2020 (9) TMI 24

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... CIT(A) on account of interest expenditure. 2. The assessee in the present case is a non-banking finance company which filed its return of income for the year under consideration on 30.09.2013 declaring total income at Nil. In the Profit & Loss Account filed along with the said return, a sum of Rs. 2,65,87,704/- was debited by the assessee on account of interest expenditure. During the course of assessment proceedings, it was noticed by the AO that the said interest was paid by the assessee on Short Term Borrowings which stood at Rs. 28,14,87,977/- as at 31.03.2013. He also noticed that the said Short Term Borrowings were utilised by the assessee for payment of share application money to the extent of Rs. 4,72,10,000/- as at 31.03.2013. ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e application of Rs. 4,72,10,000/-. The Ld. AO after examining the balance sheet of the assessee alleged that the borrowed capital had been utilised in making the share application of Rs. 4,72,10,000/- as the assessee had own funds of Rs. 4,98,84,904/- only and thus the interest expenditure had not been incurred for business purpose. Thus, the Ld. AO made the disallowance of interest amounting to Rs. 49,05,630/- u/s 36(1)(iii) of the Act. In connection to above, it is submitted that the assessee is a NBFC company registered with Reserve Bank of India and engaged in the business of investing and financing activities. Copy of NBFC registration certificate is enclosed at page 12-16 of Paper Book. Since, the investment and fin....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... business activities only. Further it is also evident from the Note 16 - Revenue from Operation of the Profit and Loss statement at page 41 of Paper Book that the assessee had shown the interest income, dividend income and profit on sale of such investment as a part of revenue from operating activities. This is also evident from the copy of computation of ITR enclosed at page 60-90 of Paper Book. This very clearly shows that the share application given by the assessee is a part of its business activity being undertaken as a NBFC. The short term borrowings had been utilized for the purpose of business and therefore the interest paid on such borrowed fund were wholly and exclusively for the purpose of business only." In s....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....tion of Rs. 49,05,630/- is confirmed. This ground of appeal fails and is therefore not allowed." Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal. 5. The learned counsel for the assessee submitted that the assesssee is a non-banking finance company and buying and sselling of shares as well as making investment in shares was part of its main business activity. He invited our attention to the balance sheet of the assessee company as placed at page no. 29 of the Paper Book as well as relevant schedule of short term loans and advances given at page no. 42 of the Paper Book to show that the share application money was included in the short term loans and advances and the same were reflect....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ted in shares and debentures for the purpose of business, interest paid thereon would be allowable u/s 36(1)(iii). 6. The ld. DR, on the other hand, relied on the orders of the authorities below in support of the revenue's case on the issue under consideration. He contended that investment made by the assessee in share application money was in the nature of capital investment and, therefore, interest paid on the borrowed funds to the extent utilised for making payment of share application money was not allowable u/s 36(1)(iii) as rightly held by the Ld. CIT(A). 7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee is a non-banking finance company which ....