Case: Bell ceramics (Orient Bell Limited) – Part 3, ITAT Surat
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Forum: ITAT SURAT
O. P. Meena
Some cases referred:
C. I.T Central-iii Vs M-s Excel Industries Ltd
Commissioner Of Income Tax Vs V. Mr. P. Firm
S. A. Builders Ltd Vs Commissioner Of Income Tax (Appeals) & Anr
National Thermal Power Co. Ltd Vs Commissioner Of Income Tax
Godhra Electricity Co. Ltd Vs Commissioner Of Income Tax
Commissioner Of Income Tax Vs Britsh Paints India Ltd
Commissioner Of Income Tax Vs Meerut Biri Factory
Income Tax Officer Vs. Food Specialities Ltd
Commissioner Of Income Tax Vs English Electric Co. Of India Ltd
Saurashtra Cement & Chemical Industries Ltd Vs Commissioner Of Income Tax
Saraswati Insurance Co. Ltd Vs Commissioner Of Income Tax
Commissioner Of Income Tax Vs Parle Biscuits Ltd
Surinder Nath Kapoor Vs Union Of India & Ors
Issue: Disallowance of interest on the advances to Subsidiary u/s. 36(1)(iii) pending reconsideration of a decision of SC in case of S A Builders in Tulip Star Hotels
The company had borrowed funds and paid heavy interest on borrowed funds. Further, relying on the decision in case of S A Builders Ltd. v. CIT 288 ITR 1 (SC) wherein the AO in earlier years accepted the claim of the Assessee and did not make any addition on account of interest. Since the commercial expediency of giving advances was accepted by the AO in the earlier years no addition could have been made in the subsequent years.
Interest disallowed by the AO on the ground that interest-free advances made by the Company. Further, it was contended that the decision of S A Builders supra is being reconsidered by the Supreme Court in the case of ACIT v. Tulip Star Hotels Ltd. and thus, not valid.
Interest-free funds in the form of share capital and reserves were in excess of advances given to subsidiary companies. The AO has failed to establish that advances to subsidiary was made out of interest-bearing funds. The decision of the SC in case of S A Builders supra still holds as SLP for reconsideration is still pending and therefore the stand of the AO in earlier years accepting that the advances were given out of commercial expediency is valid.
Written by CA Bhavin Marfatia, Partner | Direct Tax, KC Mehta & Co.