The assessee, M/s ACB (India) Power Ltd. company is engaged in the business of production, generation, storage, transmission, distribution and supply of electricity and power and energy. The assessee company is a wholly owned subsidiary of ACB (India) Limited and it is a flagship company of Aryan Group.
The assessee company was incorporated with main objective to carry on the business of production, generation, storage, transmission distribution, supply of electricity, to promote, own, acquire, erect, construct, establish, operate, maintain, take over power companies and to hold shares in power companies.
While completing the assessment proceedings, the Assessing Officer noticed that the assessee has shown a sum of Rs. 2,50,000/-being earned by the assessee from professional consultancy charges. The Assessing Officer also noticed that interest income of Rs. 38,356/- has also been shown under the head “other income”.
The total revenue was shown at Rs. 2,88,356, against which the assessee claimed the various expenses.
The Assessing Officer further observed that the only activity the assessee has carried out in the year under consideration is making investment in subsidiaries.
The Assessing Officer observed that professional consultancy charges which were charged to Maruti Clean Coal& Power Ltd. towards power consultancy for 300MW Project Thermal Power Plant was actually receivable at the end of the year.
The 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 under section 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 an addition of Rs. 82,51,230.
The two-member bench of Bhavnesh Saini and N.K. Billaiya while directing the Assessing Officer to delete the addition of Rs. 82,51,230 held that the assessee has successfully demonstrated that the investment in shares to subsidiary company was in furtherance of main objects of its business and, therefore, in our considered view, the assessee is very much entitled for claim of interest paid on borrowed capital.Subscribe Taxscan AdFree to view the Judgment