DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE vs. GMR AIRPORTS LTD, BANGALORE

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ITA 2187/BANG/2025Status: DisposedITAT Bangalore23 October 2026AY 2018-1931 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the Revenue's appeal for AY 2016-17 and subsequent years on the issue of interest expenditure under Section 36(1)(iii). It held that investment in SPVs is an integral part of the assessee's business activity, upholding the CIT(A)'s finding that the assessee is engaged in the business of operating, developing, and maintaining airports through its SPVs. The Tribunal also dismissed the Revenue's appeal concerning CSR expenditure, stating that similar issues were adjudicated for AY 2016-17 and the findings would apply mutatis mutandis. Regarding Section 14A, the Tribunal upheld the CIT(A)'s decision to restrict the disallowance to investments that yielded exempt income, following the Special Bench decision in Vireet (P.) Ltd. and the Tribunal's own decision in the assessee's case for AY 2014-15. The assessee's cross-objection was dismissed as not pressed. The operative direction was that the Revenue's appeals were dismissed, and the assessee's cross-objection was dismissed.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, heard appeals and cross-objections concerning M/s. GMR Airport Ltd. (the assessee) and the Deputy Commissioner of Income-Tax (the Revenue) for assessment years 2016-17, 2017-18, and 2018-19. The appeals stemmed from orders passed by the Commissioner of Income Tax (Appeals) - 15, Bengaluru. The Revenue's appeals challenged the CIT(A)'s deletion of disallowances related to interest expenditure under Section 36(1)(iii), CSR expenditure under Section 80G, and expenses for 'Project Jagruthi'. The assessee's cross-objection for AY 2018-19 was also considered. The core dispute involved whether investments in subsidiaries by a holding company constitute business activity and the allowability of related interest expenses and CSR deductions.

What were the issues?

1. Whether, on the facts and in the circumstances, the CIT(A) erred in allowing the deduction of interest expenditure incurred under Section 36(1)(iii) by holding it as a business activity, ignoring that a holding company's investment activity is promoter activity and not business activity. 2. Whether, on the facts and in the circumstances, the CIT(A) erred in allowing CSR expenditure a deduction under Section 80G, as the legislature's intent is for CSR expenditure to be out of tax-paid profits, and allowing it under Section 80G defeats this purpose. 3. Whether, on the facts and in the circumstances, the CIT(A) erred in deleting the disallowance of expenses incurred towards 'Project Jagruthi' under 'legal & Professional fees' under Section 37, by holding it as business activity, ignoring that a holding company's investment activity is promoter activity and not business activity. Assessee's contentions (implied from the Revenue's grounds and the Tribunal's discussion): The assessee argued that investment in shares and securities is permitted by its Memorandum and Articles of Association, and interest on borrowed funds for such investments is allowable under Section 36(1)(iii) as it pertains to its business. The assessee also claimed CSR expenditure as deductible. Revenue's contentions: The Revenue argued that investment by a holding company in its subsidiaries is not a business activity but a promoter activity. It contended that allowing CSR expenditure under Section 80G defeats the legislative intent of incurring such expenses from tax-paid profits. The Revenue also disputed the deletion of disallowance for 'Project Jagruthi' expenses.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 80G,Section 37,Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL

Heard together (2 matters)

ITA 1341/BANG/2025
CO 1/BANG/2026

Read from the judgment's own cause title. This page is filed under one of them.

PER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER:

The present appeals and cross-objections arise from separate impugned orders passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals) – 15, Bengaluru [“learned CIT(A)”], for the assessment years 2016-17 to 2018-19.

2.

Since all the matters pertain to the same assessee involving similar issues which arise out of similar factual matrix, these matters were heard together and are being decided by way of this consolidated order.

ITA No. 1302/Bang/2026 Revenue’s Appeal – A.Y. 2016-17 3. In this appeal, the Revenue has raised the following grounds: -

i.Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the deduction of the interest expenditure incurred u/s 36(1)(iii) of the Act, by holding it as business activity ignoring the fact that the investment activity of a holding company is a promoter activity and not a business activity'. ii.Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the CSR expenditure claiming deduction u/s 80G of the Act whereas the legislature's intention is to make certain companies expend CSR expenditure out of the tax paid profits and therefore taxpayers's claim to allow CSR expenditure u/s 80G defeats the very purpose of CSR expenses which must be incurred out of tax paid profits. iii.Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of expenses incurred towards 'Project jagruthi' under 'legal & Professional fees' u/s 37 by holding it as business activity ignoring the fact

that the investment activity of a holding company is a promoter activity and not a business activity'. 4. Ground No. 1, raised in Revenue’s appeal, pertains to the deletion of disallowance under section 36(1)(iii) of the Act in respect of interest expenditure incurred by the assessee.

5.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee, as the holding company of the airport operations vertical of GMR Group, is engaged in the business of securing various airport-related concessions and contracts from the Government of India and also from the foreign country and for the said purpose, the assessee operates through various subsidiaries/Special Purpose Vehicles (“SPVs”). For the year under consideration, the assessee filed its return of income on 24.11.2016, declaring a total income of Rs. 47,86,53,300/-. The return filed by the assessee was selected for scrutiny, and statutory notices were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has availed a loan of Rs. 450 crore from Axis Bank and debited interest of Rs. 40.2 crore against the said loan. Accordingly, the assessee was asked to provide the purpose for which the loan was taken and its actual utilisation. In response, the assessee submitted that the loan of Rs. 450 crore was availed from Axis Bank Ltd. in two tranches of Rs. 380 crore and Rs. 70 crore. The assessee submitted that Rs. 380 crore received as a loan from Axis Bank was utilised towards purchase of 10% equity stake in Delhi International Airport Ltd. (“DIAL”) for a total consideration of Rs. 508.33 crores and the balance amount of Rs. 70 crores was used for general corporate purposes. Since interest was paid on a capital of Rs. 380 crore borrowed by the assessee, which was utilised for purchase of an additional 10% stake in the group company, the assessee was asked to show cause as to how the said interest payment is covered under section 36(1)(iii) of the Act and also to explain as to how the acquisition of stake in the subsidiary constitutes a business activity of the assessee.

