TaxTMI 
TaxTMI 
2025 (12) TMI 339
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....posed to the principles of natural justice. 2. The ld. CIT (A) erred in confirming the action of the ld. AO in disallowing the interest paid on borrowed capital amounting to Rs. 4,91,89,563/- as partly diverted for non-business purposes in respect of investment made by the appellant company in its subsidiary company, M/s.The Narasimha Mills Private Ltd. 3. The ld. CIT(A) erred in sustaining the proportionate disallowance of interest expenses with regard to advances given and investment made in subsidiary company, is bad in law and against the facts and circumstances of the case. 4. The ld. CIT (A) ought to have appreciated the fact that once advance given to subsidiary company "for the purpose of business" and appellant has a deep interest in the business of subsidiary company, then interest on loan taken being meant for the purpose of business is duly allowable as business expenditure. The object of the loan is an irrelevant consideration whether the expenses for capital account and revenue account. 5. For the above reasons and reasons that may be adduced at the time of hearing, the disallowance of proportionate interest on advances and investme....
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....e without prejudice to each other. ITA 1736/Chny/2025 for A.Y.2016-17: 1. The order of the ld. CIT(A) is without jurisdiction, contrary to law, facts and circumstances of the case and is opposed to the principles of natural justice. 2. The ld. CIT (A) erred in confirming the action of the Id. AO in disallowing the interest paid on borrowed capital amounting to Rs. 5,09,00,686/- as partly diverted for non-business purposes in respect of investment made by the appellant company in its subsidiary company, M/s The Narasimha Mills Private Ltd. 3. The ld. CIT(A) erred in sustaining the proportionate disallowance of interest expenses with regard to advances given and investment made in subsidiary company, is bad in law and against the facts and circumstances of the case. 4. The ld. CIT (A) ought to have appreciated the fact that once advance given to subsidiary company "for the purpose of business" and appellant has a deep interest in the business of subsidiary company, then interest on loan taken being meant for the purpose of business is duly allowable as business expenditure. The object of the loan is an irrelevant consideration whether the expens....
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...., the issues for consideration along with quantum of disallowance for each year is given below: Sl.No. AY Disallowance of proportionate interest (Rs.) Addition u/s. 56(2)(viib)(Rs.) 1 2013-14 4,91,89,563 - 2 2014-15 13,76,59,938 31,04,80,000 3 2016-17 5,09,00,686 - 4 2017-18 3,53,70,007 - 9. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us for all the four (supra) assessment years. 10. The ld.AR for the assessee submitted that in respect of disallowance of proportionate interest, the AO submitted a remand report on 07.03.2023 bringing out the accumulated profits available and increase in loans as on 31.03.2008 vis-à-vis the accumulated profits as on 31.03.2007 and concluded that no sufficient own funds are available to the assessee to make investments but only from out of borrowed funds. The relevant portion of the report is reproduced below: "The above schedule clearly states that as on 01-04-2007 the accumulated profits is Rs. 4,47,93,091/-, whereas as at the end of the year it is Rs. Minus 609,26,420/-. Thus, the amount paid to the subsidiary is not through the accumulat....
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....st-free funds available with the assessee company. Further, the ld.AR submitted that the assessee had lent/acquired M/s.TNMPL in the interest of 'commercial expediency'. The assessee company had advanced monies to its subsidiary company to expand its business interest and are solely for the purpose of business. Moreover, the subsidiary company is also in the same line of business i.e., manufacture of yarn and the assessee company invested its monies to revive the business of the subsidiary company which in turn expands the business interest of the assessee company. 14. The ld.AR submitted that the assessee, to make its investment in subsidiary fruitful and make the subsidiary operate its business after due discharge of their debts to various banks and creditors, lent money as interest free loan. Further, the assessee had taken the plant and machinery on lease from its subsidiary company and had run the business under its management. There has been increase in the turnover of the assessee. The assessee has made investment in M/s.TNMPL primarily with an intention to acquire its already existing plant and machinery. Had the assessee chosen to establish a new plant from scratch inst....
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.... vs T Bhimjyani Realty P Ltd ITAT Mumbai dated 16/01/2025 in ITANo 4901/Mum/2024 held that "if advance /investment made by the assessee to its sister concern interest for the purpose of commercial expediency, no disallowance of interest can be made as the expenditure expanded for the purpose of business u/s 36 and 37 of IT Act" 22. In the case of DCIT vs Shri Moolchand Kiran Kumar Jain ITAT Chennai in ITA no 5&6/Chny/2024 dated 12/07/2024 held that "interest paid on borrowed funds, which is utilized for the investment in the shares of the company is allowable expenditure" 23. In view of the above, the expenditure incurred for the AY 2013-14, 2014-15, 2016-17 and 2017-18 towards interest paid on borrowed funds which is utilized for investment/advance in its subsidiary M/s.The Narasimha Textiles Private Ltd, may kindly be allowed and justice be rendered. 24. Further, in assessee's own case on the same issue the Chennai Tribunal allowed the interest expense and directed the AO to delete the addition in this regard vide its order in ITA No.854 to 857/CHNY/2025 dated 04.07.2025 for the A.Ys. 2008-09 to 2011-12. 25. In light of the above arguments the ld.AR prayed for deletin....
