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TMI Blog2013 (4) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... 08,66,825/- and on 31.1.1992 a sum of Rs.2,28,50,000/-. These were interest-free loans said to be advanced to the subsidiary companies. The assessee had claimed as expenditure interest on the loan of Rs.7.75 crores. From and out of the interest paid on the borrowings, disallowances were made to the extent of the interest that would have accrued on the loans given to subsidiary companies. This amount, under two accounts, viz., Kerala Tea Account and Tamilnadu Tea Account, being Rs.17,13,406/- and Rs.3,31,747/- were respectively added on as income. 3. Further, the deduction under Section 80HHC claimed during the course of the proceedings was also disallowed. The Assessing Officer found that the export business of the assessee had resulted in a loss and, hence, there was no scope for granting such deduction. The deduction under Section 80HHC of the Income Tax Act, 1961, hereinafter referred to as "the Act", was worked out by the assessee in respect of trading goods alone. The business of the assessee with respect to the manufactured tea had resulted in huge loss. Any deduction worked out under Section 80HHC on a computation of both these businesses together would have only resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were found to be not for business purposes and was held to be a clear diversion of funds. 7. In the instant case, the learned Senior Counsel for the Revenue would invite our attention to the specific facts noticed by the Assessing Officer. The assessee had taken a loan on 25.4.1991 from M/s.Jayasree Tea & Industries and Century Textiles. Five days thereafter, i.e. on 30.4.1991, a loan was advanced to its subsidiary company. Similarly, loans were availed by the assessee on 4.7.1991 and 22.12.1991, followed by granting of interest-free loans to subsidiary companies on 8.7.1991 and 31.1.1992. 8. The learned counsel for the assessee would contend that the assessee had sufficient funds available with it for giving interest-free loans to its subsidiary companies and such loans were given from its internal resources. However, to meet the day to day affairs of the business, loans were taken from other entities. The assessee maintains a single account and both the internal resources and the loans availed by the assessee are pooled into this account. The monies that come into this account are used for the purposes of the business and also for granting loans to subsidiary companies. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 ITR 340] was again a case in which it was factually found that the assessee had enough interest-free fund at their disposal for investment in the subsidiary companies, which like the assessee company, were also engaged in the energy sector. C.I.T. v. Bharti Televenture Ltd. [(2011) 331 ITR 502] was a case where no specific instance regarding the direct nexus between borrowed funds and the advances made to the subsidiaries were noted by the Assessing Officer. 10. In the instant case, it is not the case of the assessee that it had sufficient funds in its account to maintain interest-free loans to its subsidiaries. The assessee would, taking into account the total profits or rather receipts of the business of the year, contend that such receipts being more than the loans granted to the subsidiaries, it can only be assumed that the loans to the subsidiaries were from its own funds. The facts noticed by us regarding borrowings made immediately before the loans to subsidiaries were granted distinguishes the instant case on facts from the cases cited above. This fact noticed by the Assessing Officer would establish a direct nexus with the borrowings made by the assessee and loans gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince such facts were never examined. In the instant case, the specific contention of the assessee is that borrowals were made for its day to day business activities and the loans advanced to the subsidiary companies were from the receipts of the assessee's business. The assessee, hence, clearly distinguishes the loans granted to subsidiary companies from its business expenses and hence such advances to subsidiary companies cannot at all be treated as a measure of commercial expediency. 12. Admittedly loans have been taken, coming to Rs.7.75 crores, by the assessee from other entities. It cannot also be disputed that interest could be claimed as a deduction only when such funds have been employed in the business. The asssessee's case about the loans extended to subsidiary companies, being from its internal resources, is belied by the contention that the receipts of its business as also the loans availed come into the common pool, i.e, to one single account. In such event, we are of the opinion, that the assessee's contention that the loans have been paid out of own resources was not at all substantiated on facts. On facts a direct nexus between the borrowings and advances ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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