SKG WOODEN WORKS PVT. LTD.,NEW DELHI vs. ITO WARD-23(4), NEW DELHI

Briefly the facts of the case are that assessee company filed return of income declaring loss of Rs.1,898/-. During the year under consideration, there was no business activity carried-out by the assessee company. However, as per page-42 of notes on financial statement for the end of the financial year, it is mentioned that assessee company is engaged in the construction and renovation work on contract basis. The A.O. noticed that assessee had debited an amount of Rs.7,53,425/- on account of interest paid to M/s. Oswal Greentech Limited. Copy of the inter corporate deposit agreement in this regard was furnished by assessee which confirm the same fact that assessee has lend a sum of Rs.10 crores for business requirements. The A.O. show caused the assessee as the loan was given for the business requirements of assessee whereas the same was utilised for the purpose of investment in shares, why the same should not be disallowed. The assessee, however, explained that as 3 ITA.No.5245/Del./2019 M/s. SKG Wooden Works Pvt. Ltd., New Delhi. per loan agreement the amount was invested in subsidiary companies for the purpose of business. The A.O, however, did not accept the contention of assessee and made the addition by disallowing the interest. The Ld. CIT(A) in the absence of assessee dismissed the appeal of assessee.

Learned Counsel for the Assessee reiterated the submissions made before the authorities below and filed written synopsis also. He has explained that assessee filed replies before the authorities below along with details to show that amount was invested in subsidiary for business purposes which is supported by bank statements, copy of inter corporate deposit agreement with M/s. Oswal Greentech Limited, copy of the ledger of interest paid in the books of the assessee company and copy of the Memorandum and Articles of assessee company. He has submitted that assessee company took loan of Rs.5 crores from M/s. Oswal Greentech Limited for the purpose of business expansion and paid the impugned interest on such loan. However, during the year under consideration assessee could not find a suitable opportunity, therefore,

The Ld. D.R, on the other hand, relied upon the Orders of the authorities below and submitted that since loan was invested in shares of other company, therefore, assessee would not be entitled for deduction of interest.

I have considered the rival submissions and do not find any justification to sustain the addition. The 6 ITA.No.5245/Del./2019 M/s. SKG Wooden Works Pvt. Ltd., New Delhi. assessee filed the above documentary evidences before A.O. to show that assessee has inter corporate deposit agreement with M/s. Oswal Greentech Limited and one of the clause of the Memorandum of Articles of Association of assessee company is to make investments also in subsidiary. The facts, therefore, would clearly show that for commercial expediency the assessee has made investment in shares of the subsidiary company and as such, the amount invested shall have to be considered that amount is invested for business purposes and for commercial expediency. The issue is, therefore, covered in favour of the assessee by the Judgment of Hon’ble Supreme Court in the case of S.A. Builders (supra). The assessee, thus, has fulfilled the conditions of Section 36(1)(iii) of the I.T. Act, 1961. I, accordingly, set aside the Orders of the authorities below and delete the entire addition.

In the result, appeal of Assessee allowed.