ITO, New Delhi V. M/s. First American Securities Pvt. Ltd., New Delhi

ITA 4768/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7335 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT GUPTA SENIOR
• Assessee Lawyers: VARSHA BHATTACHARYA; SUMIT MANGAL
• Keywords: Business expenditure; Proportionate interest; Revenue expenditure; Capital expenditure
• Section: 12; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.4768/DEL./2012 (ASSESSMENT YEAR : 2007-08) ITO, WARD 11 (2), VS. M/S. FIRST AMERICAN SECURIT IES PVT. LTD., NEW DELHI. C/O LUTHRA & LUTHRA LAW OFFICES, 103 A, ASHOKA ESTATE, BARAKHAMBA ROAD, NEW DELHI 110 001. (PAN : AAACF2072N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUMIT MANGAL, CA & MS. VARSHA BHATTACHARYA, ADVOCATE REVENUE BY : SHRI HEMANT GUPTA, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS FIL ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIII, NEW DELH I DATED 18.06.2012 FOR THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED CIT (A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS.1,64 ,53,604/- ON ACCOUNT OF INTEREST PAID ON CAPITAL EXPENSES I.E. LOAN TAKEN F OR INVESTMENT IN SHARES OF JOINTLY CONTROLLED ENTITY FOR PURPOSE OF SUBSTANTIA L CONTROL OVER THE ENTITY TO ACQUIRE MANAGEMENT CONTROL OVER THE ORGANIZATION. T HIS IS TRANSACTION ON 2 ITA NO.4768/DEL/2012 CAPITAL ACCOUNT AND ENDURING NATURE. THE SAME CANNO T BE HELD REVENUE EXPENSES. 2. THE LEARNED CIT(A) HAS ERRED ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW FOR ALLOWING THE EXPENSES WHEN ASSE SSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR EXCEPT FOR PA RKING OF ITS INVESTIBLE FUND IN EQUITY SHARES OF A CLOSELY ASSOCIATED CONCERN. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. THE ASSESSEE COMPANY IS A JOINT VENTURE ENTITY B ETWEEN THE AXA INDIA HOLDINGS AND BHARATI ENTERPRISES (HOLDINGS) P. LTD AND WAS ENGAGED IN THE BUSINESS OF INVESTMENTS. THE RETURN OF INCOME WAS F ILED BY THE ASSESSEE ON 31.10.2007 DECLARING LOSS OF RS.1,18,34,157/-. THE CASE WAS PROCESSED U/S 143 (1) OF THE INCOME-TAX ACT, 1961. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUE D ON 24.09.2008. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY DECL ARED NIL GROSS RECEIPTS AND POSTED A NET LOSS OF RS.2.20 CRORES WHICH AFTER NEC ESSARY ADJUSTMENTS IN COMPUTATION OF INCOME WAS REDUCED TO A LOSS OF RS.1 .18 CRORES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.1,64,53,604/- UNDER THE HEAD 'INTEREST ON UNSECU RED LOANS'. THE ASSESSEE RAISED CAPITAL AND UNSECURED LOANS DURING THE YEAR UNDER CONSIDERATION AND INVESTED THE SAME IN LONG TERM UNQUOTED EQUITY SHAR ES OF M/S BHARATI AXE LIFE INSURANCE CO. LTD OF RS.57.80 CRORES. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST EXPENSES NOT BE DEEMED TO BE CAPITAL IN NATURE BEING RELATED TO LONG TERM INVESTMENT IN UNQUOTED SHARES OF A JOINTLY CONTROLLED ENTITY. HOWEVER, THE AO OBSERVED THAT NO SPECIFIC REPLY WAS FURNISHED BY THE ASSESSEE. 