Case Law Details
ACB [India] Power Ltd. Vs DCIT (ITAT Delhi)
Assessing Officer observed that the borrowings of the assessee also has been invested in share capital of subsidiary companies and even the funds raised during the year under consideration have been invested in subsidiary shares of group companies and also repaying the loans. The Assessing Officer was of the firm belief that borrowed funds have been utilised for non business purposes and, therefore, the claim of interest u/s 36(1)(iii) of the Act is not justified. The Assessing Officer was of the opinion that the interest paid on the borrowings should have been for the purpose of business and if the capital borrowed is not utilised for the purpose of business, the assessee is not entitled to deduction under this section. The Assessing Officer, accordingly, made addition of Rs. 82,51,230/-.
The undisputed fact is that this is not the first year of business of the assessee. It is also not in dispute that the subsidiary companies of the assessee are also engaged in the same business of production, generation, transmission and distribution and supply of electricity.
The ratio laid down by the Hon’ble Supreme Court in the case of SA Builders 288 ITR 1 squarely applies on the facts of the case wherein the Hon’ble Supreme Court has held as under:
“Where it is obvious that the holding company has deep interest in is subsidiary and hence if the holding company advances borrowed money to a subsidiary and the same is used for some business purpose of the assessee would, in our opinion, ordinarily be entitled to deduction on interest of its borrowed loans.”
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