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Income Tax Appellate Tribunal, KOLKATA BENCH ‘(C
Before: Shri P.M. Jagtap(KZ) & Shri A.T. Varkey, JM]
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘(C)’, KOLKATA [Before Shri P.M. Jagtap, Vice President (KZ) & Shri A.T. Varkey, JM] I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 ACIT, CIR-2(1) Kolkata......................................………………………….................................Appellant P-7, Chowringhee Square, Kolkata – 700 069. Vs M/s. BIP Developers Pvt. Ltd.........................................................................................Respondent Ground Floor, Building Beta Bengal Intelligent Park, Block-EP & GP, Sector-V, Salt Lake City, Kolkata – 700 091. [PAN: AABCB 6203 A] Appearances by: Shri Supriyo Pal, JCIT, Sr. DR appearing on behalf of the Revenue. Shri A.K. Tibrewal, FCA & Shri Saurabh Gupta, ACA appearing on behalf of the Assessee. Date of concluding the hearing : November 14, 2019 Date of pronouncing the order : December 18, 2019 ORDER PER P.M. JAGTP, VICE-PRESIDENT (KZ)
This appeal is preferred by the Revenue against the order of Ld. CIT(A) – 5, Kolkata dated 15.03.2019 whereby he allowed the claim of the assessee for deduction on account of interest amounting to Rs. 3,60,72,709/- u/s 36(1)(iii) of the Income Tax Act, 1961.
At the outset, it is noted that there is a delay of 3 days on the part of the Revenue in filing this appeal before the Tribunal. In this regard, the Revenue has filed an application seeking condonation of the said delay and keeping in view the reasons given therein, we are satisfied that there is a sufficient cause for the delay of 3 days on the part of the Revenue in filing this appeal before the Tribunal. Even the ld. counsel for the assessee has not raised any objection in this regard. The delay of 3 days on the part of the Revenue in filing this appeal is
2 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. therefore condoned and the appeal of the Revenue is being disposed of on merit.
The assessee in the present is a company which is engaged in the business of development, construction and leasing of commercial properties. The return of income for the year under consideration was filed by it on 29.09.2013 declaring a total income of Rs. 2,35,02,500/-. During the course of assessment proceedings, a revised computation of income was filed by the assessee claiming a deduction of Rs. 3,60,72,409/- on account of interest paid on the borrowed funds. In support of this claim, it was submitted on behalf of the assessee company before the AO that the deduction on account of interest was not claimed in the return of income originally filed as it was capitalised to the cost of investment made in the unquoted shares. It was submitted that the said treatment to the interest expenditure was wrongly given due to inadvertence and ignorance of law and since the investment in shares did not fall under the definition of a “qualifying asset” for such capitalisation, the interest expenditure was being claimed as a deduction in the revised computation of income. The AO did not entertain this claim made by the assessee on account of interest as the same was not made by the assessee company either in the return of income originally filed or by way of filing the revised return. To arrive at this conclusion, the AO relied on the decision of Hon’ble Supreme Court in the case of Goetze India Ltd. vs CIT 284 ITR 323 (SC).
Against the order passed by the AO u/s 143(3), an appeal was filed by the assessee before the Ld. CIT(A) and in support of its claim
3 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. for deduction on account of interest expenditure amounting to Rs. 3,60,72,409/-, the following submissions were made on behalf of the assessee during the course of appellate proceedings before the Ld. CIT(A): “The appellant most humbly submits that major portion of investments in shares was made by the appellant company in its subsidiary namely Bengal Intelligent Parks Pvt. Ltd. for the purposes of commercial expediency. The reasons for investment in this company is as mentioned below:
Bengal Intelligent Parks Pvt. Ltd (BIPL) was also engaged in development, construction, leasing of commercial properties in various cities of India. BIPL had already constructed a commercial IT project - Bengal Intelligent Park, Kolkata, India. The said company had four phases i.e. Alpha, Beta, Gamma, delta and Omega and was expanding its project. The Appellant Company projected future business prospects in the development activity of BIPL. Considering the success of first project of BIPL, the assessee company viz. BIP Developers Pvt. Ltd. (BIPD) applied for investing in equity shares of BIPL for long term future business prospects and commercial expediency as the future profits of the subsidiary / sister concern would be the profits of the assessee company and would increase the networth of the assessee company. Thus the investments made by the Appellant were strategic in nature in achieving the objects to procure more business from the properties developed by these companies.