3 ITA NO.4768/DEL/2012 IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAD MADE THE INVESTMENT IN THE SHARES OF A JOINTLY CONTROLLED ENTITY FOR THE PURPOSE OF S UBSTANTIAL CONTROL OVER SUCH ENTITY AND THE SHARES WERE NOT TRADABLE FREELY BEIN G UNQUOTED AND THE INVESTMENTS WERE ALSO CLASSIFIED AS LONG TERM. IN V IEW OF THE NATURE OF THE INVESTMENT, THE AO OBSERVED THAT THE APPARENT PURPO SE OF STRATEGIC CONTROL AND CLOSE NEXUS BETWEEN THE ASSESSEE AND THE INVESTEE C ONCERN, IT COULD BE SAFELY CONCLUDED THAT IT WAS NOT A TRADE INVESTMENT FOR BU SINESS PURPOSES. THE AO FURTHER OBSERVED THAT BY MERE DESCRIPTION OF ITS BU SINESS AS THAT OF MAKING STRATEGIC INVESTMENTS, THE ASSESSEE COULD NOT CAMOU FLAGE THE REAL NATURE OF THE TRANSACTION WHICH WAS TO ACQUIRE MANAGEMENT CONTROL OVER THE ORGANIZATION, WHICH WAS A TRANSACTION ON THE CAPITAL ACCOUNT. ACC ORDINGLY, THE AO HELD THAT THE INTEREST EXPENSES OF RS.1,64,53,604/- ARE CAPIT AL IN NATURE AND COULD NOT BE CLAIMED AS REVENUE EXPENDITURE. FURTHER, THE AO OB SERVED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YE AR EXCEPT FOR PARKING OF ITS INVESTIBLE FUNDS IN EQUITY SHARES OF A CLOSELY ASSO CIATED CONCERN. IN VIEW OF THIS, THE AO HELD THAT THE ONLY EXPENSE WHICH WOULD BE ALLOWABLE WOULD BE THAT WHICH WAS INCURRED BY THE ASSESSEE MANDATORILY TO S URVIVE AS A CORPORATE CONCERN, I.E., THE AUDIT FEE OF RS 28,090/-. ACCO RDINGLY, THE AO COMPLETED THE ASSESSMENT U/S 143 (3) OF THE ACT. 4. THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST AP PELLATE AUTHORITY AND THE LD. CIT (A) WHILE ALLOWING THE APPEAL OF THE ASSESSEE H ELD THE INTEREST EXPENSES OF RS.1,64,53,604/- AS REVENUE EXPENDITURE AS UNDER :- 4 ITA NO.4768/DEL/2012 6.3 DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN THAT APPELLANT CO MPANY IS A JOINT VENTURE ENTITY BETWEEN AXA INDIA HOLDINGS AND BHARTI ENTERP RISES (HOLDINGS) PVT. LTD. THE BUSINESS OF THE APPELLANT COMPANY IS TO MA KE STRATEGIC INVESTMENTS IN THE BUSINESS ENTITIES. DURING THE F.Y. 2006-07 T HE APPELLANT COMPANY HAS INVESTED A SUM OF RS.57,80,03,400/- FOR SUBSCRIBING THE EQUITY SHARES OF BHARTI AXA LIFE. THIS FACT IS DULY REPORTED IN THE AUDITED FINANCIAL STATEMENT OF THE APPELLANT COMPANY FOR F.Y. 2006-07 AT SCHEDULE-S IN THE BALANCE SHEET. FROM THIS ACTIVITY OF THE APPELLANT COMPANY, IT IS ESTABLISHED THAT IT HAS COMMENCED ITS BUSINESS ACTIVITIES AND H AS MADE INVESTMENTS DURING THE PERIOD, THEREFORE, THE FINDINGS OF THE ASSESSIN G OFFICER THAT APPELLANT COMPANY HAS NOT COMMENCED ITS BUSINESS ACTIVITIES I S NOT BASED ON PROPER APPRECIATION OF FACTS. AS REGARDS THE ASSESSING OFFICER'S DECISION OF TREA TING THE INTEREST PAYMENT CLAIMED OF RS.1,13,15,271/- AS CAPITAL EXPE NDITURE. IT