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TMI Blog2016 (5) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 48,08,518/- allegedly on the ground that the assessee has utilized its interest bearing funds to advance loans to its subsidiary companies." 2. Briefly stated, the facts of this case are : originally assessee has filed return qua the assessment year 2003-04 declaring total income of Rs. 4,78,34,082/- which was processed under section 143(2) of the Income-tax Act, 1961 (hereinafter 'the Act') on 27.02.2004 but later on the return was revised on 10.03.2005 declaring an income of Rs. 4,72,61,650/- to claim expenses pertaining to the relevant previous year but booked in the next financial year and to claim benefit of late deposit of EPF by relying upon the decision of the ITAT, Delhi in the case of Vestas RRB India Ltd. The assessee claimed the expenses pertaining to AY 2003-04 recorded in the tax audit report for FY 2003-04 relevant to AY 2004-05. The same was claimed in the relevant previous year while revising the return. Thereafter the case was subjected to scrutiny and consequent upon the issue of notices u/s 143(2) and 142(1), Shri Karan Mehta, CA put in appearance, filed necessary details, books of accounts and also discussed the case. 3. Assessee company is into the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be allowed." 9. Identical issue has been decided by the coordinate Bench of the Tribunal in the case of Bharti Teletech Ltd. (supra) by following the law laid down by Hon'ble Apex Court in judgment cited as CIT vs. Smifs Securities Ltd. - 348 ITR 302. 10. Hon'ble Apex Court decided the issue in controversy in para 9 of the judgement cited as Smifs Securities Ltd. (supra), which is reproduced for ready reference, as under :- "We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.-- For the purposes of this sub-section, the expressions `assets' and `block of assets' shall mean- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication money in the preceding previous year. According to the appellant giving such advance to the subsidiaries was considered by the then AO as business advances and the then AO did not disallow the appellant's claim. In its support the appellant has produced the copy of Memorandum of Association and Articles of Association to snow that it was allowed to invest In subsidiaries as also to carryout such business. The appellant has further submitted that it was having sufficient interest free funds to invest in subsidiaries and that investments in such shares was made out of mixed funds presumption should be that the same was made out of interest free funds. In this regard the appellant has submitted some figures of deposits and withdrawals made out of various bank accounts and submitted that due to huge volume of transactions it was not possible to find out the nexus between the amount received from Bharti Enterprises and amount given to Bharti Infotec Limited. It is thus submitted that considering the fact that AO has also not brought on record any material to show the nexus no disallowance was to be made. In its support the appellant has relied on the judgement of Calcutta High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguishable from that of the appellant's case. Thus considering the facts of the case disallowance made by the AO is confirmed." 15. The ld. AR for the assessee, by relying upon the judgment passed by the Hon'ble Supreme Court in the case cited as Hero Cycles Pvt. Ltd. - 63 taxmann.com 308 (SC), contended that when the loan has undisputedly been advanced to promote a subsidiary company, the interest paid cannot be disallowed. 16. The operative part of the judgment (supra) is reproduced for ready reference as under :- "12. Insofar as loans to the sister concern/subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007 (288) ITR 1/158 Taxman 74]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner:-. '26. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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