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Before: Shri V. Durga Rao & Shri Manjunatha, G.
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 18, Chennai, dated 30.01.2023 relevant to the assessment year 2018-19.
Brief facts of the case are that the assessee filed its return of income on 29.09.2018 declaring NIL income and claimed current year loss to the tune of ₹.1,93,48,772/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 22.09.2019 was issued. Subsequently, notice under section 142(1) of the Act dated 22.09.2020, 22.01.2021 and 15.04.2021 were issued on the assessee calling or various details. After considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 05.08.2021 assessing income of the assessee at ₹.7,69,40,503/- after making disallowance of interest of ₹.9,62,89,275/-. On appeal, after considering the submissions of the assessee and facts of the case, the ld. CIT(A) partly allowed the appeal filed by the assessee.
On being aggrieved, the assessee is in appeal before the Tribunal.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. The assessee company M/s. Rishabh Info Park Private Limited is an independent company registered under the companies Act and is into the business of letting out of IT Parks, in order to earn rental income. For the A.Y. 2018-19 the total rental income received and offered as business income was ₹.15.42 crores. The assessee is having infra buildings constructed many years ago, which fetches rental income. For earning rental income, the infra buildings had to only repaired and maintained. No renovation or addition to the building had taken place during the A.Y. 2018-19 or in the immediate earlier years. A sum of ₹.65.92 lakhs was claimed as repairs to building for the A.Y. 2018-19, under the head “Other expenses”. For the A.Y. 2017-18, the amount claimed under repairs and maintenance was ₹. 26.30 lakhs. However the assessee has been availing huge loans of ₹.113 crores as on 31.3.2018 and is incurring huge interest expenses of ₹.14.88 crores for the A.Y. 2018-19 alone). For earning an income of Rs.15.42 crores, as rental income the assessee had claimed an interest expenditure of 14.88 crores. This is apart from various expenses like repairs to building ₹.65.92 lakhs, other expenses (1.52 crores), Employee expenses (51.63 lakhs) and huge depreciation etc. The Assessing Officer has noted that the interest income claim relating to the assessee's own business and relatable to the earning of income is only allowable as a deduction in computing the profits of the assessee's' business. The assessee had availed huge loans and invested the same in subsidiary companies. Either the loans ought to have been taken in the name of the subsidiaries or the subsidiary companies or the other companies in which the loans were invested should pay back interest, in order to compensate the interest outflow in the case of the assessee company. No such interest income was returned by the assessee in the return of income. The assessee cannot claim huge interest outflow and admit NIL interest income/or loses, from such reinvested loans, on the plea that the investments were made in subsidiary companies only. The Assessing Officer further noted that even after completion of the project, the assessee has been in the habit of availing huge loans and paying of huge interest in order to reduce the profit and to create losses. All the present available carried forward loses had occurred due to the assessee claiming high interest outflow, not relating to the business. If the loans are availed for the expansion of the assessee’s business, the interest outflow needs to be capitalized and cannot be claimed as revenue expenditure. The subsidiary companies in which such loans were given without charging interest, could have straightway availed the loans. There is no requirement to route the loans through the assessee company. In view of the above, a show-cause notice was issued to the assessee directing the assessee to bifurcate the interest outflow incurred for the assessee’s own business and interest relating to other subsidiaries/entities.
The assessee has furnished its reply, but not furnished any breakup of interest as called for. After considering the submissions of the assessee, the Assessing Officer has observed that the assessee has availed loans to the extent of ₹.113,95,84,200/- and by diverting interest free loans to sister concerns of ₹.73,71,14,112/-, the assessee has claimed interest expenses of ₹.14,88,63,976/-. Thus, the Assessing Officer determined the interest not allowable which is proportional to the above investments at ₹.9,62,89,275/- and disallowed the same.
On appeal before the ld. CIT(A), the assessee has disputed the said disallowance by raising various objections and the same are reproduced as under: i) The investments in subsidiary companies and advance of loans given to sister concerns were all due to business expediency and therefore the interest cannot be disallowed as held by the Hon’ble Supreme Court in the case of SA Builders. ii) The Ld AO ought to have reduced the balance as on 31/03/2018 in the reserve & Surplus account of Rs.4.63 crore (note no 3 of the Audited Financial Statement enclosed in paper book page no 37- 52) and the total of accumulated depreciation of Rs.28.87 crore (detail in the chart enclosed in paper book page no 53) till the year end 31.03.2018, from the Non-Current Investment of Rs.57.45 crores as available free funds. This plea is made because the Reserve and surplus represents available profits and accumulated depreciation being a non-cash charge against the profits represents availability of resources to meet the investments. iii) The investments in various companies of Rs.57.45 Cr. were made in the earlier years some more than 8 years before and therefore the borrowals cannot be considered as utilized for making the investment. iv) The total finance cost as in the Profit and Loss A/c includes Interest on Term Loan of Rs. 12.42 crore plus Processing and Other fee of Rs.2.45 crore and bank charges of Rs.0.0855 crore. Without prejudice to the grounds taken that no part of the interest is to be disallowed, it is submitted that the Ld AO ought to have considered only Rs. 12.42 crore for the computation of proportionate disallowance of interest u/s 36(1) (iii) . (v) No disallowance of interest was made in the earlier assessment years.
After considering the detailed written submissions and objections of the assessee, the ld. CIT(A) has observed and held as under: 7.4 I have considered the reasons given by the AO in the assessment order and the submissions of the appellant. The main objection of the appellant is that the investments in subsidiary companies were due to business exigency. The appellant was not able to demonstrate as to how the investments in the subsidiary companies helped the business of the assessee and how they have improved the financial position of the appellant company. No material or data was submitted to prove the appellant’s claim. Simply because investments were made in the subsidiary company, it cannot be construed as due to business expediency or commercial expediency. The investments would fetch income for the other subsidiaries and not that of the appellant as the required capital of the subsidiaries were got free of interest from the holding company. I am therefore of the view that the interest on such advances to and investments with subsidiaries were not due to business expediency and therefore the grounds raised
are dismissed, As the assessee has not made out any case of business expediency, the case laws cited by the assessee are not relevant to the facts of the assessee’s case.
8. Even before the ITAT also, the assessee could not able to demonstrate as to how the investments in the subsidiary companies helped the business of the assessee and how they have improved the financial position of the assessee company. No material or data was submitted to prove the assessee’s claim. Simply because investments were made in the subsidiary company, it cannot be construed as due to business expediency or commercial expediency. Thus, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the assessee stands dismissed.
Ground No. 5 raised by the assessee in the grounds of appeal, in respect of carry forward loss is concerned, the assessee has not filed any details before the Assessing Officer or before the ld. CIT(A) or even before the ITAT. Since the assessee has not filed any details, the ground raised by the assessee stands dismissed.