AI Drafter 
TaxTMI 
TaxTMI 
2023 (8) TMI 956
X X X X Extracts X X X X
X X X X Extracts X X X X
....e/loan of Rs. 3,72,18,771/- given by Assessee to its subsidiary Company M/s Synergy Films Pvt. Ltd. at an average rate of 12.85% on the loans taken by the assessee, disregarding the fact that the loan advanced to Subsidiary Company out of commercial expediency was financed from interest free funds accumulated by the Company. 2) The assessee craves, to consider the above grounds of appeal without prejudice to each other and craves leaves to add, alter, delete or modify all or any of the above grounds of appeal on or before the final date of hearing." 3. Succinct facts are that assessee before us is a private limited company and filed its original return of income for FY. 2015-16 relevant to AY. 2016-17 on 20/09/2016 declaring total income of Rs. 4,44,29,190/-. The assessee Company is stated to be engaged in the business of manufacturing of plastics. The assessee Company was deriving income from Business or Profession and other sources during the year. The return was processed under section 143(1) of the IT Act, 1961. Thereafter, the assessee's case was selected for scrutiny and accordingly, notice under section 143(2) of the Act was issued on 28/09/2017 and duly served u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the matter in appeal before the ld. CIT(A), who has confirmed the addition made by the Assessing Officer. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 8. Shri Sapnesh Sheth, Learned Counsel for the assessee, argued that Assessee Company had advanced Interest free Loan to its Subsidiary company M/s Synergy Films Pvt Ltd. amounting to Rs. 3,72,18,771/- in the preceding years. The loan to Subsidiary is an opening balance carried forward from preceding years and no new/fresh loans were advanced during the previous year relevant to the assessment year under consideration. The interest expenses incurred during the year solely relate to the borrowings made and utilized during the year for the business of the assessee. The details of interest bearing borrowings of the Company during the previous year relevant to the assessment year under consideration were as under: With help of the above chart, ld Counsel argued that all the Interest bearing loans were availed for specific purposes with specified end uses and in the absence of advancement of any further Interest free loan to subsidiary during the previous year relevant to the assessment year u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgy Films Pvt. Ltd. is wholly owned subsidiary company, therefore it is the extension of the business of the parent company, hence it is the prerogative of the assessee to utilize the own free funds for giving loan and advances to subsidiary company to expand business base. The Ld. Counsel pointed out that loans and advances were given to subsidiary company out of share capital and reserve and surplus funds which is sufficient to meet the loan requirement to the subsidiary company. The Ld. Counsel pointed out that the assessee had own interest free funds to the tune of Rs. 20,21,60,982/- and loan has been given to the subsidiary company only to the tune of Rs. 3,72,18,771/-, therefore such loan to the subsidiary company is out of the own interest free funds and hence disallowance should not be made. The Ld. Counsel also stated that no doubt the assessee-company has borrowed the money from banks / financial institutions for specific purposes, such as, car loan, fixed asset loan, working capital loan etc. and these are the routine borrowings of the company to facilitate the day to day cash flow of the assessee-company. Therefore, it was contended by the Ld. Counsel that loans and adv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cilities. 14. The assessee (Ecoplast Limited) has also given corporate guarantee of Rs. 396 lakhs. The strategic investment in subsidiary was made mainly to explore the business potential of the Company's Multilayer film business due to logistic advantage and favorable market conditions prevailing in the Eastern and North Eastern Region. The subsidiary has extended the market reach of Ecoplast Limited to the untapped markets in the state of Assam, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura, Bhutan, Sikkim, West Bengal, Bihar, Jharkhand and all states of Bangladesh. Thus loans were advanced out of commercial expediency to expand the business of the company in North Eastern Region and to protect the investment made in the subsidiary company. M/s Synergy Films Pvt. Ltd. utilized money received from the assessee Company for business purpose of working capital to continue its operations and to service its loan repayment obligation to Financial Institution. The ld Counsel submitted the following comments on the findings of ITAT order in assessee`s own case as follows: ITAT's findings for AY 2012-13 Assessee's response to ITAT's findings The sister concern had ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....&M and availed for Repayment specific of Public purpose and deposits. no part of Included in Above P&M the same was utilized for advancing Interest free loan to subsidiary. Purchase of Loans were and availed for Repayment specific of Public purpose and deposits. no part of the same Car Loan under 13,96,022/- Hire purchase 2,15,555/- Purchase Motor Car was utilized for advancing Interest free loan. subsidiary. to of Loans were availed for specific purpose and no part of the same was utilized for advancing Interest free loan subsidiary. to Short Term 6,35,23,334/- 77,13,765/- Working Since no Borrowing- Capital Loan amount was Bank of Baroda for purchase advanced to of inventory subsidiary and Company financing of during the book debts. year no part of the borrowing can be attributed to loan subsidiary. to In fact there Document 2 is decrease in the borrowing during the year. Inter Corporate 80,00,000/- Deposit 9,60,....