DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(1), CHENNAI, CHENNAI vs. SHAPOORJI PALLONJI SOLAR HOLDINGS PRIVATE LIMITED, CHENNAI

आदेश / O R D E R PER AMITABH SHUKLA, A.M :

ITA No.677/Chny/2024 :- 2 -:

ITA No.677/Chny/2024 :- 4 -:

4.3.3 The issue of allowability/disallowability of such expenditure as revenue expenditure has been settled by the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. v. CIT [1997] 227 ITR 798 (SC), wherein it is held that the expenditure incurred on 'Stamp Duty' payment and payment of ‘ROC’ registration fees' in connection with the increase share in authorized share capital is connected with the expansion of the capital base of the company was capital expenditure. In view of this judgment, the Ld. AO has correctly disallowed the revenue expense and treated it as capital expense. 4.3.4 During the appellant proceedings, the appellant has made an alternate plea that in case the expenditure was not allowed as revenue expense, additional deduction as per the provisions of Section 35D should be allowed. It is contended that the expenditure incurred in connection with the increase in the authorized share capital is allowed as a deduction u/s 35D. I do not find force in this argument of the appellant as well. The deduction u/s 35D is only available for certain expenses specified in sub-section (2) of 35D. The payment of Stamp Duty' for increase in the authorized share capital is not mentioned as an allowable expenditure in sub-section (2) and hence, the alternate plea of the appellant cannot be sustained.

ITA No.677/Chny/2024 :- 5 -:

4.3.5 In view of the above discussion, I have no reason to interfere with the finding of the Ld. AO on treating the said expenditure as a capital expenditure. The disallowance made by the Ld. AO is sustained and hence, the ground of appeal No.1 is dismissed…” 4.0 We have heard rival submissions in the light of material placed on records. The issue is at hand is squarely covered by the decision of Hon’ble Apex Court in the case of Brook Bond India Limited Supra and hence in our opinion no interference is required to be made to the order of Ld. First appellate Authority at this stage. The Ld. Counsel for the assesse has taken an alternately plea that the matter may be considered for allowance u/s 35D and that the appellant may be given the benefit of amortization. The Ld. DR argued that no case is made out for any allowance u/s 35D. It was submitted that section 35D excludes allowance of the expenditure in the nature of Stamp Duty incurred by the assesse. 5.0 Before proceeding further, it is necessary to examine the statutory provisions of the law prescribed u/s 35D of the Act. [35D. Amortisation of certain preliminary expenses.— (1) Where an assesse, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any :- 6 -: expenditure specified in sub-section (2),— (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his 5[undertaking] or in connection with his setting up a new 6[unit], the assesse shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the 5[undertaking] is completed or the new 6[unit] commences production or operation: 7[Provided that where an assesse incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words ―an amount equal to one-tenth of such expenditure for each of the ten successive previous years‖, the words ―an amount equal to one-fifth of such expenditure for each of the five successive previous years‖ had been substituted.] (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :— (a) expenditure in connection with— (i) preparation of feasibility report;

ITA No.677/Chny/2024 :- 7 -:

(ii) preparation of project report; 204 (iii) conducting market survey or any other survey necessary for the business of the assesse; (iv) engineering services relating to the business of the assesse: Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assesse himself or by a concern which is for the time being approved in this behalf by the Board; (b) legal charges for drafting any agreement between the assesse and any other person for any purpose relating to the setting up or conduct of the business of the assesse; (c) where the assesse is a company, also expenditure— (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, :- 8 -: brokerage and charges for drafting, typing, printing and advertisement of the prospectus; (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed. (3) Where the aggregate amount of the expenditure referred to in sub- section (2) exceeds an amount calculated at two and one-half per cent— (a) of the cost of the project, or (b) where the assesse is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section(1)…..” 6.0 It is the case of the assesse that its case of stamp duty payments falls under provisions of section 35D(2)(c) (iv). The Ld. DR submitted that the arguments put forth by the Ld. Counsel for the assesse are untenable as the provisions of section 35D(2)(c) (iv) pertain to public subscription by companies and would not be available to assesse which has not gone for public issue. It was also argued that the expenses of the nature of stamp duty are not included in the ambit of said section. We have noted the observations of Ld. CIT(A) Supra holding that the assesse is not eligible for deduction u/s 35D are based upon correct understanding of the statutory provisions. Section 35D extracted herein :- 9 -: above clearly shows that expenses are allowed only with reference to issue of shares having a direct bearing with public subscription. The argument of the appellant that the word “public subscription” is additional to the phrase issue of shares in clause (iv) is a case of misplaced understanding. The prescription of clause (iv) is to be understood in a contextual context. In any case, there is no allowance for stamp fee charges in the impugned section. 7.0 Accordingly, upon careful consideration of the matter we do not find any need to interfere with the order of the Ld. First Appellate Authority. It is noted that the assesse has raised ground of appeal No.5 stating that any Nefac did not give him opportunity of being heard through video conference. Upon perusal of the order of Ld. First Appellate Authority, we do not find any such controversy arising therefrom. There is nothing on record to suggest that a request for video conference was made and that the same was denied by the Ld. CIT(A). The assesse does not succeeds on this ground as well. Accordingly, all the six grounds of appeal raised by the assesse are dismissed. 8.0 In the result the appeal raised by the assesse is dismissed.