In response, the assessee submitted that the main objects in the Memorandum and Articles of Association permit the assessee to invest in shares, securities, etc. The assessee submitted that pursuant to the above objects, the assessee, during the year under consideration, made an acquisition of a 10% equity stake in DIAL for a total consideration of Rs. 508.33 crore and utilised Rs. 380 crore received as a loan from Axis Bank for the said purpose. Thus, the assessee submitted that since the investment in shares, securities, etc., was part of the objects of the assessee company, payment of interest on funds borrowed for the purpose of its business is allowable as a deduction under section 36(1)(iii) of the Act.

6.

The Assessing Officer (“AO”), vide order dated 29.12.2018 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that investment by holding company in its subsidiary companies does not constitute a business activity for the holding company. The AO held that the activity of maintaining investment by the holding company amounts to “investment” and not “business activity”. Thus, it was held that interest on borrowed capital utilised for making such investment is not allowable under section 36(1)(iii) of the Act. By referring to the objects of the assessee as mentioned in the Memorandum and Articles of Association, the AO held that the assessee is not in the business of development and construction of airports and is earning revenue from consultancy income, interest income, Aviation Academy income, Air Freight Station income, income from investment in subsidiaries and dividend income. The AO held that although the assessee's objects include development and construction of airports, the assessee’s revenue stream is only from consultancy services, Aviation Academy income, etc. Thus, the AO held that the assessee has no income whatsoever from the activity of building and construction of airports. The AO held that although the Memorandum of Association lists development of Airports as Object 1, the assessee does not engage in such activity and is actively pursuing Object 2, i.e., investing in other

companies as a promoter company. In support of its conclusion, the AO placed reliance upon the decision of the Hyderabad Bench of the Tribunal in M/s. GVK Airport Developers Ltd. vs. ITO, in ITA No. 488/Hyd/2017. Thus, the AO held that the investment in a sister concern does not amount to a business activity of the assessee. Accordingly, the AO held that the capital of Rs. 380 crore borrowed from Axis Bank, for the acquisition of additional stake in its subsidiary, is not for the purpose of business and the interest paid on such borrowed capital amounting to Rs. 33,96,09,067/- was disallowed under section 36(1)(iii) of the Act.

7.

The learned CIT(A), vide impugned order, after considering the submissions of the assessee and findings of the AO on this issue, held that the assessee is actively engaged in the business of operating, developing and maintaining airports and related ancillary activities through its SPVs. The learned CIT(A) held that investment in SPVs is an integral part of the assessee’s business activity. Further, the learned CIT(A) also took into consideration the fact that the assessee is registered as a Non-Banking Finance Company (“NBFC”) under section 45-IA of the RBI Act, 1934, and therefore carries on activities, which include financing subsidiaries and making investments. The learned CIT(A) further noted that the decision of the Hyderabad Bench of the Tribunal in GVK Airport Developers Ltd. (supra), relied upon by the AO, was subsequently recalled in MA No. 95/Hyd/2018, vide order dated 18.04.2019. Further, the learned CIT(A) held that the facts in the said decision differ from the present case, as in that case the taxpayer was a passive investor in the SPV and not a direct shareholder like in the present case. Accordingly, the learned CIT(A) held that even on merits, the decision of the Hyderabad Bench of the Tribunal in GVK Airport Developers Ltd. is factually distinguishable. The learned CIT(A) relied upon the decision of the Hon’ble Jurisdictional High Court in CIT vs. Brigade Enterprises Ltd., reported in (2021) 429 ITR 615 (Karn.) and CIT vs. Anand Technology Resource Park Pvt. Ltd., reported in (2002) Taxman 645 (Karn.).

Accordingly, the learned CIT(A) held that the assessee is entitled to claim the deduction under section 36(1)(iii) of the Act in respect of interest paid on funds borrowed for the purpose of acquisition of additional stake in subsidiary. Being aggrieved, the Revenue is in appeal before us.

8.

During the hearing, the learned Department Representative (“learned DR”) submitted that the balance sheet of the assessee for the year under consideration carries Non-Current Investments of Rs. 2,229 crore at cost, which constitutes about 88.3% of the total assets, with NIL stock-in-trade in securities. The learned DR submitted that the balance sheet of the assessee is the balance sheet of an investment holding company and not of an airport operator. The learned DR submitted that Rs. 380 crore taken on loan from Axis Bank, which was utilised for financing the acquisition of an additional 10% stake in DIAL, is a capital investment and not carrying on of the assessee’s fee-earning activity. Thus, it was submitted that there is no nexus between the borrowing and the consultancy business of the assessee. The learned DR further submitted that the assessee itself has treated the return on investment as non-business income and therefore is not entitled to claim deduction under section 36(1)(iii) of the Act. The learned DR submitted that the AO has rightly concluded that the acquisition and holding of stakes in a subsidiary is a promoter/investment activity. It was further submitted that the business of the subsidiary is not the business of the assessee and the permission in the Memorandum of Association to make investment does not convert investment into business. In support of his submissions, the learned DR, inter alia, placed reliance upon the decision of the Coordinate Bench of the Tribunal in Coffeeday Enterprises Ltd. vs. ITO, reported in ITA No. 1367/Bang/2017 and Tata Chemicals vs. DCIT, reported in (2026) 183 taxmann.com 164 (Mumbai – Trib.). Accordingly, the learned DR vehemently relied upon the order passed by the AO.

9. On the other hand, the learned Authorised Representative (“learned AR”) submitted that the assessee’s main object is to carry the airport business either directly or through investment and to provide financial assistance as may be conducive for the development, construction, operation, maintenance, etc. of the projects in India or abroad in the field of airport. The learned AR, by referring to the objects of the assessee as enumerated in the Memorandum and Articles of Association, submitted that providing financial assistance by way of subscription to or investing in the equity shares or any other financial assistance as may be conducive for development, construction, operation, maintenance, etc. of airport projects is one of the objects of the assessee. The learned AR further submitted that the assessee has been granted registration as a Non-Banking Financial Institution by the RBI under section 45-IA of the RBI Act, 1934, which permits the assessee to acquire shares, stock, bonds, debentures, and securities. The learned AR submitted that thus the assessee is a Core Investment Company as defined by RBI. It was further submitted that the assessee has controlling interest in DIAL and appoints the Chairman and Directors of DIAL. The learned AR further submitted that the assessee has also given corporate guarantees to banks to issue counter guarantees in respect of DIAL, in addition to various long-term investments pledged towards borrowing by DIAL. Thus, the learned AR submitted that the assessee is not a mere investor and is entitled to claim deduction under section 36(1)(iii) of the Act. By placing reliance upon the decision of the Hon’ble Supreme Court in Sharp Business System vs. CIT, reported in (2026) 484 ITR 509 (SC), the learned AR submitted that since, in the present case, the funds were borrowed for the purpose of making investments in the subsidiary, wherein the assessee has controlling interest, the interest paid on borrowed funds is allowable as deduction under section 36(1)(iii) of the Act, as the investment was clearly for commercial expediency. As regards the decision placed upon by the learned DR, in its written submission, the learned AR submitted that either these decisions do not pertain to the deduction claimed under section 36(1)(iii) of the

Act or have not taken into consideration the decision of the Hon’ble Supreme Court in Sharp Business System (supra). Thus, the learned AR submitted that this issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in Sharp Business System (supra).