IS SEEN THAT PROVISIONS OF SECTION 36 (1)(III) OF THE IT ACT ARE VERY CLEAR IN THIS REGARD AND THE SAME ARE REPRODUCED HEREUNDER :- '36(1) THE DEDUCTION PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 - (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFES SION : [PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID IN R ESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT): FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAP ITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.]' IT IS SEEN THAT THE AMOUNT OF INTEREST CLAIMED BY T HE APPELLANT IS IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSI NESS OR PROFESSION CARRIED OUT BY THE APPELLANT COMPANY DURING THE YEAR. THE C APITAL BORROWED HAS NOT BEEN UTILIZED FOR ACQUISITION OF ANY ASSET OR FOR E XTENSION OF ANY BUSINESS OR PROFESSION, THEREFORE, THE INTEREST PAID ON THE CAP ITAL BORROWED FOR BUSINESS PURPOSES HAS TO BE AN ALLOWABLE BUSINESS EXPENDITUR E. THE SAME CANNOT BE DENIED. IT IS VERY SPECIFICALLY MENTIONED IN THE OB JECTS OF THE MOU THAT APPELLANT COMPANY IS TO MAKE STRATEGIC INVESTMENT I N THE BUSINESS ENTITIES. IN FOLLOW UP THAT OBJECT DURING THE F.Y. 2006-07 IT HA S MADE STRATEGIC INVESTMENT OF RS.57,80,03,400/- IN BHARTI AXA INSURANCE CO. LT D. THEREFORE, THE INTEREST EXPENDITURE INCURRED BY THE APPELLANT COMPANY IS FO R BUSINESS PURPOSES OF THE APPELLANT COMPANY. THIS FACT HAS BEEN ACKNOWLEDGED BY THE ASSESSING OFFICER HIMSELF IN THE ASSESSMENT ORDER WHEREIN HE HAS STAT ED THAT APPELLANT HAS 'PARKED ITS INVESTIBLE FUNDS IN THE EQUITY SHARES O F A CLOSELY ASSOCIATED CONCERN'. HENCE, THERE WAS NO BASIS FOR TREATING THE INTERE ST EXPENDITURE 5 ITA NO.4768/DEL/2012 CLAIMED BY THE APPELLANT AS CAPITAL EXPENDITURE, TH EREFORE, THE EXPENDITURE CLAIMED BY THE APPELLANT ON ACCOUNT OF INTEREST IS AN ALLOWABLE REVENUE EXPENDITURE AND DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. RELIANCE IN THIS REGARD IS PLACED ON FOLLOWING JUDI CIAL PRONOUNCEMENTS:- COMMISSIONER OF INCOME-TAX, PANAJI GOA V. PHIL CORP N. LTD. [2011] 14 TAXMANN.COM 58 (BOM.) SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961. INT EREST ON BORROWED CAPITAL - ASSESSEE TOOK LOAN FROM OVERDRAFT ACCOUNT AND INVESTED IT INTO SISTER/SUBSIDIARY CONCERN AND CLAIMED DEDUCTION UND ER SECTION 36(1)(III) IN RESPECT OF INTEREST PAYABLE TO BANK WHICH WAS DISAL LOWED BY REVENUE AUTHORITIES. TRIBUNAL FOUND THAT OVERDRAFT WAS NOT USED FOR MERE INVESTMENT IN SHARES OF SISTER SUBSIDIARY COMPANY TO EARN DIVIDEN D BUT WAS USED TO HAVE CONTROL OVER THAT COMPANY AND FURTHER THAT SUCH AN INVESTMENT WAS INTEGRAL PART OF BUSINESS OF ASSESSEE. WHETHER ASSESSEE WAS ENTITLED TO DEDUCTION OF INTEREST PAID ON OVERDRAFT UNDER SECTION 36(1)(III) - HELD YES [IN FAVOUR OF ASSESSEE] FACTS THE ASSESSEE TOOK A LOAN OF RS.3,70,00,000 FROM THE BANK AND INVESTED