2024 (2) TMI 226 - HC - Income Tax

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 ... Bidding expenditure u/s 37 (1) - whether expenditure as incurred for setting up a new line of business? - ITAT allowing the bidding expenditure in the course of carrying of its business activities in furtherance of its business activities - HELD THAT:- ITAT correctly concluded that the expenses having been incurred by Assessee in the course of carrying on its business, because objects of the company included ‘carrying on business in infrastructure development’, the same has to be allowed as deduction. On facts, the ITAT came to a conclusion that this expenditure has been incurred in furtherance of the business activities of Assessee. The [2008 (10) TMI 649 - BOMBAY HIGH COURT] on which reliance has been placed by the Tribunal, one of the questions of law was whether the Tribunal was justified in holding that the preliminary expenses incurred by Assessee prior to the commencement of its business activity could be a revenue expenditure. The Court was pleased to uphold the findings of the Tribunal that it would amount to a revenue expenditure even if Assessee was not successful in obtaining the bid. No error in the conclusions arrived at by the ITAT. Interest on the share application money forwarded to the subsidiary company - whether it is allowable on the account of commercial expediency? - as per revenue intention of investment in the subsidiary company was to retain/increase the controlling interest therein, which is the capital investment and, therefore, the corresponding interest expense on it is not allowable - Tribunal, agreed with the finding arrived at by the CIT(A) that the amount given by Assessee to its subsidiary was for the purpose of business of Assessee - HELD THAT:- Tribunal has accepted the factual finding of the CIT(A) that Assessee being engaged in the business of ‘infrastructure development management and finance’ in addition to its ‘amusement park and water park’, has set up the subsidiary to which these funds were provided to take up the infrastructure project on behalf of Assessee. A factual finding has been arrived at that the finance provided to the wholly owned subsidiary was for its business of infrastructure and is used for that purpose. It has accepted that the nexus between the advance of funds and the business of Appellant/Assessee carried out through the subsidiary stood established and hence, no disallowance under Section 36(1)(iii) of the Act was warranted. Therefore, since its a factual finding, we see no reason to interfere. Addition u/s 14A r.w.r. 8D - HELD THAT:- We find that it was not even argued before the Tribunal. Moreover, ITAT had only noted that the provisions of Rule 8D shall be applicable from AY 2008-2009 as held in the case of Godrej and Boyce Manufacturing Company Limited [2010 (8) TMI 77 - BOMBAY HIGH COURT] of this Court. There is nothing to indicate that the Bombay High Court did not give this finding. In fact Ms. Gokhale says that the Court in Godrej and Boyce (supra) has actually held that provisions of Rule 8D shall be applicable from AY 2008-2009 only. No substantial questions of law arise. 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 ExpenditureThe 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 MoneyThe 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 8DThe 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.