2007-08. The Ld. AO has repeated interest disallowance of ₹ 230.92 Lacs on similar reasoning. However, the Ld. CIT(A), on similar findings, has deleted the additions. Aggrieved, the revenue is in further appeal before us. 15. Since facts as well as issue is similar in this year, our findings as well as adjudication as for AY 2006-07 shall mutatis mutandis apply to this year also. Resultantly, the appeal stands dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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