10.

We have considered the submissions of both sides and perused the material available on record. The assessee was incorporated on 06.02.1992 as an Investment and Finance Company in the name of Medvin Finance Pvt. Ltd. Later, the said name was changed to GVL Investments Pvt. Ltd. on 28.04.2025, which was subsequently changed to GMR Airports Holdings Pvt. Ltd. on 10.11.2009. On 09.02.2010, the name was changed again to GMR Airport Holdings Ltd., and finally, on 03.05.2012, to GMR Airports Ltd., i.e., the current name of the assessee company. In the present case, it is undisputed that the assessee is the flagship holding company of GMR Group's Airport Vertical. Further, the assessee was a successful bidder for the Delhi Airport under the Public-Private Partnership model of the Government of India to privatise the said airport. Accordingly, the assessee formed an SPV, i.e. DIAL, with the Airport Authority of India as a shareholder. During the year under consideration, the assessee utilised Rs. 380 crore obtained as a loan from Axis Bank towards acquisition of a 10% equity stake in DIAL for a total consideration of Rs. 508.33 crore. After the said acquisition, the assessee’s share in DIAL increased to 64%.

11.

From the perusal of the Memorandum of Association of the assessee, which forms part of the paper book from Pages 7-249, we find that the assessee was formed mainly to promote, operate, maintain, and develop projects/facilities in India or abroad in the field of airports. The main objects of the assessee provided in the Memorandum of Association, which are relevant for adjudication of this issue, are as follows: - “A. MAIN OBJECTS TO BE PURSUED BY THE COMPANY ITS INCORPORATION ARE: 1. To carry on the business of development, maintenance and operation of airport, carry out detailed studies for the airport project inclusive of physical/ engineering surveys and investigation, concept planning, detailed master planning, detailed design and engineering and all such activities including investment that together provides the basis for the implementation of the project. 2. To undertake and carry on the business of providing financial assistance by way of subscription to or investing in the equity shares, preference shares, debentures, Bonds including providing of long term and short term loans, subscription to fully convertible bonds non convertible bonds, partially convertible bonds, optional convertible bonds etc., giving guarantees or any other financial assistance as may be conducive for development, construction, operation, maintenance etc., of projects in India or abroad in the fields of airports, all airport related activities including aeronautical, non-aeronautical, commercial, airport city development, etc., aviation, roads, highway, power generation and for power distribution or any other form of power, telecommunication services, bridge(s), airport(s), ports, rail system(s), water supply, irrigation, sanitation and sewerage system(s), Special Economic Zones or other Export Promotion Parks, Software Technology Parks, Electronic Hardware Parks, Bio-Technology Parks and any other industrial parks or any other facility of similar nature 3. ……… 4. ……… 5. To promote, operate, maintain, develop, design, construct, upgrade, modernize, finance, manage, renovate, expand and/or alter any airport in India or abroad and also airport related businesses including aeronautical, non-aeronautical, commercial, airport city development, etc and to provide infrastructure facilities for domestic and international flights, such as runways, terminals for passengers, cargo and passenger amenities and all other related, allied and ancillary facilities, including commercial and non-aero activities, either alone or as a joint venture with a third party (such third party may be a private entity, any statutory authority, Government of India, any State Government or any organization). 6. ………” (Emphasis Supplied) 12. Therefore, from the perusal of the aforementioned objects of the assessee as provided in the Memorandum of Association, it is evident that providing financial assistance by subscription to or investing in the equity shares or any other financial assistance as may be conducive for development, construction, operation, maintenance etc. of projects in India or abroad in the field of airports

is one of the main objects of the assessee. It is pertinent to note that the Reserve Bank of India also certified the assessee on 22.04.2014 as a Non-Banking Financial Institution, i.e., a Systemically Important Core Investment Company (CIC-ND-SI) under section 45-IA(4) of the Act. A copy of the said registration certificate is placed in the paper book on Page No. 2. As per the provisions of section 45-I of the RBI Act, 1934, Non-Banking Financial Company means a financial institution which, inter alia, carries on the business of acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of alike nature. Further, the Master Circular dated 01.07.2013 issued by RBI provides that a Core Investment Company carrying on the business of acquiring shares and securities does not trade in its investments in shares, bonds, debentures, debts, or loans in group companies. From the Audited Annual Accounts of the assessee for the year under consideration, forming part of the paper book from Pages 337-391, we find that the assessee has recorded investments in subsidiaries, including DIAL, under the head “Non-Current Investments”. Accordingly, as per the assessee, being a Non- Banking Financial Institution under section 45-IA of the RBI Act, 1934, it was entitled to acquire shares as investments, and the increase in its stake in equity shares of DIAL from 54% to 64% is part of its business activity. Therefore, as per the assessee, the interest paid on a sum of Rs. 380 crore received as a loan from Axis Bank, which was utilised for purchase of 10% equity stake in DIAL, is allowable as deduction under section 36(1)(iii) of the Act. On the other hand, as per the Revenue, the activity of maintaining investment by a holding company in the subsidiary does not amount to business activity, and since the assessee was not in the business of development and construction of airports, the loan taken from Axis Bank was not for the purpose of the business of the assessee. Accordingly, as per the Revenue, the assessee is not entitled to claim deduction under section 36(1)(iii) of the Act.

13.

Before proceeding further, it is relevant to note the provisions of section 36(1)(iii) of the Act, which read as follows: - “36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— ……….. ………. (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.