ITA No.677/Chny/2024 :- 10 -:

9.0 Through the aforesaid appeal, the Revenue has challenged the order of the Ld. CIT(A) in deleting the addition of Rs.3,62,39,989/- on account of interest payment made to another group company. The Revenue has raised four grounds of appeal which are centering around the impugned deletion by the Ld.CIT(A). All the grounds are adjudicated together. 10.0 Brief factual matrix of the case are that the AO noted that the assesse had claimed an expenditure of Rs.3,62,39,989/- on account of interest on loan received from a group company M/s.Shapoorji Pallonji Infrastructure Capital Company Pvt Ltd.(SPICCPL) The said loan was advanced to subsidiary group companies, in the form of share capital and loans, who were also engaged in the business of Solar Power Generation. Before the AO, the assesse submitted that it is a holding company engaged in the business of Solar Power Generation and that the impugned loans from SPICCPL was advanced to subsidiary company in furtherance of their business of Solar Power Generation. The AO noted that there was nothing in the memorandum of association, its object clause main or ancillary to indicate that the object of the company is to make investments and provide loans to group companies engaged in :- 11 -:

Solar Power Generation. Accordingly, he proceeded to deny the claim of interest and made the impugned addition. The Ld. CIT(A) deleted the addition while observing as under:- “… 5.3 Held:- I have perused the order of Ld. Assessing Officer, submissions of the appellant and the facts and circumstances of the case. 5.3.2 The Ld. AO has observed that the main object of the company is to carry out the business of generation of renewable and clean energy by setting up of wind, solar and biogas plants. It is not the object of the company to make investments and provide loans to group companies engaged in solar power generation. It is further noticed that it has made investments and given advances against share capital of Rs.92, 80,53,000/- in group companies in addition to long term loans and advances of Rs.4,73,00,000/-. It is incurred huge interest income of Rs.3,62,39,989/- in respect of the loan taken from the group concern M/s Shapoorji Pallonji Infrastructure Capital Company Pvt. Ltd. whereas it has earned a meager interest of Rs.12,55,891/- form its group concern M/s T.N. Solar Power Energy Pvt. Ltd. The Ld. AO, thus concluded that borrowed funds from a group concern is utilized for investing in share capital or giving advance against share capital to other group concerns without receiving any interest of the same. This amounted to diversion of :- 12 -: borrowed capital for non-business purpose and the disallowance on this account was worked out to Rs.6,02,41,019/-. However, since the appellant had deducted interest expenditure of Rs.3,62,39,989/-, the disallowance is restricted to this amount. 5.3.3 The appellant has contended that the Ld. AO has failed to appreciate that the appellant is a holding company which has made various investments in the form of equity share capital into the companies which were incorporated for the purpose of setting up of solar power plants. For the purpose of the investments, the appellant has made different SPVs. The investments in the subsidiaries were utilized for the main object of the appellant i.e. 'Setting up of Solar Power Plants'. It is further stated that the Ld. AO himself has noted that at serial no.6 of IIIB of MOA, one of the ancillary objects of the company is to make investments. It is also pointed out by the appellant that the following clauses (which are ancillary to the main objects) of the MOA had not been considered by the Ld. AO:- 4. To purchase or otherwise acquire or undertake all or any part of the business, property, assets, rights and liabilities of any person or company or, the whole or any portion of the shares in or securities of, or obligations or liabilities of any company carrying on any business which this Company is authorised to carry on or which appears calculated directly or ITA No.677/Chny/2024 :- 13 -: indirectly to benefit this Company, or possessed of property or rights suitable for the purposes of this Company.

