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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals by the revenue and the Cross Objections by the assessee are directed against the orders of the ld. CIT(A)-14, New Delhi dated 23.03.2016.
& 3132/Del/2016 2 CO Nos. 239 & 240/Del/2016 Bumi Hiway India Pvt. Ltd. 2. Since, the issues involved in both the appeals and the Cross Objections are common, they were heard together.
In following grounds have been raised by the department:
1. On the basis of the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the 50% addition of Rs.4,70,59,275/- on account of addition made after disallowing of interest on working capital, without appreciating the fact that assessee itself had failed to prove that the said interest claimed on working capital was utilized wholly & exclusively for business purpose and also no TDS was deducted on the said interest payment.”
In CO No. 239/Del/2016, following grounds have been raised by the assessee:
1. That the Ld. CIT (Appeal) erred in law in upholding the 50% of disallowance made by the Appellant towards Interest on Working Capital of Rs 4,70,59,275/- without applying his mind to the merits of the case, and on ad-hoc basis as not being incurred wholly and exclusively for the purpose of business of the Respondent. The said payment is mere reimbursement of expenditure and at arm’s length price and is fully allowable u/s 37(1) of the IT Act.
That on the facts and circumstances of the case the Ld. CIT (A) erred in law in upholding the disallowance of Bank Charges of Rs 29,23,003/- without applying his mind to the merits of the case and on an ad-hoc basis. The said expenditure represents legitimate business expenditure and is fully allowable u/s 37(1) of the Act.”
& 3132/Del/2016 3 CO Nos. 239 & 240/Del/2016 Bumi Hiway India Pvt. Ltd. Disallowance of Interest on Working Capital:
During the year the assessee company claimed interest on working capital to the tune of Rs.4,70,59,275/- (and FE losses). The AO held that these expenses were not incurred wholly and exclusively for the purpose of business as the assessee company has invested in STPL equity at Rs.42,50,00,000/- which is more than to the loan amount on which the interest on working capital has been claimed by the assessee. In view of this interest claimed amounting to Rs.4,70,59,275/- is disallowed and added back to the income of the assessee.
Disallowance of Bank Charges:
During the year under consideration the assessee company claimed bank charges to the tune of Rs.58,46,006/-. As the assessee has not been able to prove that these expenses were incurred wholly and exclusively for the purpose of business, the AO has disallowed 50% of these expenses amounting to Rs.29,23,003/-.
Aggrieved the assessee filed appeal before the ld. CIT (A) who restricted the disallowance on account of interest to 50%. The revenue is in appeal against restricting disallowance to 50% and the assessee is in CO for confirming 50% of the disallowance on interest and against confirming the 50% of the bank charges. & 3132/Del/2016 4 CO Nos. 239 & 240/Del/2016 Bumi Hiway India Pvt. Ltd.
A complete background of the issue is as under:
The assessee is primarily engaged in construction of highways and Infrastructure development on subcontract basis in India, promoted by its Malaysian associated enterprise, Bumi Hiway (M) Sdn. Bhd. During the F.Y. 2009-10 relevant to A.Y. 2010-11, its 99.61% of shares were held by Bumi Hiway (Mauritius) only 0.39% shares were held by Bumi Hiway (M) Sdn. Bhd. The assessee filed return of income on October 12, 2010 declaring a loss of Rs 4,74,69,436/-.
The AO disallowed interest on Working Capital of Rs 4,70,59,275, holding it as non business expenditure u/s 37 of the Act. The addition was made mainly on the grounds that no supporting evidence has not been submitted to prove that expenditure incurred were wholly and exclusively for business purpose and Investment in Equity of STPL is equal to Working Capital Loan on which Interest has been claimed. The AO treated the entire loan amount as Investment in Equity of STPL.
Before the ld. CIT (A), it was submitted that the assessee availed credit facilities/loan from Bank of Nova Scotia, New Delhi, (‘BNS’) during the financial year 2001-02, which was utilized for meeting the working capital requirements of its various project offices in India. The said bank loan was adequately guaranteed by the Standby Letter of Credits (‘SBLCs’) issued by Malaysian Bank i.e. CIMB Bank on behalf of the ultimate holding company i.e. Bumi Hiway Ventures Berhad (‘BHV’). Subsequently, during FY 2006-07, CIMB Bank restructured its guarantees by offering a loan BNV for re- & 3132/Del/2016 5 CO Nos. 239 & 240/Del/2016 Bumi Hiway India Pvt. Ltd. financing the loan availed by assessee for granted to BHV was further advanced to Appellant Company to settle its BNS loan.
In other words, during financial year 2006-07, the assessee received advances from BHV in order to repay its bank loan. These advances were arranged by BHV from its banker in Malaysia, CIMB Bank on which interest charges were paid by BHV. The actual interest paid by the BHV on the aforesaid loan procured from CIMB Bank was subsequently recharged by Company on cost to cost basis, without charging any mark up. It was argued before the ld. CIT (A) that the working capital term loan was utilized for day-to-day expenditure of the business, the interest claimed as business expenditure has to be allowed.
The ld. CIT (A) held that the major portion of the loan amount was utilized for investment in Swarna Toll Way Private Ltd's equity and as regards claim for investment in the Vijaywada, Orissa and Jallandhar project, the assessee failed to furnish any documentary evidence before the AO, in the absence of which it was held by him that the majority amount of loan is treated as utilized for investment in the equity funds which cannot be treated wholly and exclusively for the purposes of business and, therefore, restricted the disallowances of 50% of the said charges on similar grounds.
Before us during the arguments, it was brought to our notice that the similar issue stands covered against the revenue in the earlier year in for the assessment ITA Nos. 3131 & 3132/Del/2016 6 CO Nos. 239 & 240/Del/2016 Bumi Hiway India Pvt. Ltd. year 2009-10. Hence, the appeal of the revenue is hereby dismissed.
Regarding the Cross Objections of the assessee, the matter is being referred to the file Assessing Officer for verification of……the utilization of the loan for business purpose by taking into account the amount of the loan raised, the quantum of the own capital and the reserves & surplus, utilization of the amount for day-to-day running of the business and utilization of the amount for investment in the equity shares of the subsidiary company or the amount invested for infusion of the capital in any other company. The AO may then take a considered decision with regard to disallowance of interest on loan and bank charges in accordance with the provisions of the Income Tax Act.
In the result, the appeals of the revenue are dismissed and the Cross Objections of the assessee are allowed for statistical purpose. Order Pronounced in the Open Court on 12/05/2020.