Explanation. - Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” 14. Thus, for applicability of the provisions of section 36(1)(iii) of the Act, the following three prerequisites are required to be satisfied: - (a) interest is paid by the assessee; (b) capital is borrowed by the assessee; and (c) borrowed capital is for the purpose of business or profession of the assessee 15. In the present case, there is no dispute regarding the fact that a loan of Rs. 380 crore was received by the assessee from Axis Bank Ltd. during the year under consideration and on the said loan interest was paid by the assessee. Therefore, the first two prerequisites for the applicability of the provision of section 36(1)(iii) of the Act are satisfied in the present case. The solitary dispute amongst the parties is regarding the purpose for which the capital was borrowed by the assessee. As per the Revenue, since the borrowed capital was used for acquiring a 10% stake in the subsidiary, the last prerequisite for applicability of this section is not satisfied, as acquisition of shares in a subsidiary cannot be said to be the business

activity of the holding company and the same is merely in the nature of investment. On the other hand, as per the assessee, since providing financial assistance by way of subscription of equity shares was one of its objects for development, construction, operation, maintenance, etc., of airport projects, the utilisation of loan of Rs. 380 crore received from Axis Bank for purchase of 10% equity stake in DIAL constitutes borrowing capital for the purpose of business of the assessee.

16.

From the documents placed on record, we find that the assessee, being a Non-Banking Financial Institution under section 45-IA of the RBI Act, 1934, was authorised to acquire shares as investments. Accordingly, the assessee has recorded all investments in its subsidiaries related to airport operations as Non- Current Investments. We further find that revenue from operations arose only from the sale of mutual funds, interest income from financing airport companies, dividend income, consultancy fees, Aviation Academy Income, and Air Freight Station Income. Thus, it is evident that in conformity with the RBI guidelines, the assessee did not trade in its investments in shares. From the perusal of the Shareholders Agreement between the Airport Authority of India and other parties, including the assessee, we find that the assessee, having more than 50% equity share capital in DIAL, has the right to nominate the Chairman and maximum Directors of DIAL. From the Audited Annual Accounts of the assessee, forming part of the paper book, we further find that the assessee has also given a corporate guarantee for issuing a counter guarantee of Rs. 390 crores in respect of DIAL, apart from pledging its long-term investments towards borrowing by DIAL. Thus, it is evident that investing in the subsidiary company is one of the assessee's business activities. Accordingly, we agree with the assessee's submissions that investing in a subsidiary involved in airport operations and providing financial assistance form part of its business activity.

17.

We find that the Hon’ble Supreme Court in Sharp Business System (supra) held that interest paid on borrowed funds utilised for investment in a subsidiary to obtain controlling interest qualifies as commercial expediency and such interest is allowable under section 36(1)(iii) of the Act. The relevant findings of the Hon’ble Supreme Court, in the aforesaid decision, are reproduced as follows: -

“39. Adverting to the facts of this case, we find that the respondent assessee had claimed interest on borrowed funds under Section 36(1)(iii) of the Act which was utilized for investment in M/S Ceylon Glass Company Ltd., a subsidiary company of the assessee. The investment was made for controlling the interest in the associate concern by purchase of shares. Thus the investment was clearly for commercial expediency. We agree with the finding recorded by the ITAT and affirmed by the High Court that assessee is entitled to claim allowance of interest on the funds invested in sister concern for acquiring of controlling interest. 40. Following the decision of this Court in SA Builders Ltd. (supra), we find that the purpose for which the advances were made to the sister concern and its directors would also be covered by the principle of commercial expediency. 41. Accordingly, the decision of the ITAT on this point, which was not interfered with by the High Court, is hereby affirmed. Consequently, the appeal filed by the revenue on this issue is dismissed. The question framed in paragraph 5.2 of this judgment is thus answered in favour of the assessee and against the revenue. 42. All the appeals are hereby disposed of in terms of paragraphs 29 to 34 and 39 to 41 supra.”

18.

We further find that in L.K. Trust vs. CIT, reported in (2026) 489 ITR 10 (SC), the Hon’ble Supreme Court, following its earlier decision in Sharp Business Systems (supra), allowed deduction of interest claimed under section 36(1)(iii) of the Act in respect of funds borrowed to acquire controlling interest in a company through a group company. The relevant findings of the Hon’ble Supreme Court in L.K. Trust (supra) are reproduced as follows: - “ANALYSIS 11. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the High Court committed any error in passing the impugned order? 12. Section 36(1)(iii) reads as follows:

"36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 — (i) and (H) ****** (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :- Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation. — Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause." 13. The sub section has three important words or phrases, i.e., (i) Interest, (ii) Borrowed and, (iii) For the purpose of business or profession. 14. The definition of "interest" in Section 2(28A) means "interest payable in any manner in respect of any moneys borrowed or debt incurred". But for Section 36(1)(iii), "interest" is restricted to that on money borrowed and not on debt incurred. In other words, the essence of interest is that it is a payment which becomes due because the creditor has not had his money at his disposal. It may be regarded either as representing the profit he might have made if he had had the use of his money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. 15. The provisions of Section 36(1)(iii) concern capital borrowed and not other debts or liability. A loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources and a loan is one of such sources. The legislature has, under this clause, permitted as an allowance interest paid on capital borrowed for the purposes of the business; and the capital, in this context, means money and not any other asset purchased on credit Bombay Steam Navigation Co. v. CIT [1965] 56 ITR 52 (SC). 16. The expression "for the purpose of business" occurs in Section 36(1)(iii) and also in Section 37(1). A similar expression with different wording also occurs in Section 57(iii) which reads as "for the purpose of making or earning income". This issue came up for consideration before this Court in the case of Madhav Prasad Jatia v. CIT [1979] 1 Taxman 477/ 118 ITR 200 (SC) . The Court held that the expression occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii). Thus, meaning thereby that the scope for allowing a deduction under Section 36(1)(iii) would be much wider than the one available under Section 57(iii). 17. It appears on a plain reading of the impugned order that according to the High Court, the business of the subsidiary company cannot be considered in law as the business of the assessee. The High Court took the view that the finding of the tribunal based on commercial expediency is not correct. The High Court went on to observe that the amount borrowed was ultimately utilised for the benefit of the subsidiary company of the assessee and not for the business of the assessee as such.

18.

