TaxTMI 
TaxTMI 
2025 (7) TMI 1931
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.... sole issue permeating in all the appeals is regarding the disallowance of interest on the advance given by the assessee company to its wholly owned subsidiary M/s. The Narasimha Mills Pvt. Ltd., [M/s. TNMPL]. The quantum of disallowance for each year is noted as under: S. No. AY Amount of disallowance (Rs.) 1 2008-09 3,40,04,077 2 2009-10 2,45,30,864 3 2010-11 2,45,30,864 4 2011-12 4,92,34,816 3. Since both the parties agreed that the only issue is regarding the disallowance of interest on the advance given by the assessee to its subsidiary as noted supra, we take up the appeal for AY 2008-09 as the lead case and the result of which will be applicable mutatis mutandis for all other appeals fo....
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....the assessee company didn't had reserve & surplus to make any investment/advances to M/s. TNMPL and instead had obtained various loans for the purpose of business to the tune of Rs. 150.89 Crs. and had claimed interest expenditure for the loans obtained, the AO presumed that the only source of monies for making advances/investment to the subsidiary M/s. TNMPL was from the business loan. And therefore, he was of the view that the assessee company had diverted the business loan for the purpose of non-business and claimed proportionate interest expenditure on that advance/investment made to M/s. TNMPL, which assessee was ineligible. Further, the AO was of the view that the ultimate aim of the assessee was to purchase a capital asset i.e. M/s. ....
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....o The NMPL. in the F.Y. 2006-07 with the intention of acquiring the capital asset, the company NMPL. 5. On the aforesaid reasoning, the AO was of the view that the assessee has diverted the loans meant for its own business to the non-business purposes in the form of investment in equity shares of M/s. TNMPL and advances to M/s. TNMPL. Hence, the proportionate interest @12.5% on the amount of investment in equity shares of Rs. 19,62,46,913/- and advances of Rs. 7,57,85,706/- was disallowed and added back to the profits and gains of the assessee company. 6. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to uphold the action of the AO disallowing proportionate interest ....
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....e interest @ 12.5% on the amount of investment in equity shares of Rs. 19,62,46,913/- and advances of Rs. 7,57,85,706/- was disallowed i.e. Rs. 2,45,30,864/- and Rs. 94,73,213/- total Rs. 3,40,04,077/-. On appeal, the Ld. CIT(A) has confirmed the action of the AO. 9. The Ld.AR of assessee had assailed the action of the AO/Ld. CIT(A) on many fronts, but the main thrust of the contention of the assessee's Counsel is that the assessee company had enough own funds to invest in the wholly owned subsidiary M/s. TNMPL to the tune of Rs. 19,62,46,913/- and advance of Rs.7,57,85,706/-. In order to buttress this contention, the Ld.AR drew our attention to Page No.168 of the Paper Book wherein the balance-sheet of the assessee company is found plac....
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....y M/s. TNMPL . For such a preposition, we rely on the following Hon'ble High Courts decisions: ● CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) ● CIT v. Hotel Savera (1999) 239 ITR 795 (Mad) ● CIT v. TIN. Box Co. (2003) 260 ITR 637 (Del) 11. The ratio laid by the Hon'ble High Courts (supra) been concurred by the Hon'ble Apex Court in CIT (LTU) v. Reliance Industries Ltd., reported in 410 ITR 466 (SC) wherein it was held by their Lordships ' ...... when interest-free funds was available with assessee is sufficient to meet investment, presumption is that investments in subsidiaries were out of interest-free funds and accordingly no disallowance u/s.36(1)(iii) of the Act was wa....
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....es the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urge....