KS HOLDINGS PRIVATE LTD,CHENNAI vs. ITO, CORPORATE WARD 4(3), CHENNAI

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ITA 2112/CHNY/2019Status: DisposedITAT Chennai04 December 2019AY 2015-164 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal condoned the delay in filing the appeal. Following its own precedent for a similar issue in the assessee's own case for AY 2014-15, the Tribunal held that interest paid on borrowed funds for business purposes should be allowed as a deduction, irrespective of whether income was earned from the investment.

What were the facts?

The assessee's appeal was filed with a delay of 56 days. The sole issue was the disallowance of interest under Section 36(1)(iii) of the Income-tax Act. An identical issue for a prior assessment year had been decided by the Tribunal.

What were the issues?

Whether interest paid on borrowed funds for investment in a subsidiary is allowable as a business expenditure when no dividend income is received from the subsidiary.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI INTURI RAMA RAO

For Respondent: Shri AR.V. Sreenivasan, JCIT
Hearing: 24.10.2019Pronounced: 04.12.2019

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -8, Chennai, dated 21.02.2019 and pertains to assessment year 2015-16.

2.

There was a delay of 56 days in filing this appeal by the assessee. The assessee has filed a petition for condonation of delay. We have heard the Ld. representative for the assessee and the Ld. D.R. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.

3.

The only issue arises for consideration is disallowance of interest under Section 36(1)(iii) of the Income-tax Act, 1961 (in short 'the Act').

4.

During the course of hearing, it was brought to the notice of the Bench by both the Ld. representative for the assessee and the Ld. Departmental Representative that an identical issue in the assessee's own case was considered for assessment year 2014-15 by this Tribunal in I.T.A. No.65/Chny/2018. This Tribunal vide order dated 12th December, 2018, found that a similar payment was to be allowed as business expenditure for the assessment year 2014-15.

In fact, the Tribunal has observed as follows:-

“4. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee is an investment company. The assessee borrowed funds to invest in a subsidiary company outside the country at Mauritius. It is also not in dispute that the assessee’s subsidiary company at Mauritius has not declared any dividend or distributed any dividend. In those factual circumstances, the Assessing Officer found that since no income was earned by the assessee, the interest payment cannot be allowed. This Tribunal is of the considered opinion that when the assessee incurred expenditure, irrespective of the fact whether the assessee earned income or not, so long as the expenditure is for business purpose, it is to be allowed.

5. It is not the case of the Revenue that the interest payment is not for business. The Assessing Officer has disallowed the interest payment only on the ground that no dividend income was received from subsidiary company at Mauritius. This Tribunal is of the considered opinion that irrespective of the fact whether the assessee received dividend income from the subsidiary company at Mauritius or not, the payment of interest has to be allowed as business expenditure. Therefore, we are unable to uphold the orders of the authorities below. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to allow the interest payment on the borrowed funds.”

5.

In view of the above, this Tribunal is unable to uphold the orders of both the authorities below. Accordingly, for the reason stated by this Tribunal for assessment year 2014-15 in I.T.A.

No.65/Chny/2018, the orders of both the authorities below are set aside and the Assessing Officer is directed to allow interest on the borrowed funds.

6.

In the result, the appeal filed by the assessee stands allowed.

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