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TMI Blog2023 (11) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... % which was much more than the market. 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting disallowance of interest of Rs. 26,53,85,916/- paid on Non-Convertible Debentures (NCDs) by merely relying on the submissions of the assessee. The Ld.CIT(A) ought to have examined the terms contained in Debentures Subscription Agreement and the purpose for which such high interest bearing funds have been utilised particularly when huge interest of Rs. 46.46 crores has been debited to Profit & Loss Account. 3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in disallowance of 80G deduction in respect of donations made towards CSR activities without appreciating the fact that these are not voluntary donations, rather they were paid to comply with statutory requirement of CSR and the amount spent towards CSR activities was nothing but appropriation of profits. 4. The Appellant craves leave to add, amend and/or vary the grounds of Appeal/ before or during the course of hearing." 3. The issue arising in grounds no. 1 and 2, raised in Revenue's appeal, pertains to the deletion of disallowance of interest paid on non-convertible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and held that the interest rate on a secured loan cannot be compared with interest on unsecured non-convertible debentures, as for determining the interest rate on different instruments, various factors comes into consideration. The relevant findings of the learned CIT(A), with respect to this issue, are reproduced as under:- "Ground No.2 As per this Ground of appeal, the appellant has agitated the disallowance of excess interest expenses amounting to Rs. 26,53,85,916/-. On perusal of the submissions of the appellant, it has been found that the A.O. has disallowed the excess interest expenses amounting to Rs. 26,53,85,916/- by holding that the interest expenses claimed for debentures issued is restricted to 14.10% i.e. interest rate on secured loan, instead of interest rate of 21.30%. The appellant has contended that the comparison of interest rate of secured loan taken at 14.1% and on unsecured redeemable cumulative non-convertible debentures issued on 18.03.2014 at 21.3% cannot be compared as both are totally different in nature. As per appellant, the comparison of secured instrument w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Rupees (in lakhs) Interest Expenses on Debentures 7,851 Interest on Borrowings from bank and others 149 Interest on Statutory Dues 19 Other Borrowing Cost 14 Total Finance Cost incurred dueing A.Y. 2018-19 8,033 Less: Allocated to Construction Cost i.e., capitalized to VVIP (3,387) Balance Interest debited to P&L Account (Revenue Expenses) 4,646 7. Thus, the assessee incurred total interest expenses of Rs. 8033 lakh out of which Rs. 4646 lakh was debited to the profit and loss account, and a balance of Rs. 3387 lakh was capitalised to work in progress during the year under consideration. From the above, it is evident that the total finance cost of Rs. 8033 lakh also includes interest expenses on debentures of Rs. 7851 lakh. As per the assessee, it had issued 14,00,00,000 unsecured redeemable cumulative non-convertible debentures of Rs. 10 each amounting to Rs. 140,00,00,000 to Kapstone Construction Pvt. Ltd. on 08/03/2014 at the interest rate of 21.3% as per the Debenture Subscription Agreement dated 08/03/2014. As per the assessee, it has issued the non-convertible debentures for business purposes. The assessee claims that various factors come into play w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le debentures as the same was already capitalised to work in progress. 11. In the assessment year 2018-19, the assessee capitalised interest of Rs. 63,96,30,595 out of the total claim of Rs. 85,80,03,884 and thus debited the balance amount of Rs. 21,83,73,289 to the profit and loss account. From the perusal of the assessment order dated 20/04/2021 in the assessment year 2018-19, we find that the details of the interest expenditure debited to the profit and loss account are not mentioned in the order. At the same time, we find that in the assessment year 2018-19, it is the plea of the assessee that the interest expenditure of Rs. 21,83,73,289 are revenue in nature as the interest has been paid for business purpose and not for the project purpose and accordingly the same has been debited to the profit and loss account. However, this claim of the assessee was also rejected by the AO, and the entire interest expenditure of Rs. 21,83,73,289 was disallowed as revenue expenditure and transferred to the capital work in progress on the basis that all the interest expenditure have been incurred for the construction business and towards the commencement and completion of the single project u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s length rate of interest then the disallowance of excess interest paid on non-convertible debentures be made proportionate to the interest debited to the profit and loss account and not the entire interest at the rate of 21.30% on non-convertible debentures. During the hearing, the assessee also placed reliance upon CBDT Circular No. 6P dated 07/06/1968 to submit that there is no tax evasion as Kapstone Construction Pvt. Ltd. is also taxed at a maximum rate of tax. We direct the AO to examine this aspect while conducting the de novo assessment on this issue. With the above directions, this issue is restored to the file of the AO, and the impugned order passed by the learned CIT(A) is set aside to this extent. Accordingly, grounds no. 1 and 2 raised in Revenue's appeal are allowed for statistical purposes. 14. The issue arising in ground no. 3, raised in Revenue's appeal, pertains to the deletion of disallowance of deduction claimed under section 80G of the Act in respect of Corporate Social Responsibility ("CSR") expenses. 15. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature and character of CSR expenditure mandated u/s 135 of the Companies Act read with provision of Section 37 of the Income Tax Act, 1961 and donation prescribed in Section 80G are totally different, distinct and independent from each other. On the other hand, it has been found that the Appellant has disallowed the CSR expenses amounting to Rs 11,00,000 u/s 37(1) of the Income Tax Act, 1961 and claimed the deduction u/s 80G of Rs 5,50,000 for the year under consideration. On perusal of the provision of Section 37(1) as well as Section 80G of the Income Tax Act, 1961, the contention of the appellant is found to be correct as there is no specific restriction for claiming the deduction u/s 80G of the Income Tax Act, 1961 and therefore, no disallowance of deduction claimed u/s 80G is warranted in this case. Appellant has relied upon the following judgements applicable to the facts of the case: * Goldman Sachs Services Pvt Ltd V JCIT IT(TP)A No 2355/Bang/2019. * Allegis Services (India) (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1693 (Bang.) of 2019, dated 29-4-2020] * FNF India (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1565 (Bang.) of 2019, dated 5.1.2021] * JMS Mining (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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