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TMI Blog2017 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of ₹ 13,01,71,430/- on account of interest to various institutions. The AO further observed that that an opportunity was provided to the assessee to explain why the interest payments made should not be disallowed in view of the interest free advances given to a sister concern. The AO has considered the reply of the assessee and has come to the conclusion that he assessee was not able to show that the interest free loan to the subsidiary company had been given out of the internal accrual and that the interest bearing funds have not been used for this purposes. The AO further observed that since the assessee is bearing interest cost @14%, to the extent of the interest free loan given to the sister concern, this amount has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidiary of the appellant company which is evident from the financial statement of the appellant (Schedule - 5 'Investments' and copy of 'resolution' dated 18-08-2008). 4. On becoming of its subsidiary on 04-07-2008, for business considerations, the appellant company converted its existing loan of ₹ 13,44,00,000/- to interest free loan and granted further interest free loan amounting to ₹ 3,15,00,000/- to M/s Palka Investment Pvt. Ltd. 5. It is also a matter of fact that the loans given to M/s Palka Investment Pvt Ltd. were out of internal accruals of the appellant company and in accordance with the commercial expediencies of the appellant company. As on 31-03-2009, networth (Capital plus Reserve) of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f share capital and reserves and there was no nexus between the borrowals of assessee and the advances given, no disallowance for interest was called for." Copy of the decision is enclosed herewith at page no. 51 - 56. 11. The Ld. CIT(A) distinguished above decisions relied by the assessee without appreciating the facts of the case properly. 12. Assessee's own case, in the next Assessment Year i.e in AY 2010-11, the CIT(A) has deleted the same addition vide order dated 17-02-2015. Copy of the order is attached herewith at page no. 29 - 34. 13. Hon'ble Apex Court recently in the matter of Hero Cycles Pvt Ltd Vs CIT, Ludhiana [Civil appeal no. 514/2008 decision delivered on 05-11-2015] while dealing with the term 'Comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diary. We note that the assessee company advanced Inter Corporate Deposits (ICD) to M/s Palka Investment Pvt Ltd. and charged agreed interest on the ICD. Details of the same are given as under: Date Amount Rs. Rate of Intt Interest Amt Rs TDS Rs 23.06.2008 7,48,00,000/- 14% 3,15,594 58,511 24.06.2008 5,96,00,000/- 14% 2,28,602 46,498 7.1 We further note that during the year under consideration, M/s Palka Investment Pvt. Ltd. became subsidiary of the assessee company which is evident from the financial statement of the appellant (Schedule - 5 'Investments' and copy of 'resolution' dated 18-08-2008). On becoming of its subsidiary on 04-07-2008, for business considerations, the assessee company converted its exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the appellant company. Loan granted to subsidiary company is to be treated as business purposes. Hence I am of the view that the Ld. AO has wrongly taken the view that interest free advances were granted to the subsidiary company from the amount borrowed on interest. Hon'ble Delhi High Court in the case of CIT vs. Dalmia Cement Bharat Ltd. 330 ITR 595 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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