2016 (10) TMI 1258 - AT - Income Tax

Disallowance u/s.36(1)(iii) - interest made on account of borrowed funds utilized for investment in subsidiary company - HELD THAT - Equity shares of the subsidiary company i.e DIC Coatings India Ltd were acquired pursuant to sale of coating business by the assesse in terms of a scheme of arrangement approved by Hon ble Calcutta High Court. CIT-A examined the facts of the order passed by the CIT-A for A.Y 2005-06 and found satisfied that the facts involved therein in the first appellate order for AY 2005-06 is one and same to the facts of case the year under consideration. Further, the CIT-A found that the assessee invested only in its wholly owned subsidiary DIC Coating lndia Limited which was acquired in 1997 in terms of the scheme approved by the Hon ble High Court of Calcutta. Undisputedly, the Revenue did not carry the first appellate order for A.Y 2005-06 in appeal to the higher forums having jurisdiction. No infirmity in the order impugned before us and the said order passed by the CIT-A is justified in deleting the disallowance of interest made on account of borrowed funds u/s. 36(1)(iii) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of addition under section 36(1)(iii).
2. Disallowance of interest paid on borrowed fund utilized for investment in subsidiary company.
3. Deletion of factual finding made by the AO based on available records.

Analysis:
1. The Revenue challenged the deletion of an addition under section 36(1)(iii) by the CIT(A). The AO disallowed interest on investment in a subsidiary company, stating it was not for business purposes. The assessee argued the investment was made from own funds. The CIT(A) referred to a previous order for AY 2005-06 where it was held that no borrowed funds were used for the investment. The shares were acquired as part of a scheme approved by the High Court. The CIT(A) deleted the addition based on these findings, which were upheld by the ITAT.

2. The Revenue contested the deletion of interest paid on borrowed funds used for investment in the subsidiary company. The CIT(A) found that the investment was made from own funds and not interest-bearing funds. The shares were acquired as part of a scheme approved by the High Court. The CIT(A) relied on the findings of the previous year's order and deleted the disallowance of interest. The ITAT upheld the CIT(A)'s decision, noting that the facts were the same as in the previous year.

3. The Revenue raised an issue regarding the deletion of a factual finding made by the AO. The CIT(A) based the decision on the previous year's order and found that no borrowed funds were used for the investment in the subsidiary company. The ITAT upheld the CIT(A)'s decision, stating that the facts were consistent with the previous year's findings. The appeal by the Revenue was dismissed, and the CIT(A)'s order was confirmed.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the additions and disallowances made by the AO, as the investment in the subsidiary company was found to be made from own funds and not from borrowed funds. The ITAT found no infirmity in the CIT(A)'s order and dismissed the appeal filed by the Revenue.