We are afraid that the High Court fell in error in taking the aforesaid view. 19. In Sharp Business System v. CIT [2025] 181 taxmann.com 657/[2026] 484 ITR 509/308 Taxman 285 (SC)/2025 SCC OnLine SC 2892, one of the questions considered by this Court was whether interest on borrowed funds invested by the assessee in its sister concern and its directors is an allowable business expenditure. 20. In aforesaid context, this court made an analysis of Section 36 of the Income Tax Act, 1961, more particularly, Section 36(1) (iii) thereof. After referring to its earlier decision in S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1/158 Taxman 74 (SC)/ 288 ITR(1), it has been opined that the court should examine the transfer of borrowed funds from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 21. In the facts of that case, it was held that the assessee was entitled to claim allowance of interest on the borrowed funds invested in a sister concern for acquiring controlling interest. 22. We are in complete agreement with the line of reasoning assigned by the ITAT insofar as the interpretation of Section 36(1) (iii) of the Act 1961 is concerned. 23. In the result, this Appeal succeeds and is hereby allowed.” 19. Therefore, having considered the facts and circumstances of the present case in light of the decisions of the Hon’ble Supreme Court in Sharp Business System (supra) and L.K. Trust (supra), we are of the considered view that the investment in subsidiary qualifies as business activity of the assessee and any interest paid on funds borrowed for investment in subsidiary is allowable under section 36(1)(iii) of the Act.

20.

As regards the decisions relied upon by the learned DR in Para 3A.5A of the written submission, we find that the same pertains to the allowability of deduction under section 57(iii) of the Act. As noted by the Hon’ble Supreme Court in L.K. Trust (supra), the expression occurring in section 36(1)(iii) is wider in scope than the expression occurring in section 57(iii) of the Act. Therefore, we are of the considered view that the decisions as relied upon by the learned DR in Para 3A.5A of the written submission are not relevant for the present case. Further, the decision of the Hon’ble Delhi High Court in CIT vs. Tinbox Company, reported in (2004) 135 Taxman 145 (Delhi), referred to by the learned

DR in the written submission, pertains to the allowability of interest under section 36(1)(iii) of the Act in a case where the taxpayer had surplus funds. However, such are not the facts of the present case. As regards the decision of the Coordinate Bench of the Tribunal in Tata Chemicals Ltd. (supra) relied upon by the learned DR, we find that even though the said decision was pronounced on 04.02.2026, the same has not taken into consideration the decision of the Hon’ble Supreme Court in Sharp Business System (supra) pronounced much earlier on 19.12.2025. We further note that the decision of the Hon’ble Supreme Court in Sharp Business System (supra) was also not relied upon by the taxpayer before the Coordinate Bench in Tata Chemicals Ltd. (supra). In light of the decisions of the Hon’ble Supreme Court in Sharp Business System (supra) and L.K. Trust (supra), the other decisions relied upon by the learned DR in the written submission have no relevance, as the Hon’ble Supreme Court has settled the controversy in a similar factual pattern. Further, pursuant to the decision in L.K. Trust (supra), the submission of the learned DR that in Sharp Business System (supra) no arguments were placed by the Revenue is also rendered insignificant, as in the said case allowability of interest under section 36(1)(iii) of the Act was the sole issue and the Hon’ble Supreme Court, after considering its earlier decision rendered in Sharp Business System (supra), decided the issue in favour of the taxpayer.

21.

Since in the present case, from the perusal of the documents placed on record, it is evident that the acquisition of stake in subsidiary company involved in airport operations forms part of the business activity of the assessee, we are of the considered view that the last prerequisite for the applicability of section 36(1)(iii) of the Act is also fulfilled. Additionally, the issue of allowability of interest under section 36(1)(iii) of the Act on funds borrowed for acquisition of share/investment in subsidiary is now covered in favour of the assessee by the decisions of the Hon’ble Supreme Court in Sharp Business System (supra) and L.K. Trust (supra). Therefore, we do not find any infirmity in the directions of the

learned CIT(A) in allowing the interest under section 36(1)(iii) of the Act on a loan of Rs. 380 crore received by the assessee from Axis Bank for acquisition of a 10% equity stake in DIAL. Accordingly, the impugned order on this issue is upheld, and Ground No. 1, raised in Revenue’s appeal, is dismissed.

22.

Ground No.2, raised in Revenue’s appeal, pertains to the denial of deduction claimed under section 80G of the Act on Corporate Social Responsibility (“CSR”) expenses.

23.

We have considered the submissions of both sides and perused the material available on record. For the year under consideration, the assessee debited a sum of Rs. 1,42,15,000 as CSR expenses and Rs. 25 lakhs as donation, totalling Rs. 1,67,15,000. The entire expenditure was added back in computing income, and 50% of it was claimed under section 80G of the Act. Since CSR expenditure is not allowable under Explanation 2 to section 37 of the Act, the assessee was issued a show cause notice. In response, the assessee submitted that section 80G of the Act is a standalone provision that allows a deduction from gross total income while computing total income. It was further submitted that section 80G would apply after income has been computed under the various heads of the Act. Thus, it was submitted that section 80G of the Act has no dependency on any other provision of the Act. It was also submitted that disallowance of an expenditure under section 37 can have no bearing on allowance of deduction under section 80G of the Act.

24.

The AO, vide assessment order, disagreed with the assessee’s submissions and held that the CSR expenses arise under the Companies Act, 2013. The AO held that section 135 of the Companies Act, 2013 mandates certain companies to incur CSR expenses. Thus, it was held that the legislature’s intention is to make certain companies incur CSR expenses out of the tax-paid profits, and therefore the assessee’s claim to allow CSR expenses under section 80G of the Act defeats the very purpose of incurring CSR expenses by the companies. Accordingly, the AO disallowed Rs.83,57,000 claimed under section 80G of the Act.

25.

The learned CIT(A), vide impugned order, following the decision of the Delhi Bench of the Tribunal in Honda Motorcycle and Scooter India Private Ltd v/s DCIT, in ITA No. 1523/Del/2022, order dated 22.08.2023, directed the AO to allow assessee’s claim of deduction under section 80G subject to factual verification of the assessee’s claim that donee institutions are registered under section 80G and other conditions of section 80G of the Act are fulfilled. Being aggrieved, the Revenue is in appeal before us.

26.

