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TMI Blog2016 (6) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Income Tax Appellate Tribunal was right in law and on facts in reversing the order of the Commissioner of Income Tax (Appeals) deleting disallowance made by the Assessing Officer on total investment made in shares of subsidiary company ? (2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law and on facts in holding that the investment made for the purchase of shares of subsidiary company was not a legitimate business activity of the appellant ? 2. Briefly stated facts are that the appellant assessee is a company registered under the Companies Act. For the assessment year 2007-2008, the assessee had filed its return of income on 29.10.2007 disclosing total income of ₹ 13.02 crores(rounded off). Return was taken in scrutiny by the Assessing Officer. During the scrutiny assessment, the Assessing Officer noticed that the assessee had purchased shares worth ₹ 7.86 crores (rounded off) of a subsidiary company one Dinesh Remedies Ltd. The Assessing Officer in this connection conveyed to the assessee as under : It is noted that the assessee has not charged any interest on the above said investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary company. Further, if the assessee has surplus money as reserve and surplus, it can be used to repay the loan on which heavy interest was paid by the assessee. The assessee can also invest this surplus money in such a manner in which it generates income which will benefit the assessee company in the sense of higher income. Investment in subsidiary company having entirely separate business gives no yield to the assessee company. Here at the one hand, the assessee is paying huge interest on its borrowings and on the other hand, huge amount has been invested in equity shares of subsidiary company. Such borrowing to the extent of investment can not possibly be held for the business of the assessee. It is for supplementing the cash diverted without deriving any benefit out of it. Therefore, the assessee is not entitled to claim interest on the borrowings to the extent those are invested in the equity shares of the subsidiary concern. Therefore, the interest to the extent of investment in subsidiary company is disallowed at the rate on which the assessee is paying interest on its interest bearing funds and added back to the total income of the assessee. The assessee is paying i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified for the impugned disallowance in the year under consideration. Each year is an independent year. Facts of this year are to be seen independently and not to be governed by the decision taken in the past. The Assessing Officer had noted that the assessee was unable to prove that the own noninterest bearing funds have been utilized. Rather, it was held by the Assessing Officer that the assessee had paid heavy interest on the loans and borrowings. In the absence of specified rebuttal from the side of the assessee, we are of the view that the Assessing Officer was justified in the said disallowance. The action of the Assessing Officer is hereby confirmed an the view taken by the Ld. CIT(A) is reversed. 7. Before us learned counsel Shri Soparkar for the assessee submitted that the assessee had sizeable interest free funds for investment which were utilised for investment in the subsidiary company. The Assessing Officer as well as the Tribunal committed a serious error in disallowing the same. Certain borrowings were made during earlier assessment years. Such funds were invested for business purpose. Deduction of interest under section 36(1)(iii) of the Act was allowed. He re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n future also no return would accrue. Quite apart from this angle, even the question of investment in subsidiary company has not been properly examined by the Assessing Officer. Merely because the assessee company had interest bearing funds for its capital investment, claiming deduction under section 36(1)(iii) of the Act would not automatically imply that any diversion of funds without interest to a subsidiary would automatically give rise to disallowance. So much has been discussed by the Supreme Court in case of S.A. Builders Ltd.(supra). The assessee had demonstrated before the Assessing Officer that it had sizeable net profit and availability of interest free funds for investment in subsidiary company. 11. In case of Raghuvir Synthetics ltd (supra), Division Bench of this Court following the decision of Supreme Court in case of S.A. Builders Ltd.(supra), upheld the view of the Tribunal rejecting the appeal of the Revenue on the ground that substantial interest free funds were available, the Commissioner and the Tribunal also considered the question of business expediency. In case of Hitachi Home and Life Solutions (I) Ltd (supra), the Court held and observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X
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