2011 (10) TMI 698

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..... 3. Briefly stated, assessee invested an amount of ₹ 6.80 crores upto A.Y. 2004-05 and ₹ 8 crores by A.Y. 2006-07 in the joint venture company with M/s. Taiyo Kagaku Co. Ltd., Japan. The joint venture company is engaged in the business of manufacturing of hydrocolloids, etc. and purchases raw material from assessee company. Therefore assessee s contention is that the amount invested in M/s. Taiyo Kagaku Co. Ltd. in various assessment years is for the purpose of business and as such the principles established by the Hon'ble Supreme Court in the case of CIT vs. S.A. Builders Ltd. 288 ITR 1 would apply to the facts of the case. Further it was submitted that assessee has its own funds for investing in the joint venture compan .....

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..... Credit ₹ 45,61,344/- Total ₹ 1,58,28,917/- 5. It was submitted that most of the amounts were paid for taking bill discounting, terms loans and cash credit for working capital requirements and none of these amounts were diverted for investment in joint venture company. It was further submitted that the original investment was made in A.Y. 2002-03 to some extent and interest claim in that year was fully allowed. Not only that in A.Y. 2005-06 the interest claim was also allowed consequent to the order of the CIT(A), which was accepted and not contested. It was the submission that the amounts were invested in joint venture company which resulted in business to as .....

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..... sions made about non-diversion of borrowed funds to the subsidiary company was not examined by the A.O. and further as seen from the interest paid these payments seems to be for specific loans obtained, in the interest of justice we are of the opinion that the factual aspects regarding the claim of interest by assessee require examination. In case assessee has borrowed funds for specific purposes of packing credit, bill discounting in the course of its business, the question of disallowance under section 36(1)(iii) does not arise unless it is established that the borrowed funds are diverted for investment in subsidiary companies. This aspect was not examined by the A.O. at all. Amounts cannot be disallowed on proportionate basis unless the .....

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