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Income Tax Appellate Tribunal, MUMBAI ‘D’ BENCH, MUMBAI
O R D E R Per Pramod Kumar, VP:
By way of this appeal, the Assessing Officer has challenged the correctness of the order dated 20th November 2019, passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act 1961 as stands amended under section 154, for the assessment year 2014-15.
2. Grievance raised by the appellant are as follows:- i) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that amount has been given on commercial expediency without appreciating that the assessee has not given any credible evidence that Reliance Haryana SEZ Ltd. (RHSEZ) was not able to get loans from outside or will not be able to survive the pressure if interest @ 11.5% or more is charged and on the contrary Reliance Industries Ltd. (RIL) from whom the assessee company has taken loan at 11.5% could have directly advanced the money to RHSEZ from whom interest at the rate of 10.53% has been charged by assessee? ii) Whether on the facts and in the circumstances of the case and in law; the Ld.CIT(A) was justified in holding that the assessee has received both interest free funds as well as interest bearing funds from RIL then, an average method of charging of interest has to be put Assessment Year: 2014-15 Page 2 of 4 into place and thus, the average rate of borrowing comes to 3.09% whereas the interest charged by the assessee is 10.79% without appreciating that the assessee in its own submission submitted date wise chart of interest bearing loan taken from RIL and its advancement to four concerns which clearly shows that amount received from RIL has been given as loan on the same day to another concern at a lower rate of interest? iii) Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified restricting the disallowance to Rs.24,58,740/- and in holding that the assessee's suo-moto disallowance u/s.14A is reasonably fair without appreciating the decision of the Hon'ble ITAT, Ahmedabad Bench in the case of DCIT vs. KARSAN KANJI RAGHVANI 2019-TIOL-1393-ITAT-AHM, wherein the Tribunal has held that disallowance should be restricted to the total expenditure claimed by the assessee? iv) The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored.
When this appeal was taken up for hearing, it was noticed that the learned CIT(A) has, inter alia, relied upon his earlier order dated 24th October 2019, in assessee’s own case for the immediately preceding assessment year i.e., 2013-14 when the said order came up before a coordinate bench of this Tribunal, the coordinate bench confirmed the same and observed as follows:- 8. From the facts on record, it could be observed that the assessee is a subsidiary of M/s RIL and is engaged in business of making investments and advancing loans. Undisputedly, the interest income as well as interest outgo has been assessed as ‘Business Income’ only. The assessee is a subsidiary of M/s RIL and obtains loans from parent entity on regular basis. The loans are interest free as well as interest bearing loans. During the year, it has obtained loan from M/s RIL @11.5% and advanced to its various group entities, the major portion being advanced to M/s RHSL at rate of 10.79%. M/s RHSL is a subsidiary of M/s RVL, which, in turn, is also subsidiary of M/s RIL. In other words, the loans have been advanced buy the assessee to subsidiary of a fellow subsidiary. It is evident that M/s RHSL has been incorporated as a special purpose vehicle between M/s RVL and M/s HSIIDC (govt. authority) for the purpose of procuring the land to develop a SEZ. It has acquired 1384 acres of land from HSIIDC for the said purpose. M/s RVL holds 92.5% shares in this entity wherein remaining 7.5% shares are held by M/s HSIIDC. M/s RHSL has no source of fund and it is fully dependent on other group entities. The funds have ultimately been provided by the parent entity i.e. M/s RIL though its investment arm i.e. the assessee. Thus, the main objective was to procure the land and develop SEZ. On the given facts, it could be seen that there was commercial expediency for the assessee to grant the loan to M/s RHSL since the success of RHSL would impact the business interest as well as profitability of the group as a whole. The main objective was not to earn the interest but to further the business interest of the group as a whole. Hence, no infirmity could be found in the conclusion of Ld. CIT(A) that the funds were advanced out of commercial expediency / business exigencies. The case law of CIT V/s United Breweries (89 ITR 17), as referred to by Ld. CIT(A), duly support the said proposition. The same is also supported by the decision of Hon’ble Supreme Court in the case of S.A. Builders V/s CIT (288 ITR 1) wherein it was held that it was enough to show that the money was expanded not out of necessity and with a view to direct and immediate benefit but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The expression commercial expediency was of wide import and would include such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have been incurred under any legal Assessment Year: 2014-15 Page 3 of 4 obligation but yet is allowable as business expenditure if it was incurred on grounds of commercial expediency. Therefore, we concur with the conclusions drawn by Ld. CIT(A), in this regard.
Having held so, we find that the only requirement to claim interest expenditure u/s 36(1)(iii) is that the borrowed funds should have been expanded wholly and exclusively for business purposes. We find that it is undisputed fact that there is one-to-one correlation between the borrowed funds and the advances granted by the assessee. The funds have been lent for business purposes since the main objective was to develop the SEZ. Therefore, in our considered opinion, the primary requirement to claim deduction u/s 36(1)(iii) was duly fulfilled by the assessee. The Ld. CIT(A) has computed average borrowing rate @2.99% which would further support the case of the assessee only. Therefore, on the given facts and circumstances, we do not find any infirmity in the impugned order, in this regard. Ground Nos. 1 & 2 stand dismissed.
So far as the disallowance u/s 14A is concerned, it is undisputed fact that the assessee has claimed expenditure of Rs.11 Lacs only out of which it has already offered suo-moto disallowance of Rs.2.13 Lacs u/s 14A and another disallowance of Rs.5.77 Lacs as ‘Balances written off’. It could be seen that the assessee is a corporate entity and it would necessarily be required to incur routine expenditure to maintain its corporate personality. Therefore, no further disallowance would be warranted on the given facts. By confirming the stand of Ld. CIT(A) on this issue, we dismiss ground no.3 of the appeal.
Learned representatives fairly agree that the issues in appeal are squarely covered by the view so expressed by the coordinate bench. In any event, we see not reasons to take any other view of the taken by the coordinate bench. Respectfully following the said order, which is deemed to be attached to and forming part of this order as well, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. In the result, this appeal is dismissed. Pronounced in the open court today on the 22nd day 5. of February 2022.