The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the Revenue cannot disallow interest expenditure on the presence of common management and unity of control.
The AO on perusal of profit & loss account and balance sheet of the assessee, Trimex Industries Pvt. Ltd noted that there was substantial increase in quantum of secured loans and unsecured loans during the relevant financial year 2008-09 relevant to assessment year 2009-10.
The AO noted the details of total loans including secured and unsecured loans as on 31.03.2008 were Rs.55.47 crores, whereas the same have been increased to Rs.109.02 crores as on 31.03.2009. Further, he noted from the Schedule of Financial Charges that assessee has paid interest on term loan of Rs.2.01 crores and interest of working capital loan of Rs.11.07 crores compared to last year’s of Rs.1.36 crores and Rs.5.10 crores respectively.
The counsel for the assessee explained that the investment of Rs.57 crores made by assessee in Trimex Sands is for the purpose of business because Trimex Sands being a subsidiary company of assessee engaged in the business of beach sand project and this is expansion of the business of the assessee and hence, this advance given to Trimex Sand amounting to Rs.57 crores is for the purpose of business.
As regards to interest free advances given to Pradeep Shipping, the assessee contended that this is subsidiary of the assessee company engaged in the business of handling and stevedoring and other shipping services. The assessee explained the nature of business of the assessee that includes sand mining and shipping business, which the subsidiary company is also doing. The assessee explained this fact from the copy of ledger account that the subsidiary incurred expenditure at harbour and other places on behalf of assessee company.
A Two-Member Bench comprising Mahavir Singh, Vice President and Manoj Kumar Aggarwal, Accountant Member observed that “Even in these subsidiaries and that of the assessee, there is common management and unity of control is there. Once this fact is there, the Revenue cannot disallow the interest expenditure because it is incurred for the purpose of business. Hence, we allow the interest and direct the AO accordingly. The appeal of the assessee is allowed.”
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