THE SAME INTO ITS SISTER CONCERN P, THOUGH NO DIVID END WAS RECEIVED BY THE ASSESSEE. THE ASSESSEE CLAIMED A DEDUCTION UNDER S ECTION 36(1)(III) IN RESPECT OF THE INTEREST PAYABLE BY IT TO THE BANK. THE ASSE SSING OFFICER HELD THAT SINCE THE INVESTMENT WAS OUT OF BORROWED FUNDS FOR BUSINE SS, THE PROPORTIONATE INTEREST WAS TO BE DISALLOWED. HE FURTHER OBSERVED THAT SINCE THE ASSESSEE WAS ENTITLED TO RECEIVE AN AMOUNT OR 20 PER CENT FROM P ON ACCOUNT OF I.C.D. AN AMOUNT OF RS.19,73,333 WAS TO BE DISALLOWED AND WAS , THEREFORE, ADDED TO THE GROSS TOTAL INCOME. THE COMMISSIONER (APPEALS) CON FIRMED THE ORDER OF THE ASSESSING OFFICER. THE TRIBUNAL, HOWEVER, FOUND THA T THE ASSESSEE HAD INVESTED THE AMOUNT IN QUESTION IN SUBSIDIARY COMPA NY P FOR THE ACQUISITION OF ITS SHARES, I.E. TO HAVE A CONTROL OVER MAJORITY SH ARES BUT NOT TO EARN DIVIDEND. IT WAS CLEAR THAT SUCH AN INVESTMENT WAS INTEGRAL P ART OF THE BUSINESS. THEREFORE, THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEE WAS ENTITLED TO THE AMOUNT AS DEDUCTION UNDER SECTION 36(1)(III) . ON APPEAL BY THE REVENUE : HELD THE REASONING OF THE TRIBUNAL THAT THE OVERDRAFT W AS NOT OPERATED ONLY FOR INVESTING IN THE SHARES OF SUBSIDIARY COMPANY AND T HE FACT THAT IT WAS ALSO USED FOR INVESTMENT IN THE SHARES OF THE SISTER/ SUBSIDI ARY COMPANY TO HAVE CONTROL OVER THAT COMPANY AND, THEREFORE, THE ELEMENT OF IN TEREST PAID ON THE OVERDRAFT WAS NOT SUSCEPTIBLE OF BIFURCATION AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTION 36(1)(III). [PARA 11] 6 ITA NO.4768/DEL/2012 THUS, THE TRIBUNAL WAS RIGHT IN DELETING THE ADDITI ON OF RS.19,73,333. [PARA 12] SRISHTI SECURITIES (P.) LTD. V. JOINT COMMISSIONER OF INCOME-TAX, SPL. RANGE 39 [2005] 148 TAXMAN 49 (MUM .) (MAG.) I. SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 - INTEREST ON BORROWED CAPITAL - ASSESSMENT YEAR 1997-98 - WHETHER IF FUND S ARE BORROWED BY AN INVESTMENT COMPANY FOR MAKING INVESTMENT IN SHARES WHICH MAY BE HELD AS INVESTMENT OR AS STOCK-IN-TRADE OR FOR PURPOSE OF C ONTROLLING INTEREST IN OTHER COMPANIES, INTEREST PAID ON SUCH BORROWED FUNDS WIL L BE DEDUCTIBLE UNDER SECTION 36(1)(III) - HELD, YES II. SECTION 28(I) OF THE INCOME-TAX ACT, 1961 - BUS INESS LOSS/DEDUCTIONS - ALLOWABLE AS - ASSESSMENT YEAR 1997-98 - ASSESSEE C LAIMED LOSS ON ACCOUNT OF VALUATION OF STOCK OF CERTAIN SHARES VALUED AT C OST OR MARKET PRICE WHICHEVER WAS LOWER - ASSESSING OFFICER REJECTED VA LUATION ON GROUND THAT SHARES WERE HELD AS INVESTMENT AND NOT AS STOCK-IN- TRADE - ASSESSEE CONTENDED THAT SHARES WERE ACQUIRED FOR INVESTMENT ORIGINALLY AND WERE LATER CONVERTED INTO STOCK-IN-TRADE - WHETHER SINCE REVENUE AUTHORI TIES HAD NOT PROPERTY EXAMINED ISSUE, SAME WAS TO BE RESTORED BACK TO ASS ESSING OFFICER - HELD, YES FACTS-I THE ASSESSEE AN INVESTMENT COMPANY UTILIZED BORROWE D FUNDS FOR