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Interest-free loan to subsidiary company

Tax queries 1042 views 1 replies

Kaushal

Manager

24 Points Posted on 02 April 2015

Hello,

My Company has received a notice from IT department towards concealment of Income by Parent Company towards Interest free loan given to its fully owned Subsidiary based in India.

Parent Company has taken a Term loan from Bank a certain% Interest for expansion of its Business. In turn for expansion of its subsidiary , Parent Company has given Interest free loan to Subsidiary.

My query is is it justified to issue Notice by IT dept to parent Company stating concealment of Income (as loan is interest free to Subsidiary).

Can you please help me with this query and provide any case law to support the same.

Regards

Kaushal

Replies (1)

Member

Management

325 Points Posted on 04 April 2015

Looks like a notice for reopening of assessment has been issued. The Department is probably taking the stand that interest bearing funds have been diverted for non business purposes. In general, such issues are not raked up by the Department, ever since the Supreme Court had delivered its judgement in SA Builders case. Now the Court is having second thoughts, and some High Courts are sustaining additions on this count based on the facts of the case.