Thus, the grievance of the Revenue is against the allowance of deduction under section 80G of the Act in respect of CSR expenditure incurred by the assessee. In the present case, it is undisputed that the assessee has not claimed the CSR expenditure under section 37(1) of the Act, and its claim is only restricted to section 80G of the Act. We find that a similar issue came up for consideration before various Coordinate Benches of the Tribunal. In Allegis Services (India) Private Ltd. vs. ACIT, in ITA No. 1693/Bang./2019, the deduction in respect of CSR expenditure under section 80G of the Act was denied by the Revenue on a similar basis as in the present case. While deciding the issue in favour of the taxpayer, the Coordinate Bench of the Tribunal, vide order dated 29.04.2020, observed as follows: - “We have perused submissions advanced by both sides in light ofrecords placed before us. 10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 01/04/2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub- section (1) of section 37, so as to clarify that for purposes of sub- section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

11.

This amendment will take effect from 1/04/2015 and will,accordingly, apply to assessment year 2015-16 and subsequentyears.

12.

Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income Tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: “The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clare that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein." 13. From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, 'Income from Business and Profession" to those, who pursue corporate social responsibility projects under following sections. • Section 30 provides deduction on repairs, municipal tax andinsurance premiums. • Section 31, provides deduction on repairs and insurance ofplant, machinery and furniture. • Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. • Section 33 allows development rebate on machinery, plantsand ships. • Section 34 statesconditions for depreciation and development rebate. • Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions orcompany also qualifies for deduction. In-house R&D is eligible for deduction, under this section. • Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. • Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: • Section 80G(2) provides for sums expended by an assessee asdonations against which deduction is available. a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i). b) Donations with 50% deduction are also availableunder Section 80G for all those sums that do not fallunder section 80G(1)(i). Under Section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s80G. 14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession", where as monies spent under section 80G are claimed while computing "Total Taxable income" in thehands of assessee. The point of claim under these provisions aredifferent. 15. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, "Income from Business and Profession". 16. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 17. We therefore do not agree with arguments advanced byLd.Sr.DR. 18. In present facts of case, Ld. AR submitted that all paymentsforming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. 19. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 20. Under such circumstances, we are remitting the issue back to Ld.AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its calim before Ld.AO. Ld.AO is then directed to grant deduction to the extent of eligibility.” 27. We further find that the Coordinate Bench of the Tribunal in Societe Generale Securities India (P.) Ltd. vs. Principal Commissioner of Income-tax, reported in [2023] 157 taxmann.com 533 (Mumbai – Trib), while affirming the claim of deduction under section 80G of the Act in respect of CSR expenditure, observed as follows: – “6. After computing the business income, while computing the total income of the assessee, the assessee is invoking the benefit under Chapter VIA by claiming deduction of the sums under section 80G of the Act. According to the revenue, when once such sum went to satisfy the requirement of section 135 of the Companies Act, the benefit gets exhausted and such an amount is no more available for the purpose of claiming deduction under section 80G of the Act. There is no express provision to support the contention of Revenue. On the other hand, section 80G (2) (iiihk) and (iiihl) of the Act expressly provide that such sums donated for Swatch Bharath Kosh and Clean Ganga Fund shall be the amounts other than the sums spent by the assessee in pursuance of CSR, meaning thereby the donations made towards Swatch Bharath Kosh and Clean Ganga Fund spent as a part of CSR are not qualified for deduction under section 80G of the Act. Out of so many entries under section 80G(2) of the Act, only donations in respect of two entries are restricted if such payments were towards the discharge of the CSR. The Legislature could have put a similar embargo in respect of the other entries also, but such a restriction is conspicuously absent for other entries. The irresistible conclusion that would flow from it is that it is not the legislative intention to bar the payments covered by section 80G(2) of the Act which were made pursuant to the CSR, and other than covered by section 80G(2)(iiihk) and (iiihl) of the Act. As stated above, clue can be had from the restrictions by way of section 80G (2) (iiihk) and (iiihl) of the Act. Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to extent of computing 'business income' under Chapter IV-D of the Act and; it could not be extended or imported to CSR contributions which was otherwise eligible for deduction under Chapter VI-A of the Act. 7. Where the deduction under section 80G of the Act is also disallowed, since CSR qualifying donations are not 'voluntary contributions', it will be a double jeopardy in the case of assessee. Assessee cannot be denied the benefit of claim under Chapter VIA of the Act, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, it would lead to double disallowance, which is not the intention of Legislature at all. Legislature on this matter simply dealing with the computation of total income under chapter IVD pertaining to "Income under the head Business and Profession" and not at all dealt with the eligibility of assessee to claim deduction u/s. 80G of the Act, falling in chapter VIA of the Act. It is further observed that genuineness of the transactions and identity of the donees are also not under challenge. All the payments were made through proper banking channel and appropriate donation receipts were also produced before the lower authorities and before us also.”

28.

From the perusal of the impugned order, it is evident that the learned CIT(A) also allowed the claim of the assessee under section 80G of the Act in principle following the decision of the Coordinate Bench of the Tribunal in Honda Motorcycle and Scooter India Private Ltd (supra). In the absence of any contrary decision of a higher judicial forum being brought on record, we do not find any infirmity in the findings of the learned CIT(A) on this issue. Accordingly, the said findings are upheld, and Ground No. 2, raised in Revenue’s appeal, is dismissed.

29.

Ground No.3, raised in Revenue’s appeal, pertains to the deletion of disallowance of expenses incurred towards “Project Jagruthi” under the head “legal & Professional fees” under section 37 of the Act.

30. We have considered the submissions of both sides and perused the material available on record. The brief facts pertaining to this issue are that during the year under consideration, the assessee booked certain legal and professional expenses towards “Project Jagruthi”. Accordingly, during the assessment proceedings, the assessee was asked to submit the details on “Project Jagruthi”. In response, the assessee submitted that “Project Jagruthi” was the codename given to the exercise undertaken by the assessee for raising funds, acquisitions and divestments. It was further submitted that the project was aimed at doing due diligence for the issue/sale of securities (including but not limited to shares, warrants and in the form of equity or hybrid securities) of its airports’ assets. It was submitted that, for the said project, various consultants were engaged to undertake due diligence like Link Legal, PwC, Shardul Amarchand Mangaldas & Co., who provided various services such as financial and tax due diligence of the entities, assistance in evaluating the alternative structure from tax and regulatory framework, professional legal services for investments by overseas strategy and/or financial investors with respect to their documentations, providing reports on traffic forecast which, inter-alia, helps in financial model exercise, preparation of a Vendor Legal Due Diligence Report which provides an independent and objective assessment of the legal and regulatory risk and uncertainties that may adversely affect the value of the assessee and its airports assets, providing independent opinion of the key contracts, licenses and permits, title and any other requirements to operate the assets, etc. The assessee submitted that, based on services provided by various consultants, various Due Diligence Reports in many areas like Financial, Legal, Capex, Real Estate, Commercial, Traffic, etc. were prepared by independent agencies to cater to the requirements of the investors, which have been updated from time to time. The AO, vide impugned order, referring to the decision of the Hyderabad Bench of the Tribunal in M/s GVK Airport Developers Ltd (supra), held that all the above-mentioned expenses incurred by the assessee towards “Project Jagruthi” fall under the category of investment activities of the

