2019 (12) TMI 912 - AT - Income Tax

Tribunal allows interest deduction under Income Tax Act.

The Tribunal upheld the CIT(A)'s decision to allow the deduction of interest expenditure under Section 36(1)(iii) of the Income Tax Act, 1961. The ... Deduction on account of interest u/s 36(1)(iii) - as per DR before us is that the case of the assessee of commercial expediency behind the incurring of interest expenditure in question was not substantiated by any documentary evidence and the CIT(A) accepted the case of the assessee without considering this vital aspect - HELD THAT:- In the present case, the commercial expediency of the interest expenditure in question was duly established by the assessee and on appreciation of the relevant facts of the case of the assessee as well as keeping in view the decision in the case of S.A. Builders [2006 (12) TMI 82 - SUPREME COURT] as well as Reliance Communications Infrastructure Ltd. 2006 (12) TMI 82 - SUPREME COURT] the claim of the assessee for the interest expenditure was allowed by the Ld. CIT(A). We, therefore, find no merit in the contention of the DR that the claim of the assessee for interest expenditure was allowed by the CIT(A) without considering the vital aspect of commercial expediency. In our opinion, when the relevant borrowed funds were utilised by the assessee company for making investment in its subsidy engaged in the same business, the business purpose of the investment as well as its commercial expediency was duly established and the interest paid by the assessee on the borrowed funds was allowable as deduction u/s 36(1)(iii) as held interalia by the Hon’ble Supreme Court in the case of S.A. Builders (supra) as well as by the Hon’ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra). - Appeal of the Revenue is dismissed. Issues Involved:1. Condonation of delay in filing the appeal.2. Allowability of deduction on account of interest expenditure under Section 36(1)(iii) of the Income Tax Act, 1961.3. Commercial expediency of the interest expenditure.Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The Revenue filed the appeal with a delay of 3 days. The Tribunal noted that the Revenue had provided sufficient reasons for the delay and that the counsel for the assessee did not object. Therefore, the delay was condoned, and the appeal was disposed of on merit.2. Allowability of Deduction on Account of Interest Expenditure Under Section 36(1)(iii):The assessee, a company engaged in development, construction, and leasing of commercial properties, initially capitalized the interest expenditure to the cost of investment in unquoted shares. Later, it claimed the deduction in a revised computation of income, arguing that the investment in shares did not qualify for capitalization. The Assessing Officer (AO) rejected this claim as it was not made in the original return or through a revised return, relying on the Supreme Court decision in Goetze India Ltd. vs CIT.Upon appeal, the Ld. CIT(A) allowed the deduction, stating that appellate authorities have the power to entertain fresh claims even if not made through a revised return, citing several judicial precedents. The CIT(A) also agreed that the interest expenditure was for commercial expediency and hence allowable as a revenue expenditure under Section 36(1)(iii).3. Commercial Expediency of the Interest Expenditure:The assessee argued that the investment in its subsidiary, Bengal Intelligent Parks Pvt. Ltd. (BIPL), was for commercial expediency, as both companies were engaged in similar businesses. The Ld. CIT(A) accepted this argument, noting that the investment was strategic for future business prospects and commercial expediency. The decision was supported by the Supreme Court ruling in S. A. Builders Ltd. vs. CIT(A), which held that interest on borrowed funds for investments made for commercial expediency is deductible under Section 36(1)(iii).The Tribunal upheld the CIT(A)’s decision, stating that the commercial expediency was duly established. The Tribunal also referred to the Bombay High Court decision in Reliance Communications Infrastructure Ltd., which supported the deduction of interest on borrowed funds used for investments in subsidiaries engaged in similar businesses.Conclusion:The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s order allowing the deduction of interest expenditure. The Tribunal found no merit in the Revenue's contention that the CIT(A) did not consider the commercial expediency aspect, concluding that the business purpose and commercial expediency were adequately demonstrated by the assessee.