Tribunal allows interest deduction, disallows loan expenses, and dismisses depreciation claim for Assessment Year 2015-16.

The Tribunal directed the AO to grant the deduction of interest paid on borrowed capital under Section 36(1)(iii), allowing the assessee's appeal for the Assessment Year 2015-16. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of expenses related to raising loan funds under Section 37(1), dismissing the revenue's appeal. The assessee's cross-objection regarding the claim of depreciation became infructuous. The final order allowed the assessee's appeal, dismissed the revenue's appeal, and dismissed the assessee's cross-objection.

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Issues Involved:
1. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act, 1961.
2. Disallowance of expenses related to arranger fees, credit rating fees, and loan processing fees under Section 37(1) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Interest under Section 36(1)(iii)
Facts and Arguments:
- The assessee, a company acquired by Tata Motors Finance Ltd (TMFL), incurred an interest expenditure of Rs. 7,66,86,750 for various borrowings used to finance the purchase of a loan portfolio under a slump sale agreement.
- The Assessing Officer (AO) disallowed the interest expenditure, arguing that it was incurred for acquiring a capital asset that was not put to use, and thus not allowable under the proviso to Section 36(1)(iii) of the Income Tax Act.
- The AO also contended that the loan portfolio acquired was a capital asset and not stock-in-trade, and hence, the interest expenditure was not deductible.
- The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's disallowance but allowed the capitalization of interest cost to the corresponding asset, permitting depreciation on the same.

Tribunal's Findings:
- The Tribunal noted that the borrowed funds were used for the purpose of business, mainly to acquire stock-in-trade, and thus, the proviso to Section 36(1)(iii) did not apply.
- The Tribunal observed that the assets acquired were liquid in nature, such as finance receivables and trade receivables, which did not require being put to use in the traditional sense.
- The Tribunal dismissed the revenue's argument that the capital asset was not put to use because the assessee did not claim depreciation on Goodwill, noting that the assets acquired were liquid assets forming part of stock-in-trade.
- The Tribunal relied on judicial precedents, including decisions from the Supreme Court and High Courts, to support its conclusion.

Conclusion:
- The Tribunal directed the AO to grant the deduction of interest paid on borrowed capital amounting to Rs. 7,66,86,750 under Section 36(1)(iii) for the Assessment Year 2015-16, allowing the assessee's appeal.

Issue 2: Disallowance of Expenses under Section 37(1)
Facts and Arguments:
- The assessee incurred expenses totaling Rs. 15,35,00,000 for raising loan funds, including arranger fees, credit rating fees, and loan processing fees.
- The AO disallowed these expenses, arguing that they were capital in nature since the loans were utilized for purchasing assets under the slump sale agreement, thereby expanding the capital base.
- The CIT(A) deleted the disallowance, observing that the expenses were incurred for raising loans, which are liabilities and not assets, and hence could not be considered capital expenditure.

Tribunal's Findings:
- The Tribunal agreed with the CIT(A) that the expenses incurred for raising loan funds were allowable as deductions under Section 37(1), irrespective of the usage of the loan proceeds.
- The Tribunal emphasized that the loans were borrowed for the purpose of business, and the related expenses were linked to liabilities, not capital assets.
- The Tribunal also noted the CBDT Circular No. 56 dated 09/03/1971, which supports the allowability of such expenses.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 15,35,00,000, dismissing the revenue's appeal.

Cross Objection:
- The assessee's cross-objection regarding the claim of depreciation was rendered infructuous following the dismissal of the revenue's appeal.

Final Order:
- The assessee's appeal was allowed, the revenue's appeal was dismissed, and the assessee's cross-objection was dismissed.

Order Pronounced:
- The order was pronounced in the open court on 06/12/2019.

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