The Appellant Company submitted before the Assessing Officer that it was also in the business of development, construction, leasing of commercial properties in various cities of India. Thus the investments made by the Appellant were strategic in nature in achieving the objects to procure more business from the properties developed by these companies.
The Appellant Company most respectfully submits that it made investment in subsidiary companies as the same was commercially expedient. The Appellant submits that when the investment was made for commercial expediency interest paid on borrowed funds for such investment is wholly allowable under section 36(1)(iii) of the Act. In support of the aforesaid contention the Appellant Company refers to and relies on the Judgment of Hon'ble Supreme Court in the case of S. A. Builders Ltd. vs. CIT(A), Chandigarh [2007] 158 TAXMAN 74 (SC) equivalent to 288 ITR 1 (SC). The Hon'ble Supreme Court held that when
4 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. the investment in subsidiary or sister concern is commercial expedient interest payment on loans borrowed for such investments are allowable deduction under section 36(1)(iii) read with sec. 37(1) of the Act.
The Appellant Company further relies on the judgment of the Hon'ble Bombay High in the case of CIT vs. Reliance Communications Infrastructure Ltd. [2012] 21 taxmann.com 118 (Bom), wherein the Hon'ble High Court following the aforesaid judgment of the Hon'ble Supreme Court in S. A. Builders Ltd. (supra) held that no disallowance of interest could be made under section 36(1)(iii) of the Act as the investment in wholly owned subsidiary was commercially expedient. The relevant extract of the judgment is given below:- “12................................................................................................................................................... ................................... There is evidently a significant interest of the assessee in the business of its subsidiary since both the assessee and the subsidiary are engaged in providing telecommunication services. Consequently we are not inclined to interfere with the order of the Tribunal. There is a finding of fact that interest free funds borrowed are not utilised for the purposes of both the transactions. But quite apart from that, the finding is that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists.
Consequently we answer the questions of law as framed in the affirmative. The appeal shall be no order as to costs.”
The Appellant company also submits that the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978) 115 ITR 519 (SC), had also held that were the expenditure incurred was exclusively for the purpose of making investment the same was, therefore, allowable. The Hon'ble Supreme Court in the case of Rajendra Prasad Moody while discussing the section, namely, section 57, the provisions of which are similar to that of section 36, the Hon'ble Supreme court held that there is absolutely no scope for reading into this provision something which is expressly not provided therein. The plain natural construction of the language leads to the conclusion that to bring a case within the section, namely, Section 57(iii) it is not necessary that any income should in fact have been earned as a result of the expenditure. The appellant therefore
5 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. submits that following the aforesaid law as settled by the Supreme Court the interest expenditure of Rs.1,70,36,797/- shall not be disallowed under section 36(i1)(iii) of the Act.
The Appellant Company most humbly and respectfully submits that in view of the aforesaid facts and the judicial decisions on the subject, the suo moto disallowance of Rs. 3,60,72,409/- made by the Appellant should be allowed as deduction since the same was not required to be capitalised and are in the nature of business expenses.
The AO considered the submission of the appellant company and was satisfied but did not allow the same on the ground that no revised return was filed by the assessee and therefore the additional claim could not be entertained in view of the judgment of the Hon'ble Supreme Court in case of Goetze India Ltd vs. CIT in 284 ITR 323.
