2017 (10) TMI 677

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....g, installing and commissioning of automated test equipment filed its return of income for the AY 2013-14 on 28.11.2013 declaring total income of Rs. 45,96,890. The case was selected for scrutiny by CASS. Statutory notices u/s. 143(2) & 142(1) of the Incometax Act, 1961 ["the Act"] were issued calling for details. In response to the notices, the AR of the assessee appeared from time to time and furnished the details as called for. 3. The assessment was completed u/s. 143(3) on 07.12.2015 determining the total income of Rs. 83,28,142 inter alia making additions towards disallowances u/s. 14A r.w. Rule 8D, disallowance of interest expenditure u/s. 37 and disallowance of provision for warranty. Aggrieved by the assessment order, the assessee ....

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.... funds to the subsidiaries without any interest. In support of his arguments, he relied upon the decisions of the Hon'ble Supreme Court in the case of S.A. Builders v. CIT (2007) 288 ITR 1 (SC) and the Honb'le High Court of Bombay in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). The assessee also relied upon the decision of the ITAT Bangalore Bench in ITA No.949/Bang/2015 in the case of M/s. Grameen Koota Financial Services Pvt. Ltd. 6. On the other hand, the ld. DR submitted that the assessee has not substantiated its claim that advances to subsidiaries are out of its own fund and no interest bearing fund has been diverted. The ld. DR further submitted it is clear from the fact that assessee is having long ....

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....y company and coming within the purview of commercial expediency, but failed to establish any link between the advances and commercial expediency. Therefore, he opined that the assessee has diverted its interest bearing funds to the subsidiaries without charging any interest and hence disallowed interest expenditure proportionately u/s. 36(1)(iii)/37(1) of the Act. 8. It is the contention of the assessee that its borrowings to subsidiary companies are normal commercial transactions between a holding company and subsidiary company and the loans are extended in the normal course of business, therefore, the same cannot be considered as diversion of interest bearing funds to subsidiaries. The assessee further contended that it has its own inte....

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.... funds were sufficient to meet the advances given to the subsidiaries. This proposition is further supported by the ratio laid down by the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom), wherein it was categorically held that if there are funds available both interest free and interest bearing, then the presumption would arise that investment would be out of the interest free funds generated or available with the company. The relevant observations of the Hon'ble High Court are reproduced below:- "16. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments ....