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TMI Blog2022 (2) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... right in deleting the addition made under s. 36(1)(iii) without appreciating the fact that the investments made in the shares of M/s. Baramati Tollways (P) Ltd. is out of borrowed funds and the assessee has failed to prove commercial expediency." 2.1. To adjudicate on this grievance, only a few material facts need to be taken note of. The assessee before us is a company engaged in the business of toll collection and repairs and maintenance of the roads. During the course of the scrutiny assessment proceedings the AO noted that the assessee has huge borrowings out of which he made investment in equity capital of M/s. Baramati Tollways (P) Ltd. The AO was of the view that "considering that there are no business activity in the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 36(1)(iii) of IT Act, 1961, the same is not applicable in the case of assessee. There is business purpose and as noticed from the books of account there are no revenues accruing to the assessee. Hence, to say that this investment was to advance some business interest is untenable. The High Court of Delhi, in the case of Punjab Stainless Steel Inds. vs. CIT & Anr. (2010) 41 DTR (Del) 88 : (2010) 324 ITR 396 (Del), has further elaborated "The commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in a subsidiary firm was for the purpose of business, interest cost attributable to this investment is hence disallowed under section 36(1)(iii). [Addition of Rs. 4,47,93,169 Under section 36(1)(iii)]" 3. Aggrieved by the stand so taken by the learned CIT (sic-AO) assessee carried the matter in appeal before the learned CIT(A). The disallowance was deleted by the learned CIT(A) on the basis of the reasoning as set out below: "4.3 I have very carefully considered the facts of the case, the findings of the AO and the submissions made by the appellant. The appellant is a private limited company engaged in business of toll collection, repairs and maintenance of roads. Admittedly, the appellant has no operational revenues for the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry also seems to be in business of toll ways. It is a fact that being a holding company it gains control over the subsidiary with investment in shares of the subsidiary. Viewed from this perspective, it can be seen that the holding company has made investment in furtherance of its business interest. When both the holding company and subsidiary are in the business of toll collection, such an investment is a strategic investment to wrest control over the subsidiary. The immediate advantage derived may not be in money terms; wresting control over the board of directors of the subsidiary is an advantage in itself in furtherance of business interest of the holding company especially when both the holding and subsidiary are in same line of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to establish nexus between the borrowing and advancing to prove that expenditure was for non-business purpose which AO failed to do. The Hon'ble Supreme Court has also cited from the judgment of the Delhi High Court in CIT vs. Dalmia Cement (Bharat) Ltd. (2002) 174 CTR (Del) 188 : (2002) 254 ITR 377 (Del) and agreed with the view that once it is established there is nexus between expenditure and purpose of business (which need not necessarily be business of assessee itself), the test of commercial expediency is satisfied. In view of the facts of the case and the judicial precedents, investment in its subsidiary company by the appellant was out of commercial expediency. Therefore, interest expenditure of Rs. 4,47,93,169 is allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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