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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI C.N. PRASAD (JM) & SHRI RAJESH KUMAR (AM)
The present appeal has been preferred by the Revenue against the order dated 21.09.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
The Revenue has taken the following grounds of appeal:
“1. Whether on the facts and the circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition of Rs. 5,43,77,047/- made on account of interest expenditure u/s. 37 of I.T. Act,
2. Whether on the facts and the circumstances of the case and in law, the Ld.CIT(A) was right in deleting the addition without appreciating the fact that the assessee company did not have sufficient funds to make the investments and therefore the funds for investments were from borrowed capital on which interest Assessment Year: 2012-13 was pad.
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
3. The only issue raised by the Revenue is against the deletion of addition of Rs.5,43,77,047/- by CIT(A) as made by the AO towards the interest expenditure u/s 37 of the I.T. Act. The revenue has challenged in the ground No. 2 that the Ld. CIT (A) has deleted the addition without appreciating the fact that the assessee was not having sufficient funds to make investments and therefore investments were made out of borrowed funds on which interest was paid.
The brief facts of the case are that the AO had noticed in the assessment proceedings that the assessee has charged a sum of Rs. 8,18,59,138/- on account of interest expenses in the profit and loss account. The AO further notice that the assessee has made investments in the subsidiary companies and thus came to the conclusion that interest bearing funds were diverted towards investments in the subsidiary companies and finally disallowed a sum of Rs. 5,43,77,047/- u/s 37 of the Act as not being fully and exclusively incurred for the purpose of business.
Ld. CIT (A) allowed the appeal of the assessee by following the decision of the co-ordinate Bench in assessee’s own case in Assessment Year: 2012-13 A.Y. 2009-10 and 2010-11 and now the revenue is in appeal before us challenging the order of the CIT (A).
At the outset, the Ld. AR pointed out that the issue is covered in favour of the assessee by the order of the co-ordinate Bench in A.Y. 2009-10 and ITA No. 470/Mum/2014, A.Y. 2010-11 by the consolidated order dated 10.09.2015. The AR submitted that in view of the order of the co-ordinate Bench, appeal of the revenue should be dismissed. The Ld. DR on the other hand relied on the grounds of appeals.
We have heard the rival submissions and perused the materials as placed before us including decisions cited by the Ld. AR. After perusal to the said order we find that identical issue has been decided by the co-ordinate Bench in in favour of the assessee. The relevant para are reproduced as under:- “ 14. Ground No. 2 relates to the disallowance in interest expenses amounting to Rs. 1,10,83,572/- u/s 37 of the Act.
14.1 As mentioned elsewhere, the investments made by the assessee have to be seen in the light of the strategic investment inextricably linked with the main business operations of the assessee and the main object of the assessee company reads as under:
“To undertake, design, manufacture and supply of pollution control equipment as well as complete plants and their operation and detailed design and engineering relating to environmental protection projects, to set up and/or operate facilities for common effluent treatment plants, to set up and/or operate facilities for safe disposal of industrial waters such as landfill for solid wastes and incinerator for hazardous solid/liquid wastes, to set up facilities and/or operate for conversion of organic wastes into organic manure using suitable processes including bioconversion, to undertake activities for creation of Assessment Year: 2012-13 public awareness about environmental issues, to take up and coordinate with concerned state, national and international organization, agencies and authorities on matters related to environmental issues for the improvement and betterment of environment and to subscribe for, take or otherwise acquire and hold shares, stocks, debentures or other securities of any other company having objects altogether or in part similar to those of the company.” 14.1 In order to carry out the aforementioned main object, the assessee has made investments in subsidiary companies and associated companies which are special purpose vehicles formed to execute specific projects. Thus, the allegation of the AO that assessee has diverted and applied borrowed funds in non- business activities do not hold any water. The Hon’ble High Court of Madras in the case of CIT Vs Spencer & Co. Ltd. 359 ITR 644 have held that the interest on borrowed capital were investments in shares utilizing borrowed capital for strategic business purposes in companies promoted as special purpose to strengthen and promote assessee’s existing business interest was allowable. A similar view was taken by the Hon’ble High court of Madras in the case of RPG Transmissions Ltd. in 359 ITR 673. Respectfully following the decisions of the Hon’ble High Court (supra), in the light of identical facts of the case in hand, we do not find any reason for the disallowance of Rs. 1,10,83,572/-. We, accordingly, direct the AO to delete the same. Ground No. 2 is accordingly allowed.”
We therefore maintaining the consistency with the earlier order and respectfully following the decision of the co-ordinate Bench as stated herein above dismiss the appeal filed by the revenue.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 24th July, 2018.