TMI Blog2021 (9) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... upport the said proposition. The same is also supported by case of S.A. Builders V/s CIT [ 2006 (12) TMI 82 - SUPREME COURT] wherein it was held that it was enough to show that the money was expanded not out of necessity and with a view to direct and immediate benefit but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The expression commercial expediency was of wide import and would include such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet is allowable as business expenditure if it was incurred on grounds of commercial expediency. Therefore, we concur with the conclusions drawn by Ld. CIT(A), in this regard. Only requirement to claim interest expenditure u/s 36(1)(iii) is that the borrowed funds should have been expanded wholly and exclusively for business purposes - As undisputed fact that there is one-to-one correlation between the borrowed funds and the advances granted by the assessee. The funds have been lent for business purposes since the main objective was to develop the SEZ. Therefore, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest has to be put into place and thus, the average rate of borrowing comes to 2.99% whereas the interest charged by the assessee is 10.79% without appreciating that the assessee in its own submission submitted date wise chart of interest bearing loan taken from RIL and its advancement to four concerns which clearly shows that amount received from RIL has been given as loan on the same day to another concern at a lower rate of interest? 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified restricting the disallowance to ₹ 2,13,159/- and in holding that the assessee's suo-moto disallowance u/s 14A is reasonably fair without appreciating the decision of the Hon'ble ITAT, Ahmedabad Bench in the case of DC1T vs. KARSAN KANJI RAGHVANI 2019-TIOL-1393-ITAT-AHM, wherein the Tribunal has held that disallowance should be restricted to the total expenditure claimed by the assessee? 4. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. As evident, in ground nos.1 2, the revenue is aggrieved by deletion of interest disallowance which was made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail Pvt. Ltd 9% 4. Reliance Polyfins Ltd. 14% Accordingly, Ld. AO proceeded to compute interest disallowance u/s 36(1)(iii) and the assessee was asked to justify charging lesser rate of interest and also show commercial expediency for granting the loans at lesser rates. 5.2 The assessee, inter-alia, submitted that as per the provisions of Sec. 36(1)(iii), interest on borrowings would be an allowable business expenditure provided the borrowed funds were used for the purpose of business. Since the granting of loans and advances is the business of the assessee and borrowed funds have been used for the purposes of business, no disallowance could be made u/s 36(1)(iii) since all the conditions prescribed therein were duly fulfilled by the assessee. It was further submitted that majority of funds were advanced to its sister concern namely M/s Reliance Haryana SEZ Ltd. (RHSL) which was subsidiary of fellow subsidiary i.e. M/s Reliance Venture Limited (RVL) which, in turn, was subsidiary of M/s RIL. The assessee was also subsidiary of M/s RIL. In the above background, the assessee sought to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shinano Retail Pvt. Ltd. 9% 10,50,164 2.5 2,91,712 Total 22,59,53,470 6. Disallowance u/s 14A The assessee earned exempt dividend income of ₹ 259.26 Lacs and offered suo-moto disallowance u/s 14A or ₹ 2.13 Lacs. The same was computed on the basis of 1/4th of expenditure under various heads. However, Ld. AO invoking Rule 8D, computed indirect expense disallowance u/r 8D(2)(iii) for ₹ 1052.60 Lacs, being 0.5% of average value of investments. Since the assessee had claimed expenses of ₹ 11 Lacs only, the disallowance was restricted to the extent of ₹ 11 Lacs. Appellate Proceedings 7.1 During appellate proceedings, the assessee reiterated that borrowed funds were utilized for business purposes and therefore, interest would be fully allowable u/s 36(1)(iii). Reliance was placed on the decision of Hon ble Supreme Court in the case of Hero Cycles (P.) Ltd. (379 ITR 347) which held that once it was established that there was nexus betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. The expression commercial expediency was of wide import and would include such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet is allowable as business expenditure if it was incurred on grounds of commercial expediency. Therefore, the impugned disallowance as made by Ld. AO was to be deleted. 7.4 Having held so, Ld. CIT(A) also observed that the assessee had obtained interest free funds as well as interest bearing funds from M/s RIL. Considering the combined funds, the average rate of interest paid by the assessee was merely 2.99% which was much less than the interest charged from M/s RHSL. The working of the average rate has been tabulated on page nos.38 to 41 of the impugned order. Therefore, disallowance would not be justified from this angle also. 7.5 Regarding disallowance u/s 14A, it was observed by Ld. CIT(A) that out of total expenditure of ₹ 14.34 Lacs as claimed by the assessee, the assessee had suo-moto disallowed ₹ 2.13 Lacs u/s 14A and another disallowance of ₹ 5.77 Lacs was also made as Balances written off . As against this, Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the case of S.A. Builders V/s CIT (288 ITR 1) wherein it was held that it was enough to show that the money was expanded not out of necessity and with a view to direct and immediate benefit but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on the business. The expression commercial expediency was of wide import and would include such expenditure as a prudent businessman would incur for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet is allowable as business expenditure if it was incurred on grounds of commercial expediency. Therefore, we concur with the conclusions drawn by Ld. CIT(A), in this regard. 9. Having held so, we find that the only requirement to claim interest expenditure u/s 36(1)(iii) is that the borrowed funds should have been expanded wholly and exclusively for business purposes. We find that it is undisputed fact that there is one-to-one correlation between the borrowed funds and the advances granted by the assessee. The funds have been lent for business purposes since the main objective was to develop the SEZ. Therefore, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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