TaxTMI 
TaxTMI 
2016 (2) TMI 744
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....he 'Act'). 2. The first issue to be decided in this appeal is as to whether the Learned CIT(A) is justified in allowing the interest paid on loans utilized for advancing to sister concern on the ground of commercial expediency amounting to Rs. 99,99,780/-. 2.1. The brief facts of this issue is that the assessee is engaged in the business of Information Technology Training Business, IT Enabled Services and Contact Centre Business including Health Care BPO activities and software development. The assessee had effected acquisition of Transcription South, Inc. (TSI) as 100% subsidiary company based in United States of America. TSI is also engaged in IT and IT Enabled Services including Contact Center, Healthcare BPO activities and software de....
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....14 lacs to TSI. The assessee had availed bank loans and the same had increased by Rs. 343.64 lacs during the year under appeal while non-interest bearing unsecured loans from its shareholders and directors had increased by Rs. 219.59 lacs. The assessee paid interest to banks amounting to Rs. 1,50,63,000/- and the Learned AO sought to disallow Rs. 99,99,780/- by applying average rate of 10.38% on the investments made in subsidiary company. 2.2. On first appeal, the Learned CITA found that the assessee had earned substantial income from its wholly owned subsidiary companies in the subsequent years and accordingly the assessee justified the commercial expediency of advancing the monies to its wholly owned subsidiary company. The Learned CITA ....
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.... find that the Learned AO had disallowed the interest payments to banks only on the sole ground that interest free funds were advanced to subsidiary company by the assessee. He had not brought on record the nexus between the borrowed funds and the amounts advanced to subsidiary company which is one of the main pre-requisite before resorting to disallowance of interest. We also find from the facts that the assessee is having both interest bearing and interest free funds at its disposal and had advanced the monies to subsidiary company from the bank account where own and borrowed funds are inextricably mixed. We also find that the advances made to wholly owned subsidiary company through which huge businesses were obtained by the assessee in s....
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....e 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 on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC)], if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borro....
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....e businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. 14. Applying the aforesaid ratio to the facts of this case as already noted above, it is manifest that the advance to M/s. Hero Fibres Limited became imperative as a business expediency in view of the undertaking given to the financial institutions by the assessee....
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....d as a measure of commercial expediency to protect its business interests. Accordingly we don't find any infirmity in the order of the Learned CIT(A). Accordingly, the ground no. 1 raised by the revenue is dismissed. 3. The last ground to be decided in this appeal is as to whether the Learned CIT(A) is justified in allowing the deferred revenue expenditure of Rs. 76,000/- towards Technical Information Reference Material (TIRM). 3.1. The brief facts of this issue is that the assessee had written off in its books a sum of Rs. 76,000/- towards expenses relating to TIRM and in this regard had stated in its notes on accounts to financial statements as under:- Deferred Revenue Expenditure TIRM - Expense relating to Technical Information Re....