TMI Blog2023 (12) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... r statistical purposes. Allowability of deduction u/s 36(1)(vii) - interest free loans to subsidiary companies - Assessee contended that when there are funds available, both interest free or loan taken, then a presumption would arise that investments would be out of interest free funds generated or available with the company provided said funds are sufficient to meet investments - HELD THAT:- Primarily questioning the commercial expediency of interest free loans allowability of deduction u/s 36(1)(vii) of the Act was examined. However, it transpires from record and as discussed above the assessee had sufficient surplus funds and had raised capital during the year by issuance of shares. Thus, merely because the assessee had also raised loans or paid interest against loans that does not justify the disallowance. The investment in subsidiary and related entities has to be made for commercial purpose to earn future profits. It is not the case of revenue that investment were made in any entity not having any nexus with the principal object of assessee company. The judgment of South Indian Bank Ltd. vs. Commercial of Income Tax [ 2021 (9) TMI 566 - SUPREME COURT] also comes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following formula- AXB/C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (1) incurred during the previous year B= the average of value of investment, Income from which does not or shall not form part of the total income appearing in the balance sheet of the assessee, on the last day and the last day of the previous year C= the average value of total assets (Current Assets net of the investments so made) as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. Out of interest paid A*B/C A= 23,43,07,375/- B=1,19,85,30,621/- C=4,85,87,34,059/- A*B/C=Rs. 5,77,97,887/- Hence, disallowance = Rs. 5,77,97,887/- 3. An amount equal to on-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. % of average investment of Rs. 1,19,85,30,621/- =Rs. 59,92,653/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals) has further erred in sustaining the said disallowance by ignoring the replies/ evidences furnished by the assessee appellant and the learned CIT (A) has sustained the said disallowance on irrelevant and extraneous considerations without there being any adverse material and evidence and purely on surmises and conjectures as such disallowance made is wholly untenable on facts and in law. 3. That the learned Commissioner of Income Tax (Appeals) has further grossly erred in relying on the judgments and statutory provisions totally inapplicable to the facts of the case of the appellant company. 4. That the appellant reserve the right to add, amend, alters delete any/ all grounds of appeal either before or at the time of the hearing of the appeal. 4. Heard and perused the record. The ground wise findings are as below. 5. Ground no. 1; 1.1 and 1.2; On behalf of the assessee it was submitted that the assessee had made a suo moto disallowance u/s 14A of the Act and without recording any satisfaction note the ld. AO made disallowance u/s 14A. Ld. Counsel relied judgment of Hon ble Supreme Court of India in Maxopp Investment Ltd. vs. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined fry The AO. 6.1 In the case in hand also as observed and discussed above the tax authorities below have not at all taken into consideration the fact of suo moto disallowances and giving any reasons for not accepting the same. 7. Further in assessee s own case for the assessment year 2010-11 the Ld. AO had made disallowance u/s 14A and Ld. First Appellate Authority had restricted the disallowance by not applying Rule 8D(2)(ii) of the Rules which was confirmed by the Tribunal. Then by order dated 23.03.2018 Hon ble Delhi High Court, in ITA no. 352/2018 had passed following orders:- Questioning the concurrent findings of the lower Appellate Authorities, the Revenue urges that the disallowance under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no legal obligation incurred the expenses. 10. Ld. Sr. DR however submitted that the orders passed are on merits and the assessee was unable to cite business exigencies requiring the landing of such huge amounts without interest. 11. In this context, it can be observed that from the paper book that the copy of balance sheet as on 31st March, 2013 at page no. 9 of the paper book reflects that on 31st March, 2012 reserve and surplus stood at 3,614,09,442/- on March 31, 2013 there were Rs. 299,28,41,397/-. The assessee had come with the case before Ld. Tax Authorities below as reflected in para no. 4.3.3.2 in the order of Ld. CIT(A) that assessee company had not utilized any borrowed funds for loans and advances of Rs. 23.01 crores given to related parties, as during the year the assessee company had received a sum of Rs. 380.74 cr. against issuance of shares. The same is also reflected in the statement of increase in investments available at page no. 53 of the paper book. Thus, the assessee company has used reserve, surplus and a capital receipt against issuance of shares in loans and advances. 12. The ld. CIT(A) in para 4.3.3.3. observed that the assessee had to sat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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