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TMI Blog2025 (3) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... rities Pvt. Ltd. and assessee itself on the proposition that investment made with a view to acquiring controlling interest in an another company is considered to be for the purpose of business. Appeal of the Revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. and other opening interest-free balances. On this basis, the appellant contended before the AO that no disallowance of interest on account of investment in CCD was warranted. 10. The AO observed that as per the Balance Sheet of the appellant company, the investments as on 31/03/2016 was Rs. 45646.59 Lakhs and the investments as on 31/03/2017 was Rs. 146186.51 Lakhs. Thus, fresh investments of Rs. 100539.92 Lakhs had been made during the year, which was made in Compulsory Convertible Debentures (CCD) of Shreeniwas Cotton Mills Ltd. The borrowings of the appellant company as on 31/03/2016 amounted to Rs. 16678.75 Lakhs and the borrowings as on 31/03/2017 stood at Rs. 116218.89 Lakhs. Thus, the appellant had obtained fresh borrowings of Rs. 99540.14 Lakhs during the year. The AO also observed that interest cost of the appellant on borrowings has also gone up from Rs. 35,000/- as on 31/03/2016 to Rs. 39,51,64,000/- as on 31/03/2017. The investment in the CCDs of M/s. Shreeniwas Cotton Mills Ltd. was of Rs. 1004,85,67,710/-, excluding other expenses capitalized. However, the appellant had received interest @ 14.75% only on the face value of Rs. 499,88,18,300/- and no interest h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95.30% shares in SNCML as on 31 March 2016. Postacquisition of CCDs, the effective shareholding of the Appellant in SNCML would be 99.76%. During the year under consideration, the Appellant acquired compulsory convertible debentures (CCD's) for an amount of Rs. 1,005.20 crores at a premium, bearing interest rate @ 14.75% of Shreeniwas Cotton Mills Limited ('SNCML'). The details of acquisition of CCDs are as under- Date of payment No of CCDs Purchased from Total investment (in Rs. ) '01.09.2016 3,458,835,341 Tramos Limited, Cyprus 689,00,00,000 18.10.2016 1,151,073,859 Tramos Limited, Cyprus 229,29,39,127 28.12.2016 388,909,100 HDFC Venture Trustees Co. Ltd, India 86,56,28,583 Total 4,998,818,300 :; 10,048,567,710 Other expenses capitalized 34,43,000 Total Investment 1005,20,10,710 12.4 From the above facts, the contention of appellant that investment made in CCD's of SNCML is a strategic investment to acquire controlling interest in its subsidiary, appears to be correct. I have also gone through the Financial statements of SNCML for the year 2015-16, 2016-17, and 2017-18. It shows that the borrowed funds have been used for the business pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the Tribunal". 12.6 The issue of interest claimed u/s 36(1)(iii) of the Act was also under dispute in the A.Y 2009-10. In the A.Y.2009-10, the appellant had borrowed an amount of Rs 384 crores from the group sister concern and invested an amount of Rs. 241 crores in acquiring shares of M/s Shrinivas Cotton Mills ltd. The Appellant paid interest on borrowed funds, but did not charge any interest on amount advanced out of borrowed funds. Hence, Ld. AO had made disallowance of Rs. 22,25,08,203 under section 36(1)(iii) of the Act. Aggrieved by the order of Ld. AO, the Appellant filed an appeal before Ld. CIT(A)-38. The learned CIT(A)-38, vide order dated 25.04.2014, decided the appeal as under- "The investment in the form of purchase of shares with a view to acquire controlling interest in another company is considered to be business purpose. Respectfully following the decision of Hon'ble Bombay High Court in the case Srishti Securities Pvt. Ltd. referred above, the disallowance of interest of Rs. 22,25,08,203/- made by the A.O. is hereby deleted.." 12.7 This decision of CIT (A) was challenged before the ITAT. The Hon'ble ITAT 'A" Bench, Mumbai vide order dated 30 July 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is no commercial expediency is not tenable and is not supported with any findings except relying on the facts that the higher rate of interest has been paid on loans borrowed. The Ld.AR explained the accounting concept on the weighted average rate of interest considering the variability of interest rate range from @8.75% to 16% though this approach cannot be incorporated in the audited financial statements but the reasonableness and explanations to provide the loans to sister concerns cannot be over looked and the group transfers between one sister concern to another sister concern as per requirement of funds. The Ld.AR submissions are realistic and duly supported by the material information and is appreciated. Accordingly, we do not find merits in the findings of the CIT(A) and we rely on the judicial decisions and commercial expediency explained by the Ld.AR that the assessee's business activities as a going concern and the construction projects are in progress. Any delay in project construction activities due to financial crunch will increase the overheads of the projects. Accordingly, we set aside the order of CIT(A) on this disputed issue and direct the Assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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