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....n the similar set of facts of the assessee's own case has been decided by this Tribunal in ITA No.854 to 857/CHNY/2025 dated 04.07.2025 for the A.Ys. 2008-09 to 2011-12 by setting aside the order of the ld.CIT(A) holding that the interest disallowance u/s. 36(1)(iii) was not warranted. The relevant portion of the order is extracted below : "8. We have heard both the parties and carefully perused the records including Paper Books filed by the assessee. The assessee is a company engaged in manufacture of cotton yarn. The assessee company is noted to have invested towards equity shares of M/s.TNMPL and also had advanced monies to it (M/s. TNMPL), its wholly owned subsidiary. The assessee company is noted to have obtained various loans for the purpose of business to the tune of Rs. 150.89 Crs. and also claimed interest expenditure for the loans thus obtained. The AO taking note of the investment & advances given to M/s.TNMPL, presumed that the only source of monies for making advances/investment to the subsidiary M/s.TNMPL was from the business loan of Rs. 150.89 Cr. And therefore, he was of the view that the assessee company had diverted the business loan for the purpose of n....
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....xed funds which includes its own funds in sufficient quantity, which factual finding of ours, in turn raises presumption that its own funds were utilized for making interest-free advance or investment in its subsidiary 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 warranted''. In this regard, it would be gainful to refer to the same principle followed by the ITAT Mumbai Tribunal, in the case of M/s. T. Bhimjyani Realty Pvt. Ltd., in ITA No.4901/Mum/2024 for AY 2018-19 vide order dated 16.01.2025, wherein the....
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....shed considering the finding of fact both by the CIT (Appeals) and ITAT." 12. Therefore, in the light of the aforesaid findings of ours, it is found that the AO and the Ld.CIT(A) erred in making a finding that the assessee didn't had any own funds to invest/advance to its wholly owned subsidiary i.e. M/s.TNMPL, when the fact was that assessee had share application fund to the tune of Rs. 30,90,50,000/- (more than Rs. 30 Cr.) which in any case is interest free & share capital of Rs. 7,06,31,000/- and reserve & surplus of Rs. 7,51,84,580/- [total Rs. 45,48,65,580/-] and therefore had sufficient own funds to make investment/advances to its subsidiary M/s.TNMPL. Thus, the AO erred in making proportionate disallowance of interest which action of the AO/Ld.CIT(A) is erroneous being perverse and therefore set aside and accordingly, the AO is directed to delete the additions made on this account in all the captioned appeals. 13. In the result, appeals filed by the assessee are allowed." 30. In the present facts and circumstances of the case and respectfully following the decision of this Tribunal in assessee's own case (supra), we are of the considered opinion that the....
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....icer stating that the assessee had not furnished the valuation report certified by the independent CA and also the valuation of shares based on NAV method by considering the market value of land and held as under: "13.2 I have carefully examined the assessment order, the grounds of appeal, and the written submissions made by the appellant. Upon examining the records, it is noted that the valuation certificate submitted by the appellant was prepared by the Chartered Accountant Firm T Selvaraj & Co. This same firm also serves as the statutory auditor for the assessee company and has conducted the audit of its financial statements. The rule regarding valuation clearly states that valuation report has to be prepared by an accountant who is not a statutory auditor for the company. The relevant rule applicable for the impugned assessment year is reproduced below: "(a) "accountant" (i) for the purposes of sub-rule (2) of rule 11UA, means a fellow of the Institute of Chartered Accountants of India within the meaning of the Chartered Accountants Act, 1949 (38 of 1949) who is not appointed by the company as an auditor under section 44AB of the Act or under section 224 of th....
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....Further, the ld.AR argued that the valuation is a matter of estimation and, once supported by a professional report based on prescribed methods, it cannot be discarded merely on the basis that the signatory also functions as statutory auditor. Further the ld.AR submitted that during the course of the appellate proceedings, the assessee submitted a valuation using NAV method. It is further submitted that the NAV computation was rejected merely because market value for land was considered instead of book value. The ld.AR also stated that it is pertinent to note that no contrary valuation was furnished by the Department during the course of proceedings, and in the absence of any alternative valuation report, the rejection of assessee's valuation is arbitrary and unsustainable. 38. In light of the above submissions, the ld.AR prayed that the valuation report furnished by the assessee under the DCF method, being in accordance with Rule 11UA, be accepted as valid. It is therefore prayed that the addition made u/s. 56(2)(viib) on account of alleged difference in valuation be deleted in full. 39. Per contra, the ld.DR for the revenue submitted that as accepted by the ld.AR the valuat....