AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 1030
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.... 'the tribunal' for short), they were heard together and are being decided by this common judgment. The appeals were admitted by a bench of this Court on the following substantial questions of law: "(i) Whether tribunal committed an error of law in upholding disallowance of interest on borrowed capital at the rate of 6% as being attributable to investments made by the appellant in its foreign subsidiary, although the investments had been made to further sales in foreign markets, which is wholly for the purposes of its business and no part of the borrowed capital was utilized for such investment in any event? (ii) Whether the tribunal is correct in upholding the disallowance of Rs. 7,97,70,326/- as interest on capital attributable to capital work in progress relying on the proviso to Section 36(1)(iii) when the said proviso was inapplicable to the case of the appellant and no part of the borrowed capital was utilized for investment in work in progress in any event? (iii) The tribunal was correct in upholding the disallowance of interest on borrowed capital as attributable to capital work in progress at 12% as against 7.6% of the average capital wor....
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....wance under Section 14A of the Act, to the extent of Rs. 7,35,920/- under Rule 8D(2)(iii) was upheld and to the extent of the balance of Rs. 70,36,410/- under Rule 8D(2)(ii), was deleted, and it was held that the said investments were made out of funds owned by the assessee and not from the borrowed funds. (ii) the disallowance of interest on borrowed capital allegedly utilized for the purposes of investment in shares of AN Coffeeday was upheld but the quantum of the disallowance was reduced from Rs. 1,90,81,831/- to Rs. 1,48,54,153/- by reducing the interest rate to 8.5% as against 12% as held by the Assessing Officer. (iii) the disallowance of interest on borrowed capital allegedly utilized for capital work-in-progress was upheld but the quantum of disallowance was reduced from Rs. 7,97,79,326/- to Rs. 5,05,06,362/- by reducing the interest rate from 12@ to 7.6%. (iv) the disallowance of processing charges of Rs. 9,77,23,650/- was deleted in view of the decision of the Supreme Court in INDIA CEMENTS VS. CIT [(19660 60 ITR 52(SC)]. 3. Being aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the assessee as well as the revenue f....
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....er for the Assessment Year 2009-10 was wholly unnecessary as for the Assessment Year 2009-10 itself the Commissioner of Income Tax (Appeals) had returned the finding that investments in A.N.Coffeeday as on 31.03.2009 were made out of the funds of the assessee in the context of disallowance under Section 14A read with Rule8D(2)(ii) of the Rules and therefore, same conclusion ought to have been drawn to Section 36(1)(iii) of the Act and therefore, the order of remand was wholly unwarranted. It is also urged that prior to amendment of Section 36(1)(iii) of the Act by Finance Act, 2003 with effect from 01.04.2004, it has been held that interest on borrowed capital utilized for the purpose of business or profession has to be disallowed irrespective of whether the same is towards extension or expansion of business. It is also urged that expression 'expansion' and 'extension' connote different meaning and the legislature in its wisdom has used the aforesaid expressions differently. In this connection, our attention was invited to Section 80-IC(2)(b) and 80-IE(2)(ii) wherein the term 'expansion' is used and substantial 'expansion' is defined as increase in i....
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....ofar as it pertains to investment made in the foreign subsidiary of the assessee and disallowance of interest under Section 36 and disallowance of interest under Section 36(1)(iii) of the Act. Similarly twin issues arise for consideration in this appeal viz., whether loan processing and other charges can be allowed as revenue expenditure or has to be treated as capital in nature and whether the tribunal has acted in contravention of the provision of Section 254(2) of the Act while passing the order dated 06.12.2017 on an application for rectification filed by the assessee. 9. It is well settled legal proposition that where interest free funds are available to the assessee and were sufficient to meet its investment, the presumption is that the investments were made from interest free funds available with the assessee. [See: RELIANCE INDUSTRIES LTD., SUPRA]. The assessee had made investment by way of share application money in one of its foreign subsidiaries i.e., A.N.Coffeeday. The investment which was made as on 31.03.2009 and 31.03.2010 was for an amount of Rs. 14,32,75,766/- and Rs. 17,47,54,752/- respectively. The assessee held its own funds to the extent of Rs. 17,47,54,752/....
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....assessee had capital work in progress of Rs. 59,41,92,500/- as on 31.03.2010 which represented various coffee shops being set up which were in different stages. The Assessing Officer disallowed the interest on borrowed capital to the extent of Rs. 7,97,70,326/- has been attributable to work in progress on the ground that the same will have to be capitalized along with cost of fixed asset. The order passed by the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals) and the tribunal upheld the disallowance on the ground that in terms of proviso to Section 36(1)(iii) which was incorporated in the At with effect form 01.04.2004 the interest cost ought to have been capitalized. 12. It is pertinent to mention here that prior to amendment of Section 36(1)(iii) vide Finance Act, 2003, it is a well settled proposition of law that interest on borrowed capital utilized for the purpose of business or profession has be allowed irrespective of the fact that is towards extension or expansion. In this connection, reference may be made to decision of the High Court of Delhi in Monnet Industries Ltd. supra, which was upheld by the Supreme Court in a decision in (2012) 2....
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..... However, on an appeal being preferred by the revenue, the tribunal though noted that a similar issue was decided in favour of the assessee in another assessee's case allowed the appeal preferred by the revenue following the order passed in case of the assessee for Assessment Year 2010-11. The assessee had funds of Rs. 386.91 Crores as against the capital work in progress of Rs. 59.41 Crores, which leads to a presumption that assessee had used its funds towards the expansion and not for borrowed capital. Therefore, interest on borrowed capital could not have been disallowed. 15. The Assessing Officer had disallowed the claim in respect of processing charges on the ground that the same ought to have been capitalized with the loans as they are directly linked to the borrowings and disallowed the same. However, the Commissioner of Income Tax (Appeals) by placing reliance on decision of the Supreme Court in CIT VS. INDIA CEMENTS supra allowed the appeal preferred by the assessee in an appeal filed by the revenue though tribunal originally restored the matter to the Commissioner of Income Tax (Appeals), however, on an application for rectification made by the assessee, the tr....