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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
PER RAJESH KUMAR, AM :
These appeals by assessee are directed against the respective orders of learned Commissioner of Income Tax (Appeals) - 22, Mumbai (in short ‘the CIT(A)’), both of even date, pertaining to Assessment Years 2007-08 & 2008-09.
Identical issues have been raised by the Revenue in both the appeals which read as under :-
“1. The Ld. CIT(A) has erred in allowing the issue of interest expenses without appreciating the fact that the interest bearing funds taken for business purposes were deployed for non-business purposes.
2 & 3592/Mum/2019 M/s. Reliance Infrastructure Ltd. 2. The Ld. CIT(A) has erred in failing to appreciated the fact that a part of the external commercial borrowings raised for the purpose of business was deployed for purposes, which do not form the business activity of the assessee.
The CIT(A)’s order is contrary to law and on facts and deserves to be set aside.
4. The appellant prays that the order of CIT(A)-22, Mumbai on the above ground be set aside and that of the Assessing Officer be restored.”
3. The issue raised in ground no. 1 is against the order of learned CIT(A) allowing the interest expenses without appreciating the fact that interest bearing funds taken for business purpose were deployed for non-business purposes.
The learned counsel for the assessee submitted at the outset that the issue has been decided by the learned CIT(A) in favour of the assessee by following the decision of the co-ordinate bench of assessee’s sister concern in the case of Reliance Natural Resources Ltd. in dated 12.05.2017 wherein the issue under consideration has been decided in favour of the assessee. The learned counsel for the assessee further prayed that the ground no. 1 raised by the Revenue may kindly be dismissed.
The learned Departmental Representative, on the other hand, fairly agreed with the contention of the learned counsel for the assessee that similar issue has been decided in favour of the assessee, however, relied on ground no. 1 filed by the Revenue.
3 & 3592/Mum/2019 M/s. Reliance Infrastructure Ltd.
We have heard the rival submissions and perused the material on record. We find that the undisputed facts are that the appellant had raised funds by way of ECB of USD 360 million. The funds were received from the lenders into the appellant's account with UBS AG, London on 15.11.2006. Out of the ECB proceeds of USD 360 million, USD 300 million were repatriated to India on 26.4.2007. Balance of USD 60 million was retained abroad and thereafter was directly invested into the Reliance Infra Projects International Limited (RIPIL), a permitted end-use as per RBI guidelines on 24.7.2008. As per Assessing Officer, the appellant had made indirect investment in the shares of Reliance Communications Ltd. (RCL) through investment vehicle "Pluri Cell E". As per Assessing Officer the capital of Pluri Cell E was subscribed by various financial institutions who issued back to back yield management certificates which are linked to the value of underlying assets being shares of RCL. As per Assessing Officer, the appellant had entered into various purchase and sale transactions of YMCs, funds of which are ultimately invested in Pluri Cell E. The Assessing Officer has relied upon the report from DIT (Intelligence), New Delhi and the report of SEBI. The Assessing Officer has not provided copy of the said documents either at the time of filing objection to the reopening or in course of re-assessment proceedings inspite of the assessee requesting for the same. As per Assessing Officer the interest on ECB funds, which are invested in the YMCs of various institutions i.e. Calyon, Societe Generale, Credit Suisse, Exane, is required to be disallowed. The Assessing Officer worked out the proportionate interest at Rs. 10,30,76,078/-. The Assessing Officer has admitted that the appellant has received interest from YMC of various institutions amounting to Rs. 9,12,04,109/- but denied set off of the interest income derived from the said investments against the interest attributable on ECB funds. The Assessing Officer has disallowed the gross interest paid of
We find that the learned CIT(A) has allowed the appeal of assessee by following the decision of the co-ordinate bench in the case of assessee’s sister concern, Reliance Natural Resources Ltd. in dated 12.05.2017 wherein the issue has been decided in favour of the assessee under similar circumstances. The operating part of the said decision of Tribunal is reproduced hereunder :-
“34. We have heard the rival contentions of both the parties. We find that the assessee has offered to tax the investment income which is not disputed by the A.O. The AO has also taxed the investments income as business income both in original assessment and re-assessment. After taxing the income from application of funds, the AO cannot turn his back and claim that the expenditure on borrowing is not allowable as business expense. The assessee has been requesting the AO to provide the copy of report of SEBI and report of Director of DIT (Intelligence) which is the basis for reopening the assessment as well as making the addition. The same has not been supplied to the assesse. No adverse evidence has been confronted to the assesse. The perusal of the assessment order also does not reveal any adverse evidence. The finding of the AO in this regard is unsupported by any evidence. Considering the above and the fact that income from investments has been offered to tax and the same has been taxed as business income, there is no justification for disallowance of socalled proportionate interest. We therefore hold that the order of CIT(A) upholding the disallowance of proportionate interest is to be reversed. We hold accordingly.”
Since the facts of the present case before us are materially similar , we, therefore, respectfully following the decision of the co-ordinate bench in the case of assessee’s sister concern confirm the order of learned CIT(A) and accordingly, ground no. 1 is dismissed.
The issue raised in ground no. 2 is ancillary to that raised in ground no. 1 which has been dismissed by us supra and hence needs no separate adjudication.
The issues raised in ground nos. 3 and 4 are general in nature and do not require any adjudication.
In the result, both the appeals of the Revenue are dismissed.
Order pronounced in the open court on 13th January, 2021.