2021 (9) TMI 1033

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....Delhi, has grossly erred both in law and on facts in confirming the proportionate interest computed at Rs. 22,56,750/- by the Ld. AO and making addition of Rs. 20,56,750/- by incorrectly applying the provisions of section 36(l)(iii) of the I.T. Act, 1961 despite of the admitted fact that the funds have been extended to a wholly-owned subsidiary company to pursue its business activities and not for any purpose other than business in furtherance of commercial expediency." 3. Facts of the case, in brief, are that the assessee is a company having investments in wholly owned subsidiaries along with loan given to such companies mainly out of funds borrowed from various other companies. It filed its return of income on 30th August, 2016 declari....

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....interest expenses of Rs. 10,88,438/- u/s 36(1)(iii) of the Act. In appeal, the ld.CIT(A) upheld the action of the AO. 5. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 6. The ld. Counsel for the assessee, at the outset, submitted that the Hon'ble Delhi High Court in the case of CIT vs. Tulip Star Hotels Ltd., 338 ITR 482, has held that where assessee is engaged in the business of owning, running and managing hotels, borrowed money and invested the same in its subsidiary company with a view to acquire control of a new hotel, it was to be held that interest paid on borrowed capital was allowable u/s 36(1)(iii) of the Act. Referring to the main object of the assessee company as per its Memorandum ....

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....ct of the assessee company to establish or promote or concur in establishing or promote any company for the purpose of acquiring all or any of the properties, rights and liabilities of the Company:- "19. To establish, or promote or concur in establishing or promote any company for the purpose of acquiring all or any of the properties, rights and liabilities of the Company." 8. Referring to the decision of the Hon'ble Supreme Court in the case of Hero Cycle (P.) Ltd., reported in 379 ITR 347, he submitted that the Hon'ble Supreme Court in the said decision has held that once it is established that there is nexus between expenditure and purpose of business Revenue cannot justifiably claim to put itself in arm-chair of businessman ....

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....red the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case, made addition of Rs. 10,88,438/- u/s 36(1)(iii) of the Act on the ground that the assessee has diverted its interest bearing funds towards non-interest bearing advances to a related concern. I find, the ld.CIT(A) upheld the action of the AO disregarding the argument of the assessee that loan had been advanced on account of commercial expediency and, therefore, no disallowance could be made in the light of the decision of the Hon'ble Supreme Court in the case of SA Builders vs. CIT reported in 288 ITR 1....