Revenue appeal dismissed; bidding costs, subsidiary interest allowed u/s37(1), s.36(1)(iii); s.14A r.w.r.8D inapplicable for relevant assessment years

HC dismissed Revenue's appeal, upholding ITAT's order in favour of Assessee. It held that bidding expenses were incurred in the ordinary course of Assessee's existing infrastructure development business and thus allowable as revenue expenditure under s. 37(1), even if bids did not succeed. Interest on share application money advanced to the wholly owned subsidiary was held deductible under s. 36(1)(iii), the advance being for commercial expediency and directly linked to Assessee's infrastructure business carried out through the subsidiary. Disallowance under s. 14A r.w.r. 8D was rejected, Rule 8D being applicable only from AY 2008-09 and the issue not pressed before ITAT. HC found no substantial question of law.

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Issues Involved:
1. Allowability of bidding expenditure under Section 37(1) of the Income Tax Act.
2. Justification of deleting the disallowance of interest on share application money forwarded to a subsidiary.
3. Applicability of Rule 8D for the assessment year under consideration.

Summary:

Issue 1: Allowability of Bidding Expenditure
The High Court examined whether the ITAT erred in allowing the bidding expenditure under Section 37(1) of the Income Tax Act, 1961. The ITAT concluded that the expenses incurred by the Assessee were in the course of carrying on its business because the objects of the company included 'carrying on business in infrastructure development.' The ITAT referenced the Bombay High Court's decision in CIT Vs Essar Oil Ltd., which upheld that preliminary expenses incurred prior to the commencement of business activity could be considered revenue expenditure. The High Court agreed with ITAT's conclusions and found no error in its decision.

Issue 2: Disallowance of Interest on Share Application Money
The High Court reviewed the ITAT's decision to delete the disallowance of interest on share application money forwarded to the subsidiary. The ITAT accepted the CIT(A)'s factual finding that the amount given by the Assessee to its subsidiary was for business purposes. The ITAT established that there was a nexus between the advance of funds and the business of the Assessee carried out through the subsidiary, thus no disallowance under Section 36(1)(iii) of the Act was warranted. The High Court referenced the Supreme Court's decision in S.A. Builders Ltd., which held that interest on borrowed funds should be allowed as a deduction if the loan was given as a measure of commercial expediency. The High Court found no reason to interfere with the ITAT's factual findings.

Issue 3: Applicability of Rule 8D
The High Court addressed whether Rule 8D was applicable for the assessment year under consideration. The ITAT noted that Rule 8D's provisions are applicable from AY 2008-2009, as held in Godrej and Boyce Manufacturing Company Limited v. DCIT. The High Court confirmed that there was no indication that the Bombay High Court did not give this finding and agreed with ITAT's application of Rule 8D.

Conclusion:
The High Court dismissed the appeal, finding no substantial questions of law arising from the ITAT's decisions on the issues presented.

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