ITA No.677/Chny/2024 :- 14 -:

4.3.5 In view of the above discussion, I have no reason to interfere with the finding of the Ld. AO on treating the said expenditure as a capital expenditure. The disallowance made by the Ld. AO is sustained and hence, the ground of appeal

No. 1 is dismissed.

5. Grounds of appeal Nos. 2 and 3: In these grounds of appeal, the appellant has challenged the disallowance of interest expense of :- 16 -:

Rs.3,62,39,989/- under section 36(1)(ii) on account of diversion of borrowed capital for non-business purpose…..” 11.0 We heard the rival submissions on the matter in the light material placed on records. The only issue that has come up for our consideration is as to whether the assesse is entitled for claim of interest in respect of loan received from SPICCPL. The assessing officer has admitted that the Generation of Power through Solar and Wind Energy is one of the business object of the assesse. It has also been borne on records that the loan/investment in share capital has been paid / made by the assesse, by virtue of being holding company, to its subsidiary companies which are engaged in the business of Solar Power Generation. It is also an undisputed fact on record that the subsidiary companies of the assesse company are all engaged in the business of Generation of Power through Solar and Wind Energy and other forms of renewable energy. Only controversy which the AO has raised is that there is nothing in the object clause – main or ancillary, in the memorandum of association that it was the business of the assesse to give loan to its subsidiary companies. The Ld. Counsel for the assesse has argued that there exists a clear business connection in the loan forwarded / investments made in shares to subsidiary companies and that consequently its case is covered by the decision of Hon’ble Apex Court in :- 17 -:

SA Builders in as much as there exists clear commercial expediency in the impugned interest payment. The Ld. DR for the Revenue has argued that the decision of SA Builders is not final as evident from observations of Hon’ble Supreme Court in the case of Tulip Star Hotel Limited 21 Taxman.com 97. 12.0 We have noted that the object of the assesse company to generate Solar Power is not in dispute. We also note that on a test of commercial expediency, the act of assesse being holding company, to pursue furtherance of its business, through its holding companies cannot be faulted. To this extent there exists a clear commercial expediency and a consequential business need to advance loans / invest in share capital to its holding companies even at the cost of incurring interest expenses. Once it was established that the borrowed funds have been advanced to subsidiary companies engaged in the business of Solar Power Generation, there was no need on the part of the CIT(A) to investigate utilization of funds received from holding companies. In the light of existence of a clear commercial expediency, the ratio laid down in the case of SA Builders would squarely apply in this case. Commercial expediency as far as , is found to be established from the plain facts of the case cannot be questioned. In the instant case the assesse holding company has invested in capital / given loans to its subsidiary companies :- 18 -: which share the same objects as that of the holding company. Thus Commercial expediency gets evenly established. To this extent the decision of Hon’ble Apex Court in Tulip Star Hotel Limited 21 Taxman.com 97, gets distinguished. The argument of the Revenue that the Ld. CIT(A) have given relief without examining the utilization of funds qua the subsidiary companies has been found not germane to the assessment order passed by the AO. The AO as evident from concluding part of his order made the addition u/s 36(1)(iii) on the premise of diversion of borrowed capital for non-business purposes. It has been concluded that the assesse engaged in business of generation of clean and renewable energy, has borrowed funds from one group concern and invested in share capital for giving advance again share capital of other group concern without any receipt of interest. The Ld. CIT(A) in Para-5.3.3 of his order clearly brought out that the AO has omitted to consider, ancillary objects of the assesse company available at Sl.No.6 of IIIB of MOA gives the assesse a wide authority for making investments as per its business needs and orientations. The impugned findings of the Ld. CIT(A) have not been contested by the Revenue. Accordingly, we do not feel any need to interfere with the order of the Ld. First Appellate Authority on this issue. Consequently all the grounds of raised by the Revenue are dismissed.