9911796707
TMI Blog2022 (6) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.14,65,098/- out of interest expenses U/sec36(1)(iii) of the Income Tax Act 1961. (ii). The appellant craves leave to add, amend, alter or delete the said ground of appeal. 4. The Brief facts of the case are that, the assessee company is engaged in business of real estate construction and development. The assessee has filed return of income for the assessment year 2013-14 on 30/09/2013 with a total loss of Rs.1,29,20,256/-. Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act along with a questionnaire was issued. In compliance, the Ld.AR of the assessee appeared from time to time and filed the requisite information and details. The Assessing Officer(A.O) on perusal of the Audited financial statements found that the assessee company has a land inventory at Bhiwandi and the income has been taxable under the head "Profits and gains of business and profession". Further the assessee submitted the details as per AIR information in respect of sales, details of expenses and the assessee is a part of the Lodha Group. The A.O. found that the assessee has claimed interest as business expenditure u/s 36(1)(iii) of the Act. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee being part of Lodha group has obtained loans at different rates as mentioned in the assessment order ranging from Interest rate@ 8.7% to 16% and weighted average of interest component has been worked out @ 15.42%. The contention of the Ld.AR that there is a direct nexus of funds obtained from the parties and the funds are utilized for the purpose of business. The Ld.AR substantiated the submissions with the paper book and judicial decisions and prayed for allowing the appeal. 9. Contra, the Ld.DR submitted that there is no commercial expediency and the A.O. has worked out the differential interest @0.55% based on the information submitted by the assessee and the CIT(A) has accepted. The A.O. has calculated the disallowance u/s 36(1)(iii) applying the differential interest rate in the assessee's case and supported the order of the CIT(A). 10. We have heard the rival submissions and perused the materials on record. The sole crux of the disputed issue envisaged by the Ld.AR that both the A.O and CIT(A) have erred on the principle of charging the differential interest on the loans advanced by the assessee to its sister concerns. The Ld.AR emphasized that the interest claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act provides for following three conditions before interest can be allowed as deduction: * There should be 3 borrowing; * Capital must have been borrowed for business purposes; * Interest should have been paid or payable in respect thereof. Your goodself would appreciate that Section 36(l)(iii) of the Act is a code in itself. The only requirement of the provision is that the funds should have been borrowed and utilized for the purpose of business. An assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of i what may be the result of using the capital which the assessee had borrowed. 1.5 We submit that the appellant has during the year under consideration taken loan from various entities at different rates. On the basis of loan taken during the year from ^various entities the weighted average borrowing cost works out to 15.42% (Working \enclosed herein as Annexure 1). The appellant has advanced loan to M/s. Lodha \Developers Pvt Ltd @ 15.45%. It can be seen from the above that the appellant has \rightly charged rate of interest 0)15.45% which is well above the weighted average borrowing rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers Ltd. Vs. Commissioner of Income Tax (Appeals) (2007) (SC), wherein the apex court held that the deduction for interest expense in respect of monies borrowed which have been advanced to sister concern at zero rate of interest is allowed if it was commercial expedient to do so. The Apex court also held that the expression "for the purpose of business or profession" is far wider than the expression "for the purpose of earning profits". Thus any interest expenditure incurred for the purpose of business Is allowed under section 36(l)(iii). (Decision enclosed herein as Annexure 4) 1.10 We further submit that since the funds were advanced by the appellant to M/s Lodha Developers Pvt Ltd which is the ultimate holding company and subsequently the said funds were used by M/s Lodha Developers Pvt Ltd for the purpose of its business, the test of commercial expediency as laid down by the Honourable Supreme Court in the case of S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals) (2007) (SC)is fulfilled and thus the appellant can rightfully claim deduction of 1 interest expense paid in respect of loan borrowed in respect of such advances. 1.11 In the case of M/s. Snowtex Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntirety." 11 .Whereas the CIT(A) has overlooked the facts that the assessee company is involved in development and construction of real estate projects and there is always financial crunch therefore, the funds are collected from the related parties/ sources at a interest rate varying from @ 8.7% to 16% pa and indeed, these funds are provided again to the other sister concerns for business purpose. This practice is being continued by the assessee from the earlier years. The Ld. AR referred to page 38 of the paper book on the weighted average borrowing cost workings for providing the loans to the sister concern. The contentions of the Ld.AR that the assessee has obtained these loans wholly and exclusively for the purpose of business and there is no ambiguity that these funds are diverted. The Ld.AR explained the reasoning, chargeability, utilization of the funds and the interest component variability. The Ld.AR substantiated that the funds are utilized for the business and has referred to the Audited financial statements and the schedules where the assessee is engaged in the business and disclosed revenue from operations and the interest component placed at pages 26-27 of the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. In view of the above, we allow these appeals and set aside the impugned judgments of the High Court, the Tribunals and other authorities and remand the matter to the Tribunal for a fresh decision, in accordance with law and in the light of the observations made above. We also make it clear that we are not setting aside the order of the Tribunal or other Income Tax authorities in relation to the other points dealt with by these authorities, except the point of deduction of interest on the borrowed funds." (3) Taparia Tools Ltd vs Joint CIT, Nashik (2015) 55 taxmann.361 "Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Upfront interest charges) - Assessment year 1996-97 - Assessee-company issued debentures for a period of 5 years - Apart from option of half yearly periodical interest, debenture hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities. Therefore the action of the CIT(A) that there is no commercial expediency is not tenable and is not supported with any findings except relying on the facts that the higher rate of interest has been paid on loans borrowed. The Ld.AR explained the accounting concept on the weighted average rate of interest considering the variability of interest rate range from @8.75% to 16% though this approach cannot be incorporated in the audited financial statements but the reasonableness and explanations to provide the loans to sister concerns cannot be over looked and the group transfers between one sister concern to another sister concern as per requirement of funds. The Ld.AR submissions are realistic and duly supported by the material information and is appreciated. Accordingly, we do not find merits in the findings of the CIT(A) and we rely on the judicial decisions and commercial expediency explained by the Ld.AR that the assessee's business activities as a going concern and the construction projects are in progress. Any delay in project construction activities due to financial crunch will increase the overheads of the projects. Accordingly, we set aside the order of CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
