TMI Blog2019 (12) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. - I.T.A. No. 1366/Kol/2019 - - - Dated:- 18-12-2019 - Shri P.M. Jagtap, Vice President (KZ) And Shri A.T. Varkey, JM For the Assessee : Shri A.K. Tibrewal, FCA And Shri Saurabh Gupta For the Revenue : Shri Supriyo Pal, JCIT, Sr. DR ORDER PER P.M. JAGTP, VICE-PRESIDENT (KZ) This appeal is preferred by the Revenue against the order of Ld. CIT(A) 5, Kolkata dated 15.03.2019 whereby he allowed the claim of the assessee for deduction on account of interest amounting to ₹ 3,60,72,709/- u/s 36(1)(iii) of the Income Tax Act, 1961. 2. At the outset, it is noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the course of appellate proceedings before the Ld. CIT(A): The appellant most humbly submits that major portion of investments in shares was made by the appellant company in its subsidiary namely Bengal Intelligent Parks Pvt. Ltd. for the purposes of commercial expediency. The reasons for investment in this company is as mentioned below: Bengal Intelligent Parks Pvt. Ltd (BIPL) was also engaged in development, construction, leasing of commercial properties in various cities of India. BIPL had already constructed a commercial IT project - Bengal Intelligent Park, Kolkata, India. The said company had four phases i.e. Alpha, Beta, Gamma, delta and Omega and was expanding its project. The Appellant Company projected future business prospects in the development activity of BIPL. Considering the success of first project of BIPL, the assessee company viz. BIP Developers Pvt. Ltd. (BIPD) applied for investing in equity shares of BIPL for long term future business prospects and commercial expediency as the future profits of the subsidiary / sister concern would be the profits of the assessee company and would increase the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the order of the Tribunal. There is a finding of fact that interest free funds borrowed are not utilised for the purposes of both the transactions. But quite apart from that, the finding is that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists. 13. Consequently we answer the questions of law as framed in the affirmative. The appeal shall be no order as to costs. The Appellant company also submits that the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978) 115 ITR 519 (SC), had also held that were the expenditure incurred was exclusively for the purpose of making investment the same was, therefore, allowable. The Hon'ble Supreme Court in the case of Rajendra Prasad Moody while discussing the section, namely, section 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) iv. CIT vs. Abhinitha Foundation (P) Ltd. (2017) 83 taxmann.com 100 (Madras). The appellant company also refers to the order dated 8th March, 2019 passed by the Ld. CIT(A)-1, Kolkata in the case of the Bengal Intelligent Parks Pvt. Ltd. (subsidiary company of the assessee) for the Assessment Year 2014-15 wherein under similar facts of the case and following the aforesaid judgements, the Ld. CIT(a) allowed the suo moto disallowances made by the assessee which were later on claimed by filing revised computation of income before the Assessing Officer. A copy of the order is enclosed for ready reference. The appellant company most humbly and respectfully submits that in view of the aforesaid facts and the judicial decisions on the subject, the suo moto disallowance of ₹ 3,60,72,409/- made by the appellant should be allowed as deduction since the same was not required to be capitalised and are in the nature of business expenses allowable under section 36(1)(iii) of the Act. 5. The Ld. CIT(A) found merit in the submissions made on behalf of the assessee and allowed the claim of the assessee for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets for capitalization . Therefore, interest in respect of borrowing for investment in shares cannot be capitalized. The Appellant company had invested in shares of Bengal Intelligent Parks Pvt. Ltd. (BIPL) a subsidiary company for the following reasons as per submission. Considering the success of first project of BIPL, the assessee company viz. BIP Developers Pvt. Ltd. (BIPD) applied for investing in equity shares of BIPL for long term future business prospects and commercial expediency as the future profits of the subsidiary / sister concern would be the profits of the assessee company and would increase the networth of the assessee company. Thus the investments made by the Appellant were strategic in nature in achieving the objects to procure more business from the properties developed by these companies. There is merit in the submission of the appellant. The investment was made for commercial expediency and therefore should be allowed as revenue expenditure. The Apex Court in SA Builders (supra) has held that expression for the purpose of business is wider than the expression for the purpose of earning profits. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(iii) of the Act as the investment in wholly owned subsidiary was commercially expedient. 9. 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 of the Hon ble Supreme Court in the case of S.A. Builders (supra) as well as the decision of Hon ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra), 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 ld. DR that the claim of the assessee for interest expenditure was allowed by the ld. 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 interal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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