The Appellant company most humbly and respectfully submits that it had not filed a revised return of income because by the time it realised that the amount of Rs. 3,60,72,409/- was not required to be capitalised and was in the nature of allowable business expenses, the time prescribed under the Act for submission of revised return had expired. The appellant company further submits that it shall not be penalised on having paid tax in terms of his return, on account of ignorance, on an income not eligible to tax. The Appellant Company also submits that the appellate authorities have enough powers to entertain the claim of the assessee even if it is not claimed by way of a revised return. Reference is made to the following judgments:-
i. Raghaaan Nair as. ACIT [2018] 89 taxmann.com 212 (Kerala) ii. Pr. CIT vs. Western India Shipyard Ltd. [2017] 88 taxmann.com 448 (Delhi) iii. CIT vs. Britannia Industries Ltd [2017] 83 taxmann.com 365 (Calcutta) iv. CIT vs. Abhinitha Foundation (P) Ltd. (2017) 83 taxmann.com 100 (Madras).
The appellant company also refers to the order dated 8th March, 2019 passed by the Ld. CIT(A)-1, Kolkata in the case of the Bengal Intelligent Parks Pvt. Ltd. (subsidiary company of the assessee) for the Assessment Year 2014-15 wherein under similar facts of the case and following the aforesaid judgements, the Ld. CIT(a) allowed the suo moto disallowances made by the assessee which were later on claimed by filing revised
6 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. computation of income before the Assessing Officer. A copy of the order is enclosed for ready reference.
The appellant company most humbly and respectfully submits that in view of the aforesaid facts and the judicial decisions on the subject, the suo moto disallowance of Rs. 3,60,72,409/- made by the appellant should be allowed as deduction since the same was not required to be capitalised and are in the nature of business expenses allowable under section 36(1)(iii) of the Act.”
The Ld. CIT(A) found merit in the submissions made on behalf of the assessee and allowed the claim of the assessee for deduction on account of interest expenditure for the following reasons: “I have considered the submission of the appellant and perused the relevant assessment records. The main issue in this ground of appeal is allowability of expenditure amounting to Rs. 3,60,72,0491/- under provision of section 36(1)(iii) of the Act which was paid as interest on borrowed funds in the revised computation filed by the appellant during assessment proceedings. The AO had rejected the claim on the grounds that no revised return has been filed relying on the decision of Apex Court in the case of Goetze India Ltd vs CIT in 284 ITR 323. The A/R of the appellant in his submission submits that it had not filed a revised return of income because by the time it realised that the amount of Rs.3,60,72,409 was not required to be capitalised and was in the nature of allowable business expenses, the time prescribed under the Act for submission of revised return had expired. The appellant company further submits that it shall not be penalised on having paid tax in terms of his return, on account of ignorance, on an income not assessable to tax. He has also cited a number of judicial decisions in his favour.
There is no dispute that the appellant can made a fresh claim before the Higher Authorities like CIT(A) and ITAT even if the claim has not been made in a revised return. The decision of the Apex Court in Goetze India (supra) only circumscribe the power of the AO to accept any fresh claim made unless through a revised return does not denude the powers of the appellate authorities which includes CIT(A) and ITAT. This view has been upheld by th'e various courts as follows: (i) Delhi High Court in PCIT vs Westem India Shipyard Ltd [2017) 88 Taxmarur.com 448 (Delhi), (ii) CIT vs Pruthvi Brokers and Shareholders (P) Ltd 2012 349 ITR,
7 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. (iii) National Thermal Power Vs CIT [1998] 229 ITR 383 (SC) (iv) CIT Kolkata-Ill vs Britannia Industries Ltd 83 Taxmann.com 365 (Calcutta)
However, the next issue is whether interest paid on loan which is utilized for investment in shares of a subsidiary company is a capital or revenue expenditure. The AR of the appellant had submitted that as per AS-16, the investment in shares does not fall under the definition of a qualifying assets "for capitalization". Therefore, interest in respect of borrowing for investment in shares cannot be capitalized. The Appellant company had invested in shares of Bengal Intelligent Parks Pvt. Ltd. (BIPL) a subsidiary company for the following reasons as per submission.
"Considering the success of first project of BIPL, the assessee company viz. BIP Developers Pvt. Ltd. (BIPD) applied for investing in equity shares of BIPL for long term future business prospects and commercial expediency as the future profits of the subsidiary / sister concern would be the profits of the assessee company and would increase the networth of the assessee company. Thus the investments made by the Appellant were strategic in nature in achieving the objects to procure more business from the properties developed by these companies.”