ACQUIRING SHARES BY WAY OF INVESTMENT AS WELL AS BY WAY OF ST OCK-IN-TRADE. IT ALSO ACQUIRED CERTAIN SHARES IN VARIOUS COMPANIES WITH A VIEW TO ACQUIRE CONTROLLING RIGHTS IN CERTAIN COMPANIES. ON THE BOR ROWED FUNDS, THE ASSESSEE PAID INTEREST AND CLAIMED DEDUCTION OF SAME UNDER S ECTION 36(1)(III). THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST ON THE GROUND THAT THE PRIMARY OBJECT OR ACQUIRING THE SHARES WAS NOT TO EARN DIVI DEND BUT TO ACQUIRE CONTROLLING INTEREST IN COMPANIES. ON APPEAL, THE C OMMISSIONER (APPEALS) HELD THAT TO THE EXTENT, THE BORROWED FUNDS WERE US ED FOR ACQUIRING SHARES BY WAY OF STOCK-IN-TRADE, THE ASSESSEE WAS ENTITLED TO DEDUCTION FOR INTEREST AND ON THAT BASIS, HE ALLOWE D INTEREST TO THAT EXTENT. ON APPEAL: HELD-I IN THE CASE OR CIT V. LOKHANDWALA CONSTRUCTION INDU STRIES LTD. [2003] 260 ITR 579 (BOM.), IT WAS HELD THAT INTEREST PAID ON C APITAL BORROWED FOR BUSINESS PURPOSE IS ALLOWABLE IRRESPECTIVE OF THE F ACT AS TO WHETHER THE CAPITAL WAS BORROWED TO ACQUIRE A REVENUE ASSET OR A CAPITA L ASSET. THEREFORE, IF FUNDS ARE BORROWED BY AN INVESTMENT COMPANY FOR MAKING IN VESTMENT IN SHARES WHICH MAY BE HELD AS INVESTMENT OR AS STOCK-IN-TRAD E OR FOR THE PURPOSE OF CONTROLLING INTEREST IN OTHER COMPANIES, INTEREST P AID ON SUCH BORROWED FUNDS WILL BE DEDUCTIBLE UNDER SECTION 36(1)(III). 7 ITA NO.4768/DEL/2012 THEREFORE, INTEREST EXPENDITURE WAS ALLOWABLE UNDER SECTION 36(1))(III) AND THE DISALLOWANCE TO THE EXTENT SUSTAINED BY THE COMMISS IONER (APPEALS) WAS DIRECTED TO BE DELETED. FACTS-II THE ASSESSEE CLAIMED LOSS ON ACCOUNT OF VALUATION OF THE STOCK OF CERTAIN SHARES BY VALUING THEM AT COST OR MARKET PRICE WHIC HEVER WAS LOWER. THE ASSESSING OFFICER REJECTED THE VALUATION ON THE GRO UND THAT THE SAID SHARES WERE HELD AS INVESTMENT AND NOT AS STOCK-IN-TRADE. ON APPEAL, THE COMMISSIONER (APPEALS) CONFIRMED THE ORDER OF THE A SSESSING OFFICER. IN THE APPEAL, THE ASSESSEE CONTENDED THAT THE SHARES WERE ACQUIRED FOR INVESTMENT ORIGINALLY AND WERE LATER CONVERTED INTO STOCK-IN-T RADE. HELD-II THE REVENUE AUTHORITIES HAD NOT PROPERLY EXAMINED T HE ISSUE. THEREFORE, THE ISSUE WAS RESTORED BACK TO THE ASSESSING OFFICER WI TH THE DIRECTION THAT THE ASSESSEES CLAIM THAT INVESTMENTS WERE CONVERTED IN TO STOCK-IN-TRADE WITH REFERENCE TO THE ENTRIES MADE IN THE BOOKS OF ACCOU NT OF THE RELEVANT YEAR IN WHICH THE ALLEGED CONVERSION TOOK PLACE MIGHT BE VE RIFIED. IN THE RESULT, FOR STATISTICAL PURPOSES, THE ASSESS EE'S APPEAL WAS TO BE ALLOWED. THE FACTS OF THE ABOVE CITED JUDICIAL PRONOUNCEMENT S ARE IDENTICAL WITH THE FACTS OF THE APPELLANT'S CASE, THEREFORE, THE RATIO OF THE SAID JUDGMENT IS SQUARELY APPLICABLE WITH TO THE APPELLANT'S CASE. T HEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE INTEREST PAYMENT ON LOAN TAKEN FOR BUSINESS PURPOSES AS CAPITAL EXPENDITURE. HENCE, TH E SAME IS DELETED. 5. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR RELIED ON THE ORDER OF THE AO. HE SUB MITTED THAT IN VIEW OF THE NATURE OF THE INVESTMENT, THE APPARENT PURPOSE OF STRATEGIC CONTROL AND CLOSE NEXUS BETWEEN THE ASSESSEE AND THE INVESTEE CONCERN , IT CAN BE SAFELY CONCLUDED THAT IT IS NOT A TRADE INVESTMENT FOR BUSINESS PURP OSE. HE FURTHER SUBMITTED THAT BY MERE DESCRIPTION OF ITS BUSINESS AS THAT OF MAKI NG STRATEGIC INVESTMENTS, THE ASSESSEE CANNOT CONCEAL THE REAL NATURE OF THE TRAN SACTION WHICH IS TO ACQUIRE MANAGEMENT CONTROL OVER THE ORGANIZATION, WHICH IS A TRANSACTION ON CAPITAL 8 ITA NO.4768/DEL/2012 ACCOUNT. HE, THEREFORE, SUBMITTED THAT THE AO HAS R IGHTLY HELD THESE INTEREST EXPENSES OF RS. L,64,53,604/- AS CAPITAL IN NATURE. HE FURTHER SUBMITTED THAT DURING THE YEAR, ASSESSEE HAS NOT CARRIED OUT ANY B USINESS ACTIVITY EXCEPT FOR PARKING OF ITS INVESTIBLE FUNDS IN EQUITY SHARES OF A CLOSELY ASSOCIATED CONCERN. HE SUBMITTED THAT THE LD.CIT (A) HAS WRONGLY CONCLU DED THAT MERE INVESTING IN ITS OWN CONCERN WITHOUT HAVING ANY RETURN DURING TH E YEAR IS BUSINESS ACTIVITY OF THE COMPANY DURING THE YEAR. THEREFORE, IT IS NOT J USTIFIED IN TREATING THE INTEREST PAYMENT ON LOAN TAKEN FOR THE PURPOSE TO PARK IN OW N CONCERN IS BUSINESS ACTIVITY AND TREATING IT TO BE REVENUE EXPENDITURE. HE SUBMITTED THAT SINCE BUSINESS OF THE ASSESSEE HAS NOT COMMENCED DURING T HE YEAR, THEREFORE, AO HAS RIGHTLY DISALLOWED ALL THE EXPENSES EXCEPT MANDATOR Y ONE AND LD. CIT (A) HAS WRONGLY DELETED ALL THE DISALLOWANCES MADE BY AO. H E, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 7. ON THE OTHER HAND, THE LD. AR, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE LD. CIT (A), SUBMITTED THAT THE TAX DEDU CTIBILITY OF INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS IS CO VERED U/S 36(1)(III) OF THE ACT. THE LD. AR, IN ORDER TO EXPLAIN THE AMBIT AND SCOPE OF THE APPLICABILITY OF SECTION 36(1)(III), RELIED ON THE CASE OF CIT VS. D ALMIA CEMENT (P.) LTD. 254 ITR 377 (DEL.). FURTHER, THE LD. AR RELIED ON THE DECISION OF TETRON COMMERCIAL LTD. VS. CIT 261 ITR 422 (CAL.) WHEREI N THE HONBLE CALCUTTA HIGH COURT HAS ELABORATELY EXPLAINED THE SCOPE OF D EDUCTIBILITY OF EXPENSES U/S 9 ITA NO.4768/DEL/2012 36(1)(III). LD. AR SUBMITTED THAT ON THE BASIS OF THE ABOVE PRECEDENTS, IT BECOMES ABUNDANTLY CLEAR THAT EVEN IF CAPITAL BORRO WED BY THE TAXPAYER IS UTILIZED ON THE CAPITAL ACCOUNT, THE INTEREST PAID BY THE TAXPAYER ON SUCH BORROWED CAPITAL WOULD BE ALLOWABLE AS DEDUCTION U/ S 36(1)(III) OF THE ACT AS LONG AS THE SAID CAPITAL EXPENDITURE IS INCURRED FO R THE PURPOSE OF BUSINESS. HE SUBMITTED THAT THE VERY BUSINESS OF THE ASSESSEE IS THAT OF MAKING STRATEGIC INVESTMENTS FOR WHICH THE ASSESSEE HAS BORROWED MON EY AND PAID INTEREST THEREON. THUS, THERE CAN BE