holding company and since the assessee’s investment activity does not tantamount to business activity, these activities do not satisfy the conditions laid down in section 37 of the Act. Accordingly, the expenses incurred towards “Project Jagruthi” under legal and professional fees were disallowed.

31.

Since the learned CIT(A) allowed the deduction in respect of interest paid on funds borrowed for the purpose of acquisition of 10% equity stake in DIAL under section 36(1)(iii), the legal and professional expenses incurred towards “Project Jagruthi” were allowed by the learned CIT(A). Being aggrieved, the Revenue is in appeal before us.

32.

As noted in the foregoing paragraphs, since the assessee wanted to raise funds, make acquisitions and divestments as part of its business operations, various consultants were engaged to undertake due diligence in many areas like Financial, Legal, Capex, Real Estate, Commercial, Traffic, etc. In the present case, there is no dispute regarding the nature of the expenditure incurred by the assessee or the service providers to whom the payment was made. The AO, on the basis that the assessee’s investment activity does not amount to business activity, treated all connected/ancillary activities, such as raising funds, investments, and acquisitions, as not being for business purposes. In the foregoing paragraphs, after careful perusal of the Memorandum of Association, Audited Annual Accounts, Shareholder Agreement, the relevant provisions of the RBI Act, 1934 and the circular issued by the RBI, we have arrived at the conclusion that the assessee, being a Systemically Important Core Investment Company, is entitled to make investments and provide financial support to the subsidiary companies engaged in airport operations. We further noted that acquisition of shares of the subsidiary company is part of the main objects of the assessee. Thus, the activity of investment in the subsidiary company was found to be for the purpose of the business of the assessee. Having arrived at the aforesaid conclusion, we are of the considered view that all the incidental/ancillary activities to the main object of raising funds, investments and acquisitions are also for the purpose of the business of the assessee. Accordingly, we do not find any infirmity in the findings of the learned CIT(A) in treating the legal and professional expenses incurred towards “Project Jagruthi” as business expenditure allowable under section 37 of the Act. Thus, the findings of the learned CIT(A) on this issue are upheld, and Ground No. 3, raised in Revenue’s appeal, is dismissed.

33.

In the result, the appeal by the Revenue for the assessment year 2016-17 is dismissed.

ITA No.1341/Bang/2025 Assessee’s appeal – A.Y. 2016-17 34. In this appeal, the assessee has raised the following grounds: -

GROUND I: Disallowance of claim of expenses not claimed in the return: 1. The Learned CIT(A) has erred in confirming the action of Assessing. Officer in disallowing the claim of legal and professional charges of Rs. 16,00,000/- U/s 37(1) of Income Tax Act, 1961 made in the assessment order dated December 29, 2018 passed U/s 143(3) of the IT Act, 1961. 2. The Learned CIT(A) and Assessing Officer has erred in disallowing the claim of legal and professional charges of Rs. 16,00,000/- by holding that the same were incurred towards proposed IPO and on behalf of its subsidiary 3. The Learned CIT(A) and Assessing Officer failed to appreciate that:

(1) The Appellant itself has disallowed and added back a sum of Rs.5,00,000/- incurred in relation to IPO in the computation of total income; and

(2) The appellant had recovered the balance expenses of Rs 11,00,000/- incurred for the subsidiary and thus no expenses were charged to Profit and loss account and claimed in the return of income. 4. The Appellant therefore prays that the Assessing Officer be directed to delete the disallowance of legal and professional charges of Rs.11,00,000/- made U/s 37(1) of Income Tax Act, 1961 in the Assessment Order dated December 29, 2018 passed U/s 143(3) of the IT Act, 1961.

35. During the hearing, the learned AR, at the outset, submitted that out of the total expenditure of Rs.16,00,000 incurred towards the proposed IPO and legal expenses incurred on behalf of the subsidiary, the assessee has itself disallowed and added back the sum of Rs.5,00,000 incurred in relation to the IPO in computation of its total income. It was further submitted that the assessee subsequently recovered the balance expenditure of Rs.11,00,000 incurred for the subsidiary on legal expenses. Thus, it was submitted that no expenditure was charged to the profit and loss account or claimed in the return of income. Accordingly, the learned AR submitted that since the assessee did not claim any expenditure in relation to IPO and incurred on behalf of the subsidiary, the addition of Rs.16,00,000 be deleted. Having considered the submissions, we are of the view that the submissions of the assessee require factual verification. Therefore, we restore this issue to the file of the AO for de novo adjudication after examination of the relevant material. We further direct that if, upon examination, it is found that the assessee did not charge the impugned expenditure of Rs.16,00,000 to the profit and loss account and did not claim the same in the return of income, then the addition on this issue be deleted. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. Accordingly, the impugned order on this issue is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

36.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

ITA No. 1303/Bang/2025 Revenue’s appeal – A.Y. 2017-18 37. In this appeal, the Revenue has raised the following ground: -

1.

Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing the deduction of the interest expenditure incurred u/s 36(1)(iii) of the Act, by holding it as business activity ignoring the fact that the investment activity of a holding company is a promoter activity and not a business activity.” 33. The solitary issue raised by the Revenue, in the present appeal, pertains to deletion of disallowance under section 36(1)(iii) of the Act in respect of the interest expenditure incurred on capital borrowed for the purpose of investment by the assessee company in a subsidiary. During the hearing, both parties relied on the submissions made in the Revenue’s appeal for the assessment year 2016- 17, which involved a similar issue. As we have already adjudicated a similar issue in Revenue’s appeal for the assessment year 2016-17 arising out of the same factual matrix, our findings/conclusions rendered therein shall apply mutatis mutandis to the present appeal. Accordingly, the impugned order on this issue is upheld, and the sole ground raised by the Revenue is dismissed.