There is merit in the submission of the appellant. The investment was made for commercial expediency and therefore should be allowed as revenue expenditure. The Apex Court in SA Builders (supra) has held that expression "for the purpose of business" is wider than the expression for the purpose of earning profits.
After careful consideration of the submission of the appellant, perusal of assessment records and decision of various judicial authorities, this ground of appeal succeeds and is therefore allowed.”
The only contention raised by the ld. DR before us is that the case of the assessee of commercial expediency behind the incurring of interest expenditure in question was not substantiated by any documentary evidence and the ld. CIT(A) accepted the case of the assessee without considering this vital aspect.
8 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. 7. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of the Ld. CIT(A) giving relief to the assessee on the issue under consideration and submitted that the detailed submission made by the assessee in support of its case on this issue during the course of appellate proceedings before the ld. CIT(A) may be taken into consideration while deciding this issue.
We have considered the rival submissions and also perused the relevant material available on record. As submitted on behalf of the assessee before the ld. CIT(A), the interest expenditure in question was incurred by the assessee in respect of the borrowed funds which were utilised for making investment in shares of its subsidiary company namely, M/s. Bengal Intelligent Parks Pvt. Ltd. As further explained on behalf of the assessee company, M/s. Bengal Intelligent Parks Pvt. Ltd. was also engaged in the similar business as that of the assessee of development, construction and leasing of commercial properties. Reliance was placed by the assessee on the decision of Hon’ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra) wherein investment was made by the assessee company in its subsidiary company and since both the assessee and subsidiary company were engaged in a similar business of providing telecommunication services, it was held that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. Accordingly interest paid on the borrowed funds utilised for making an investment in subsidiary company was held to be an allowable expenditure by the Hon’ble Bombay High Court by relying on the decision of Hon’ble Supreme Court in the case of S.B. Builders Ltd. (supra) wherein it was held that
9 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd. no disallowance of interest could be made u/s 36(1)(iii) of the Act as the investment in wholly owned subsidiary was commercially expedient.
In the present case, the commercial expediency of the interest expenditure in question was duly established by the assessee and on appreciation of the relevant facts of the case of the assessee as well as keeping in view the decision of the Hon’ble Supreme Court in the case of S.A. Builders (supra) as well as the decision of Hon’ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra), the claim of the assessee for the interest expenditure was allowed by the Ld. CIT(A). We, therefore, find no merit in the contention of the ld. DR that the claim of the assessee for interest expenditure was allowed by the ld. CIT(A) without considering the vital aspect of commercial expediency. In our opinion, when the relevant borrowed funds were utilised by the assessee company for making investment in its subsidy engaged in the same business, the business purpose of the investment as well as its commercial expediency was duly established and the interest paid by the assessee on the borrowed funds was allowable as deduction u/s 36(1)(iii) as held interalia by the Hon’ble Supreme Court in the case of S.A. Builders (supra) as well as by the Hon’ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra). In that view of the matter, we find no infirmity in the impugned order of the ld. CIT(A) allowing the claim of the assessee for interest expenditure and upholding the same, we dismiss this appeal filed by the Revenue.
10 I.T.A. No. 1366/Kol/2019 Assessment Year: 2013-14 M/s. BIP Developers Pvt. Ltd.
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 18th December, 2019.
Sd/- Sd/- (A.T. VARKEY) (P.M. JAGTAP) JUDICIAL MEMBER VICE PRESIDENT Dated: 18/12/2019 Biswajit, Sr. PS Copy of order forwarded to: 1. M/s. BIP Developers Pvt. Ltd., Ground Floor, Building Beta Bengal Intelligent Park, Block-EP & GP, Sector-V, Salt Lake City, Kolkata – 700 091. 2. ACIT, Circle – 2(1), Kolkata. 3. The CIT(A) 4. The CIT 5. DR True Copy, By order, Assistant Registrar / H.O.O. ITAT, Kolkata