NO DOUBT THAT THE EXPE NSE INCURRED BY THE ASSESSEE BY WAY OF PAYMENT OF INTEREST ON SUCH UNSECURED LOA N IS A BUSINESS EXPENDITURE AND ALLOWABLE AS DEDUCTION U/S 36(1)(III) OF THE AC T. THE LD. AR, IN ORDER TO SUBSTANTIATE ITS CLAIM, FURTHER RELIED ON THE DECIS ION OF CIT VS. PHIL CORPORATION LIMITED (2014) 14 TAXMANN.COM 58 (BOM.) WHEREIN T HE HONBLE COURT HAS HELD AS UNDER :- WE FIND THAT THE REASONING OF THE ITAT THAT THE OV ERDRAFT WAS NOT OPERATED ONLY FOR INVESTING IN THE SHARES OF SUBSIDIARY COMP ANY AND THE FACT THAT IT WAS ALSO USED FOR INVESTMENT IN THE SHARES OF THE SUBSI DIARY COMPANY TO HAVE CONTROL OVER THAT COMPANY AND, THEREFORE, THE ELEME NT OF INTEREST PAID ON THE OVERDRAFT WAS NOT SUSCEPTIBLE OF BIFURCATION AND TH EREFORE, THE RESPONDENT NO.1 IS ENTITLED TO THE DEDUCTION UNDER SECTION 36(1)(II I) OF THE INCOME-TAX ACT IS CORRECT AND DESERVES TO BE ACCEPTED. HE FURTHER RELIED ON THE DECISION OF SRISHTI SECURI TIES (P.) LTD. VS. JCIT 2005- (148)-TAXMAN-0049-TBOM. LD. AR SUBMITTED THAT ON T HE BASIS OF ABOVE JUDICIAL PRONOUNCEMENTS, IT CAN BE SAFELY CONCLUDED THAT INTEREST PAID BY AN INVESTING COMPANY, ON THE FUNDS USED FOR MAKING INV ESTMENT IN OTHER ENTITIES WITH THE OBJECTION OF ACQUIRING / MAINTAINING CONTR OLLING INTEREST IN SUCH ENTITLES, 10 ITA NO.4768/DEL/2012 IS A DEDUCTIBLE EXPENSE U/S 36(1)(III) OF THE ACT. HE SUBMITTED THAT IN THE PRESENT CASE, THE ASSESSEE IS A JOINT VENTURE ENTIT Y BETWEEN AXA AND BHARTI FORMED WITH THE BUSINESS OBJECTION OF MAKING STRATE GIC INVESTMENT IN BHARTI AXA LIFE, THEREFORE, THE BUSINESS OF THE ASSESSEE I S TO INVEST IN BHARTI AXA LIFE. IN THIS VIEW OF THE MATTER, LD. AR SUBMITTED THAT THE LD. CIT (A) RIGHTLY HELD THE EXPENSES AS REVENUE IN NATURE AND PRAYED T O UPHOLD THE ORDER OF THE LD. CIT (A). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTROVERSY IN THIS CASE IS WHETHER THE EXPEND ITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF INTEREST IS CAPITAL EXPENDITURE OR RE VENUE EXPENDITURE. WE ARE IN AGREEMENT WITH THE LD. CIT (A) THAT THE EXPENDITURE IS TO BE TREATED AS REVENUE IN NATURE BECAUSE THE ASSESSEE IS AN INVESTMENT COM PANY. WE TAKE NOTE THAT ASSESSEE-COMPANY IS A JOINT VENTURE ENTITY BETWEEN AXA INDIA HOLDINGS AND BHARTI ENTERPRISES (HOLDINGS) PVT. LTD. AND THE BUS INESS OF THE ASSESSEE COMPANY IS TO MAKE STRATEGIC INVESTMENTS IN THE BUS INESS ENTITIES. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS INVESTED A SUM OF RS.57,80,03,400/- FOR SUBSCRIBING THE EQUITY SHARES OF BHARTI AXA LIFE AND THIS FACT WAS DULY REPORTED IN THE AUDITED FINANCIAL STA TEMENT OF THE ASSESSEE COMPANY AT SCHEDULE-S IN THE BALANCE SHEET. BY DOI NG THIS ACTIVITY, IT HAS COMMENCED ITS BUSINESS ACTIVITIES AND HAS MADE INVE STMENTS DURING THE PERIOD, THEREFORE, THE FINDINGS OF THE ASSESSING OFFICER TH AT ASSESSEE HAS NOT COMMENCED ITS