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TMI Blog2013 (10) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... sistency and commercial expediency, the deduction claimed by the assessee company is in accordance with law and the CIT) (A) correctly allowed the claim of the assessee. In view of the findings of fact recorded by CIT(A) and the Tribunal that there existed commercial expediency in giving interest free loan to HMGB, which findings are not shown to be against the record, no advantage can be derived by the revenue from the pronouncement reported in Abhishek Industries Limited's case (2006 (8) TMI 123 - PUNJAB AND HARYANA High Court). In so far as Motor General Finance Limited [2001 (12) TMI 62 - DELHI High Court] and Indian Shavings Products Limited's cases (2003 (3) TMI 33 - RAJASTHAN High Court ) are concerned, these pronouncements were prior to judgment of the Apex Court in S.A.Builders's case (2006 (12) TMI 82 - SUPREME COURT ). Further, on factual matrix therein, no commercial expediency was shown to be existing and therefore, in view of distinguishable circumstances involved, these do not advance the case of the revenue. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... .B. Limited (HMGB) in order to secure its own business as HMGB was not having funds for producing the products which were used as raw material for the assessee. The Assessing Officer vide order dated 28.3.2006, Annexure A.1, disallowed the interest payment of ` 76,26,436/- made to its parent company holding that the expenditure was not incurred for business purposes. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 17.1.2007, Annexure A.2, the CIT(A) allowed the appeal. The department went in appeal against the said order. Singh Gurbax 2014.01.08 13:47 I attest to the accuracy and integrity of this document High Court Chandigarh Vide order dated 15.10.2008, Annexure A.3, the appeal was dismissed. Hence the present appeals by the revenue. 4. Learned counsel for the revenue submitted that the CIT(A) and the Tribunal had erred in allowing deduction on account of interest paid by the assessee on loans taken from parent company and given to HMGB, a joint venture company promoted by the assessee company together with Hindustan Antibiotics Limited, as interest free loan to it. According to the revenue, the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. The CIT(A) in appeal relating to the assessment year 2003-04 had recorded as under:- "It is noted that HMGB Limited manufactures and supplies Penicillin G which is a critical raw material for the appellant. The table below provide an overview of the total raw material (Penicillin G) purchased by the appellant from all suppliers and the raw material purchased from HMGB Limited during the Singh Gurbax 2014.01.08 13:47 I attest to the accuracy and integrity of this document High Court Chandigarh previous year relevant to the assessment year 2003-04 under consideration:- Particulars Quantity in Kg. % of total purchases Penicillin G-Imported(A) 10126 38.37% Penicillin G-Domestic *from HMGB Limited 120256 0 45.56% *Other Suppliers 42409 16.07% (B) 1626658 61.63% Total (A+B) 2639344 100% It is seen from the above that the purchases of Penicillin BG from HMGB Limited constitutes about 45.56% of total purchases and about 73.93% of total domestic purchases, therefore, by advancing the sum of money, the appellant has in fact secured its own business and ensured that it meets up its own production schedule. It is also observed that if the appellant would not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by the assessee company from the holding company on which it is paying interest. Now, the claim of Assessing Officer is that the assessee has made advances to HMGB, its subsidiary company by utilizing the borrowings and Singh Gurbax writing off the internet due to it. In our view, the advances 2014.01.08 13:47 I attest to the accuracy and integrity of this document High Court Chandigarh have been made to HMGB for commercial consideration since the assessee company is entitled to purchase raw material from the said company and infact the component of supply from HMGB is substantial. Apart from the above, on the advances made, the assessee is also entitled to an interest at the rate of 16.5%. It is no doubt true that a part of such interest pertaining to the instant year and previous year has been written off on account of losses suffered by the HMGB, yet it is also a fact that even in the instant year, the assessee has earned interest on the advances made to HMGB of sum of ₹ 5.08 crores, which has been offered for tax. It is thus evident that, the borrowings made by the assessee company from the parent company had been utilized for the purpose of business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the borrowed amount in question was not utilised by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the Singh Gurbax amount advanced to it by the assessee for their personal 2014.01.08 13:47 I attest to the accuracy and integrity of this document High Court Chandigarh benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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