2017 (3) TMI 318 - AT - Income Tax

Addition of notional interest on account of interest free loan given to subsidiary - Held that - Facts and circumstances of the present case are exactly similar and identical to the assessment years 2010-11 & 2012-13, hence, the addition in dispute needs to be deleted. We also find that in the case of CIT vs. Dalmia Cement Bharat Ltd. 2009 (7) TMI 45 - DELHI HIGH COURT has held that In the absence of anything to show that the interest free loan given by the assessee company to its subsidiary company was for personal benefit of any director or for any other personal reasons, it has to be held that the loan was given for the purposes of business and commercial expediency and, therefore, no portion of the interest paid by the assessee on its borrowed funds can be disallowed on the ground that a part thereof has been diverted to the subsidiary company. - Decided in favour of assessee.

Summary

Issues:
Disallowance of interest expenses in assessment year 2009-10.

Analysis:
The Assessee filed an appeal against the Ld. CIT(A)'s order upholding the disallowance of ?1,60,95,995/- out of interest expenses. The AO observed interest-free advance loan given to a subsidiary company, leading to disallowance of interest payments made. The Assessee argued the loans were from internal accruals and for commercial expediency. The Ld. CIT(A) dismissed the appeal. The Assessee contended that the AO and Ld. CIT(A) failed to establish a nexus between funds and subsidiary, contrary to judicial precedents. The Assessee cited cases where interest disallowance was rejected due to business expediency. The Tribunal noted the loans were from internal accruals, similar to previous years where additions were deleted. Citing precedents, the Tribunal deleted the addition, emphasizing business purposes and commercial expediency.

This case involved a dispute over the disallowance of interest expenses in the assessment year 2009-10. The Assessee provided detailed arguments regarding the loans given to a subsidiary company, emphasizing they were from internal accruals and for business purposes. The Tribunal analyzed previous decisions in the Assessee's favor, highlighting the importance of commercial expediency in such cases. The Tribunal found no evidence of personal benefit or diversion of funds, leading to the deletion of the addition. The judgment emphasized the need for a nexus between expenditure and business purpose, as established in various judicial precedents. Ultimately, the Tribunal allowed the Assessee's appeal, canceling the orders of the authorities below and deleting the disputed addition.