No Disallowance of Interest Expenses if Investment was made to acquire controlling interest: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that no disallowance can be made for interest expenses if the investment was made to acquire the controlling interest in the company.

The assessee is a private limited company and engaged in the business of trading as well as indenting agents and providing consultancy services. The AO during the assessment proceedings found that the assessee on one hand has incurred interest expenses on the borrowed fund and on the other hand it has given loans to certain parties without interest. Thus, the AO was of the view that the borrowed funds has been diverted for interest free advances and added the same to the income of the assessee.

On first appeal, the appellate authority confirmed the order by holding that the disallowance needs to be made under the provision of section 14A of the Act since the assessee has made the investment by acquiring the shares of different companies out of the borrowed funds. As per him, such investment was capable of generating the dividend income which is free from tax.

The department contended that at the time when assessee has acquired the shares, these companies were not the subsidiary companies to the assessee and there was no information on record that whether the investment was made by the assessee to acquire the controlling interest.

Overruling the findings of the first appellate authority, the two-member bench comprising Judicial member Ms. Suchitra Kamble and Accountant Member Mr. Waseem Ahmed held that the investments was made by the assessee in the companies in order to have controlling stake which is considered as for the purpose of the business.

“Therefore, there cannot be any disallowance of interest expenses. The facts of the present case are identical to the facts of the case as discussed above. Accordingly, we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of the appeal of the assessee is allowed,” the Tribunal added.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.