TMI Blog2022 (6) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. Having regards to the nature of activities the Assessee is engaged in, there is no justification for disallowance of interest u/s. 36(1)(iii) of the Act. - Appeal of assessee allowed. - ITA No. 360/Del/2018 - - - Dated:- 31-5-2022 - Shri Pradip Kumar Kedia, Accountant Member And Shri N.K. Choudhry, Judicial Member For the Appellant : Shri Upvan Gupta, Advocate For the Respondent : Mrs.Kirti Sankratyayan, Sr. DR ORDER PER N.K. CHOUDHRY, J.M. This appeal has been preferred by the Assessee against the order dated 27.10.2017, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-11, New Delhi (in short ld. Commissioner ) u/s. 250(6) of the Income-tax Act, 1961 (in short the Act ) for the assessment year 2004-05. 2. The Assessee, being a non-banking financial company (NBFC), is engaged in the business of investment/financing activities and filed its return of income on dated 26.10.2004 by disclosing total loss of Rs.1,52,59,830/- for the relevant year under consideration. The return filed by the Assessee was revised on 22.03.2006 by disclosing total loss of Rs.1,20,69,530/-. The case of the Assessee was selected for scrutiny a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of capital assets under the head Capital Gains and therefore, it is obvious that the appellant is treating these investments as capital assets and not as business assets. Accordingly, it is found that the borrowed funds have not been utilized for the purposes of the business. Even if the business of the appellant is of making investments, only such investments can be treated as business assets from which the appellant shows the sale proceeds as business income. In view of this, there is no reason that the interest paid in respect of funds borrowed for making investments which are treated as nonbusiness assets, should be allowed as a business expense u/s 36(1) (iii) or 37(1) of the Act. 4.2.1 It is further contended by the AR that such interest has been allowed by the AO in the earlier two years. In this respect, it is to be observed that the principle of res judicata is not applicable to IT Authorities. Reference is made to the decision in the case of A Shah and Co. Vs C.I.T, 30 ITR 618 (Bom) in which the court has held that though as a general rule, the principle of res judicata is not applicable to IT Authorities, this rule is subject to limitations, for there should be fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) If fresh facts having a bearing on the earlier decision, come tolight. The other limitation is that the effect of revising a decision in a subsequent year should not lead to injustice and the court must always be anxious to avoid injustice to the Assessee. In this case, interest has not been allowed to the appellant in earlier years as the AO failed to appreciate the fact that the appellant has utilized the borrowed funds for making investment in nonbusiness assets. In view of this, the decision taken by the AO in earlier years cannot dictate the findings in the year under consideration. 4.3 In view of the above facts and the legal position, I am of the opinion thatthe AO has rightly disallowed the interest paid on borrowed funds which have been utilized for making investment in securities with the objective of earning tax free income in the form of dividends and income under the head of Income from Capital Gains on sale of these investments. Accordingly, the addition made by the A.O. is confirmed and the ground of appeal is dismissed. 3. The Assessee, being aggrieved against the confirmation of addition, challenged the impugned order and is in appeal before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 426E (SC! are authorities that the heads of income enumerated in the Income Tax Act in Section 14 do not denote their essential characteristics. In other words that a business or an individual receives some amount which may be assessed as income of a particular kind would not be conclusively determinative of that character. In the facts of the present case, that principle, in the opinion of the Court, would squarely apply. If indeed the assessee had invested and subscribed to the rights issue in order to retain the control it originally did in Eicher Tractors Ltd, it can still be said that the expenditure was towards promotion of business and, therefore, properly entitled to be treated as such under Section 36 (1) (iii). At the same time, we are also of the opinion that there has been inadequate consideration and discussion on this aspect before the lower authorities, particularly the AO and the CIT (A). As has been pointed out on behalf of the Revenue, at that stage, the parties were more concerned with whether net or gross expenditure had to be deducted under Section 80M. At the same time, the assessee, we notice did put his contention both to the CIT (A) and ITAT. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in our opinion, constitute business activity and therefore, the interest would be fully deductible u/s 36(1)(iii) notwithstanding the fact that the assessee earned various streams of income out of these investments, one of which was assessable under the head Income from other sources . Similar is the view of coordinate bench in assessee s own case for AY 2009-10 as extracted by us in preceding para 10.1. Further, it is trite law that the earning of the income was not a pre-requisite to grant deduction of expenditure. Therefore, we donot concur with the approach of Ld.CIT(A) in invoking the provisions of Sec.14A of the Act. Consequently, the interest expenditure of Rs.246.88 Crores would be fully deductible u/s 36(1 )(iii) of the Act. The various case laws as enumerated in para 10.3 relied upon by Ld. AR supports our conclusion. Accordingly, Ld. AO is directed to rework allowable deduction u/s 80M. Ground No.4 of assessee s appeal stand allowed to that extent. 6. From the judgement referred above it is clear that the interest on borrowed capital utilized for making investments would be eligible for deduction u/s. 36(1)(iii) of the Act because there is no bar for allowabili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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