BUSINESS ACTIVITIES IS ERRONEOUS AND NOT BASED ON PROPER 11 ITA NO.4768/DEL/2012 APPRECIATION OF FACTS AS HELD BY LD. CIT (A). WE F URTHER FIND THAT THE AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE IS IN RESPECT OF C APITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION CARRIED OUT BY THE ASSESS EE COMPANY DURING THE YEAR, THEREFORE, THE INTEREST PAID ON THE CAPITAL BORROWE D FOR BUSINESS PURPOSES HAS TO BE AN ALLOWABLE BUSINESS EXPENDITURE AND THE SAME C ANNOT BE DENIED. WE ALSO FIND THAT IT IS VERY SPECIFICALLY MENTIONED IN THE OBJECTS OF THE MOU THAT ASSESSEE COMPANY IS TO MAKE STRATEGIC INVESTMENT I N THE BUSINESS ENTITIES AND ACCORDINGLY, IT HAS MADE STRATEGIC INVESTMENT OF RS .57,80,03,400/- IN BHARTI AXA INSURANCE CO. LTD. THEREFORE, WE FIND THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS FOR BUSINESS PURPOSES. AND ALSO, THIS FACT IS ACKNOWLEDGED BY THE AO HIMSELF IN THE ASSESSMENT OR DER WHEREIN HE HAS STATED THAT ASSESSEE HAS 'PARKED ITS INVESTIBLE FUNDS IN THE EQUITY SHARES O F A CLOSELY ASSOCIATED CONCERN'. HENCE, WE FIND THAT THERE WAS NO BASIS FOR TREATI NG THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AS CAP ITAL EXPENDITURE. 8.1 OUR ABOVE VIEW IS ALSO FORTIFIED BY THE DECISIO N OF COMMISSIONER OF INCOME-TAX, PANAJI GOA V. PHIL CORPN. LTD. [2011] 1 4 TAXMANN.COM 58 (BOM.) WHEREIN THE HONBLE HIGH COURT HELD THAT, THE REASONING OF THE TRIBUNAL THAT THE OVERDRAFT WAS NOT OPERATED ONLY FOR INVESTING I N THE SHARES OF SUBSIDIARY COMPANY AND THE FACT THAT IT WAS ALSO USED FOR INVE STMENT IN THE SHARES OF THE SISTER/ SUBSIDIARY COMPANY TO HAVE CONTROL OVER THA T COMPANY AND, THEREFORE, THE ELEMENT OF INTEREST PAID ON THE OVERDRAFT WAS N OT SUSCEPTIBLE OF BIFURCATION AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE DE DUCTION UNDER SECTION 12 ITA NO.4768/DEL/2012 36(1)(III). FURTHER, THE ITAT, MUMBAI BENCH IN THE CASE OF SRIS HTI SECURITIES (P.) LTD. VS. JCIT (SUPRA) HELD THAT IF FUNDS ARE B ORROWED BY AN INVESTMENT COMPANY FOR MAKING INVESTMENT IN SHARES WHICH MAY B E HELD AS INVESTMENT OR AS STOCK-IN-TRADE OR FOR PURPOSE OF CONTROLLING INT EREST IN OTHER COMPANIES, INTEREST PAID ON SUCH BORROWED FUNDS WILL BE DEDUCT IBLE UNDER SECTION 36(1)(III). 8.2 IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T THE RATIO OF THE AFORESAID JUDGMENTS IS SQUARELY APPLICABLE TO THE ASSESSEES CASE AND THE LD. CIT (A) HAS RIGHTLY HELD THAT THE EXPENDITURE AS REVENUE IN NAT URE IN THE FACTS OF THE CASE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. CIT (A) AND UPHOLD THE SAME. THE GROUNDS RAISED BY REVENUE ARE REJECTED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY OF 1 1 TH JANUARY, 2016. SD/- SD/- (PRASHANT MAHARISHI) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 11 TH DAY OF JANUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.