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 :

These appeals are filed against the order bearing DIN & Order No.ITBA/NFAC/S/250/2023-24/1059814156(1) dated 17.01.2024 of the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the assessment years 2016-

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2.0 Through the aforesaid appeal the assesse has challenged, the decision of the CIT(A) in confirming the order of AO u/s 143(3) dated 22.12.2018 in respect of an addition of Rs.60,30,000/- on account of Stamp Duty charges. All the six grounds of appeal are centering around this single issue and hence adjudicated together. 3.0 As per brief factual matrix of the case, during the years under consideration, the assesse has increased its authorized share capital from 1.10Crores to 1.25Crores. From the perusal of profit and loss account, the AO noted that an amount of Rs.60,52,853/- was debited out which an amount of Rs.60,30,000/- was towards stamp duty paid for increase in authorized share capital. Applying the ratio laid down by Hon’ble Apex Court in the case of M/s.Brook Bond India Limited that expenditure incurred for increasing Capital base of a company is capital in nature and cannot be allowed as deduction, the AO made the impugned addition of Rs,60,30,000/-. Aggrieved by the AO’s action, the

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assesse approached CIT(A) who confirmed the addition made by the AO. Relevant findings from the order of the CIT(A) is as under:- “…4.3 Held:- | have perused the order of the Assessing Officer, the submissions of the appellant and considered the facts and circumstances of the case. It is undisputed that the amount of Rs.60,30, 000/- was paid by the appellant as 'Stamp Duty' for increase of the authorized Share Capital of the appellant during the previous year under consideration. It is also noticed that the amount paid for 'ROC filing fees', has been disallowed from the P & L account but the payment for 'Stamp Duty' has not been disallowed. 4.3.2 The appellant has cited the following case laws in support of the allowability of the said expense as a revenue expense:- i. CIT v. Kisenchand Chellaram (India) P. Ltd. [1981] 130 |TR 385 (Mad.) ii. Hindustan Machine Tools Ltd. (No.3) v. CIT [1989] 175 ITR 220 (Kar) Perusal of these orders show that both these orders pertain to allowability of ‘ROC filing fees' which the appellant himself has disallowed in the present case and not an issue in dispute and hence, are not relevant for the present appeal.

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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.

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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

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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;

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(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,

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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

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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.

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आयकर अपील सं./ITA Nos.675 /Chny/2024 ननर्ाारण वषा /Assessment Years: 2016-17

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

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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

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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

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indirectly to benefit this Company, or possessed of property or rights suitable for the purposes of this Company. 6. To invest and deal with the moneys of the Company not immediately required in such manner as may from time to time be determined and from time to time sell or vary such investments and to execute all assignments, transfers, receipts & documents that may be necessary in that behalf and to advance money and assets of all kinds with or without security and give credit to such persons including Government and upon such terms and conditions as the Company may think fit, provided that the Company shall not carry on Banking business. 12. To form or promote any company or companies, whether in India or elsewhere, having amongst its or their objects the acquisition of all or any of the assets or control or development of the company or any other objects which in the opinion of the company could or might directly or indirectly assist the company in the development of its properties or otherwise prove advantageous to the company and to pay all of the costs and expenses incurred in connection with any such promotion or incorporation and to remunerate any person or company in any manner it shall think fit for services rendered or to be rendered.

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business of solar power generation is included in the main object of the appellant i.e. to carry on the business of generation of renewable and clean energy by setting up of wind, solar and biogas plants. The ancillary objects of the company clearly show that the investment in companies engaged in such ventures was as per MOA of the company. Various decisions of the Courts including decision of SA Builders (supra) have held that if the test of commercial expediency is satisfied, the interest paid on borrowings is to be fully allowed. In the present case, the borrowed funds have been advanced to the subsidiary on the ground of commercial expediency in order to further its main and ancillary objects and hence, the disallowance made by the Ld. AO is not justified. 5.3.5 In view of the above discussions, the disallowance of Rs.3,62,39, 989/- u/s 36(1)(iii) made by the Ld. AO is deleted. Therefore, the grounds of appeal No. 2 and 3 are allowed.

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

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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

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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

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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.

ITA No.677/Chny/2024 :- 19 -: 13.0 In the result the appeal of the Revenue is dismissed. Order pronounced on 28th, August, 2024 at Chennai. Sd/- Sd/- ( एबी टी. वकी) (अमिताभ शुक्ला) (ABY T VARKEY) (AMITABH SHUKLA) न्यानयक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, ददनांक/Dated: 28th, August- 2024. KB/- आदेश की प्रनतललपप अग्रेपषत/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai 4. पवभागीय प्रनतननधर्/DR 5. गार्ा फाईल/GF