2022 (2) TMI 642

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....ned CIT (Appeals) in as much as it confirms the disallowance of Rs. 73,05,596/- is erroneous and opposed to law and the facts of the case. 2. The learned. CIT (Appeals) erred in ignoring the feet that the loan was given to the appellant company's wholly owned subsidiary which is engaged in similar line of business and the loan was given out of considerations of commercial expediency. 3. Further, the Learned Assessing Officer erred in not appreciating the fact that the Loans were provided only out of business receipts and not out of loans borrowed from banks. The overdraft facility, for which Interest was paid, was used for business purpose only and the LIP Loan was given for asset purchase and could not be diverted for....

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.... and advances to groups/subsidiary companies, but not charged any interest on such loans. Therefore, the AO called upon the assessee to explain, as to why, interest paid on loans, cannot be disallowed u/s. 36(1)(iii) of the Act for diversion of interest bearing funds for non-business purpose. In response, the assessee submitted that the company has advanced loans and advances to groups/subsidiary companies which are in similar line of business in the FY 2011-12 out of own funds being convertible debentures to the extent of Rs. 10 Crs. and also fresh share capital raised during the AY 2012-13 to the extent of Rs. 15 Crs. However, no part of interest bearing funds have been used to advance loans and advances to groups/subsidiary companies. Th....

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....ee and uphold the findings of the AO towards addition made for disallowance of interest u/s. 36(1)(iii) of the Act for diversion of borrowed funds for non-business purpose to sister concern by holding that there is no rationale to advance huge interest free funds to the sister concern when assessee itself is incurring huge interest expenses to help those groups/subsidiary companies to tide over working capital requirements, cannot be a good reason for not charging interest on loans and advances given to them. Therefore, he opined that there is no error in the reasons given by the AO to disallow interest u/s. 36(1)(iii) of the Act for diversion of interest bearing funds for non-business purpose. Aggrieved by the Ld.CIT(A)'s order, the as....

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.... to disallow proportionate interest expenses u/s. 36(1)(iii) of the Act for diversion of interest bearing funds for non-business purpose. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The solitary issue that needs to be resolved in the given facts and circumstances of the case is whether loans and advances given to groups/subsidiary companies is out of interest free funds or out of interest bearing funds, which warrants disallowance of proportionate interest u/s. 36(1)(iii) of the Act. The AO has disallowed proportionate interest on the ground that the assessee had diverted interest bearing funds for non-business purpose. We have given our thoughtful conside....