Thiruvalluvar Textiles Private Limited Vs ACIT (ITAT Chennai)
ITAT Chennai held that since there was sufficient own funds to make investment/advances to its subsidiary, the interest disallowance under section 36(1)(iii) was not warranted. Accordingly, AO directed to delete the addition.
Facts- The assessee is a company engaged in manufacture of cotton yarn and trading in textile products. The assessee case was selected for scrutiny assessment under CASS. During the assessment proceedings for the A.Y.2013-14, it is noticed that the assessee has invested towards equity shares to the tune of Rs.19,62,46,913/- and also advanced monies of Rs.9,72,69,591/- (Share application money) to M/s. The Narasimha Mills Pvt. Ltd. (TNMPL), its wholly owned subsidiary. However, the AO disallowed the proportionate interest @ 12.5% on the amounts of investments and advances made by the assessee in its subsidiary company for the A.Y.2013-14, 2014-15, 2016-17 & 2017-18 under the pretext that the borrowed funds have been diverted for non-business purposes. It is further observed that, in addition to the disallowance of interest, for the AY 2014-15, an addition u/s.56(2)(viib) of the Act has also been made towards share premium received.
CIT(A) confirmed the disallowance/ addition. Being aggrieved, the present appeal has been filed.
Conclusion- In the similar set of facts of the assessee’s own case has been decided by this Tribunal in order 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. It was held that it 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.