34.

In the result, the appeal by the Revenue is dismissed.

ITA No. 2187/Bang/2025 Revenue’s appeal – A.Y. 2018-19 35. In this appeal, the Revenue has raised the following grounds: - 1. Whether on the facts and in the circumstances of the case, the id. CIT(A) has erred allowing the deduction of the interest expenditure incurred u/s 36(1)(iii) of the Act, by holding it as business activist ignoring the fact that the investment activity of a holding company is a promoter activity and not a business activity 2. Whether on the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the CS expenditure claiming deduction u/s 80G of the Act whereas the legislature's intention is to make certain companies expend CSR expenditure out of the tax paid profits and therefore taxpayers' claim to allow CS expenditure u/s 80G defeats the very purpose of CSR expenses which must be incurred out of tax pai profits. 3. Whether on the facts and in the circumstances of the case, the id. CIT(A) has erred in restricting the disallowance u/s 14A in absence of break-up of investments which had earned, exempt income during the concerned financial year. 36. Ground No. 1, raised in Revenue’s appeal, pertains to the deletion of the disallowance made under section 36(1)(iii) of the Act in respect of the interest expenditure incurred on capital borrowed for the purpose of investment by the

assessee company in a subsidiary. As we have already adjudicated a similar issue in Revenue’s appeal for the assessment year 2016-17 arising out of the same factual matrix, our findings/conclusions rendered therein shall apply mutatis mutandis to the present appeal. Accordingly, the impugned order on this issue is upheld, and the Ground No. 1, raised by the Revenue, is dismissed.

37.

Ground No. 2, raised in Revenue’s appeal, pertains to the denial of deduction claimed under section 80G of the Act on CSR expenses. As we have already adjudicated a similar issue in Revenue’s appeal for the assessment year 2016-17 arising out of the similar factual matrix, our findings/conclusions rendered therein shall apply mutatis mutandis to the present appeal. Accordingly, the impugned order on this issue is upheld, and the Ground No. 2, raised by the Revenue, is dismissed.

38.

Ground No.3, raised in Revenue’s appeal, pertains to restricting the disallowance made under section 14A only in respect of the investment which has yielded exempt income during the year.

39.

We have considered the submissions of both sides and perused the material available on record. The brief facts pertaining to this issue are that during the year under consideration, the assessee earned dividend income of Rs. 212,49,41,630 and voluntarily disallowed Rs. 76,47,576 under section 14A of the Act while filing its return of income. During the financial year relevant to the assessment year under consideration, the assessee made investments in equity shares in Indian Subsidiary Companies and its Joint Venture Company, the income from which is not chargeable to tax. During the assessment proceedings, from the details of investments provided in the schedule forming part of the balance sheet as on 31.03.2018, it was observed that the assessee has invested Rs. 2343.08 crores in shares of Indian Companies and Joint Venture Company. In its submission filed during the assessment proceedings, the assessee submitted that all the investments

made in the Joint Venture Companies were for business purposes only and therefore no disallowance of any expenditure is required to be made in respect of such income earned. However, the AO, vide assessment order, disagreed with the submissions of the assessee and, following the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd., reported in 402 ITR 640 (SC), computed a disallowance of Rs. 23,42,46,172, including the voluntary disallowance of Rs. 76,47,526 made by the assessee, under section 14A read with Rule 8D of the Rules.

40.

The learned CIT(A), vide impugned order, following the decision of the Special Bench of the Tribunal in Assistant Commissioner of Income-tax, Circle 17 (1), New Delhi vs. Vireet (P.) Ltd., reported in [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB), directed restricting the disallowance under section 14A read with Rule 8D of the Rules in respect of the investments which have yielded exempt income. The learned CIT(A) also took into consideration the amendment by the Finance Act, 2022 and its prospective applicability from the assessment year 2022-23, as held by the Hon’ble Delhi High Court in DCIT vs Era Infrastructure (India) Ltd., reported in (2022) 448 ITR 674 (Del.). The learned CIT(A) also considered the decision of the Tribunal in the assessee’s own case for assessment year 2014-15 in ITA No. 774/Bang/2018, wherein, after referring to the decision of the Special Bench in Vireet Investment (supra), the Tribunal held that only investments which yielded exempt income can be considered for the purpose of disallowance under section 14A read with Rule 8D of the Rules.

41.

As the learned CIT(A) has decided this issue based on the decision of the Special Bench of the Tribunal, we do not find any infirmity in such findings, in the absence of any contrary decision of the higher judicial forum being brought on record. Accordingly, the findings of the learned CIT(A) on this issue are upheld, and Ground No. 3, raised in Revenue’s appeal, is dismissed.

42.

In the result, the appeal by the Revenue is dismissed.

CO No. 1/Bang/2026 Assessee’s Cross-Objection – A.Y. 2018-19 43. During the hearing, the learned AR wishes not to press the grounds raised by the assessee in its cross-objection. Accordingly, the said grounds are dismissed as not pressed.

44.

In the result, the cross-objection by the assessee is dismissed.

45.

To sum up, all the appeals by the Revenue are dismissed, while the appeal by the assessee for the assessment year 2016-17 is allowed for statistical purposes. Further, the cross-objection by the assessee for the assessment year 2018-19 is dismissed. Order pronounced in the open court on 23-Oct-2026.

Sd/- Sd/- (PRASHANT MAHARISHI) (SANDEEP SINGH KARHAIL) VICE PRESIDENT JUDICIAL MEMBER

Bangalore, Dated, the 23-Oct-2026 *VM* Copy to: DEPUTY COMMISSIONER OF INCOME- TAX, CENTRAL CIRCLE -2(2), ROOM NO. 317, 1 3RD FLOOR, C. R. BUILDING, QUEENS ROAD, BENGALURU-560025, KARNATAKA M/S GMR AIRPORT LTD, 2 NO. 25/1 SKIP HOUSE, MUSEUM ROAD, BENGALURU-560025, KARNATAKA

3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE BY ORDER

ASSISTANT REGISTRAR I.T.A.T., BANGALORE

P G Digitally signed by P G RAJANI RAJA Date: 2026.10.30 NI 15:57:22 +05'30'

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