DCIT, CIRCLE-4, KOLKATA, KOLKATA vs. M/S. ASTOR DEALERS PVT. LTD., KOLKATA

The common issue that arises for consideration in both these appeals by the revenue is as to whether the CIT(A) was justified in coming to the conclusion that the interest paid on debentures of M/s. Spencer International Hotels Ltd acquired by the assessee from M/s. Ceat Ltd would be allowed as deduction in computing the income from business of the assessee. For the purpose of ready reference the grounds of appeal raised by the revenue in both the assessment years in this regard are as follows :- A.Y.2003-04 “1)That the ld. C1T(A) has erred in law and on facts by deleting the addition of Rs. 1,01,81,738/- on account of interest paid on acquisition of debentures though the business of the assessee was not investment in debentures for the year and those debentures were held by the assessee-company as its investment and not stock in trade. 2)That the appellant craves for leave to add, delete, amend or modify any ground before or at the time of appellate proceedings.”

2 ITA Nos.,1906 & 1907/Kol/2014 M/s. Astor Dealers Pvt. Ltd. A.Yr.2003-04 & 2004-05 A.Y.2004-05 “1)That the ld. C1T(A) has erred in law and on facts by deleting the addition of Rs. 1,01,27,547/- on account of interest paid on acquisition of debentures though the business of the assessee was not investment in debentures for the year and those debentures were held by the assessee-company as its investment and not stock in trade. 2)That the appellant craves for leave to add, delete, amend or modify any ground before or at the time of appellate proceedings.”

At the time of hearing the ld. Counsel for the assessee brought to our notice that identical payment of interest on debentures acquired was the subject matter of consideration by this Tribunal in assessee’s own case for A.Y.2001-02 in and this Tribunal by its order dated 13.10.2006 was pleased to hold that the payment of interest was held to be an allowable deduction.

The brief facts with regard to acquisition of debentures was that the assessee purchased 32,00,000 of debenture of Rs.100/- each held by M/s. Spencer International Hotels Ltd on 29.09.1998 from M/s. Ceat Ltd which was the registered debenture holder. As per the agreement with M/s. Ceat Ltd the assessee was to pay 10% interest to M/s. Ceat Ltd on unpaid purchase consideration. The assessee had showed debentures as investment in its books of accounts. But in the return of income the assessee had claimed that the debentures were held as business asset and profit and loss on sale of debentures would be offered for taxation as business income/loss. The payment of interest on unpaid purchase consideration was claimed as deduction while computing income from business. According to the AO the debentures in question were held as investment and therefore interest paid should be considered as part of the cost of debentures and should have been capitalized and cannot be claimed as deduction while computing income from business. The CIT(A) however came to the conclusion that though the debentures were held by the assessee as investment and was closely related to the commercial activity of the assessee’s business of dealing in shares and securities. Therefore interest paid was to be allowed as a business expenditure. .,1906 & 1907/Kol/2014 M/s. Astor Dealers Pvt. Ltd. A.Yr.2003-04 & 2004-05 5. The Tribunal in its order for A.Y.2001-02 referred to in the earlier paragraph concurred with the view of CIT(A). The following were the relevant observations of the Tribunal :- “9. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the paper book and the case laws filed by the ld. counsel for the assessee. The assessee in this case has claimed that the debentures' of Spencer International Hotels Ltd. were kept by it as business asset and, therefore, interest on account of such investment ought to have been allowed by the A.O. It has further been contended that such claim of interest by the assessee was accepted by the revenue in earlier years and such contention of the assessee has not been controverted by the ld. Departmental Representative for the Revenue before us. The main objection raised by the Revenue while treating such debentures as investment is based upon the treatment of such debentures in balance- sheet, wherein such investment in debentures has been shown as investment and not as stock-in-trade. However. it is also relevant to note that the assessee' is treating such investment in debentures as business asset, which was also accepted by the Department in the earlier assessment. Apart from the above facts, it' is also an undisputed fact that the main activity of the assessee is dealing in shares and securities and the assessee has also sold such debentures of Spencer International Hotels Ltd in earlier years are offered the same as business Income. We further find that in almost identical conclusions the Hon 'ble Supreme Court in the case of Bombay Steam Navigation Company Pvt Ltd. (supra) has held that 'the interest paid by the assessee was business expenditure and was allowable as a deduction under section 10(2) (xv). The transaction of acquisition of assets was closely related to the commencement and carrying on of the assessee's business and interest paid on the unpaid balance of the consideration for the assets acquired had, in the normal course to be regarded as expended for the purpose of the business which was carried on in the accounting periods". Since in the present case also, the purchase of debentures by the assessee-Company is closely related to its commercial activity as also evident from the fact involved in this case, in our considered opinion, the action of A.O. in treating such debentures' as investment and thereafter .disallowing the interest for acquisition of such debentures was not correct and the ld. CIT(A) was justified. in allowing the claim of interest as business expenditure. We, therefore, do not find any infirmity in the order of ld. CIT(A) and uphold the same and reject the ground raised by the Revenue.”

The Ld. Counsel brought to our notice that as against the decision of the Tribunal in A.Y.2001-02 the revenue preferred an appeal before the Hon’ble Calcutta High 3 4 ITA Nos.,1906 & 1907/Kol/2014 M/s. Astor Dealers Pvt. Ltd. A.Yr.2003-04 & 2004-05 Court in of 2007 and the Hon’ble Calcutta High Court by its order dated 04.05.2016 dismissed the appeal of the assessee observing that the finding concurrently recorded by CIT(A) and the Tribunal was that debentures were held by way of business assets and that finding were not challenged by the Revenue. The Hon’ble Calcutta High Court therefore held that interest expenditure is allowable u/s 36(1)(iii) of the Act.

It is not in dispute before us that the facts and circumstances under which the disallowance was made by AO and deleted by CIT(A) in A.Y.2003-04 and 2004-05 are identical to the facts and circumstances as it prevailed in A.Y.2001-02. The decision of the Tribunal for A.Y.2001-02 would therefore equally apply to two assessment years 2003-04 and 2004-05. In this circumstance we are of the view that CIT(A) was fully justified in coming to the conclusion that the addition made by the AO cannot be sustained in the light of the decision rendered in A.Y.2001-02. In these circumstances we are of the view that there is no merit in this appeal filed by the revenue. Accordingly both the appeals of the revenue are dismissed. 8. In the result both the appeals of the revenue are dismissed. Order pronounced in the Court on 19.05.2017. Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 19.05.2017. [RG PS] Copy of the order forwarded to: