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Issues Involved:
1. Condonation of Delay 2. Disallowance of Interest Expenditure on Borrowed Capital u/s 36(1)(iii) 3. Deduction of Interest Paid to Ministry of Information and Broadcasting (MIB) u/s 37(1) Condonation of Delay: At the outset, it was observed by the Bench that the assessee's appeals are belated by a period of 36 days each. The same are accompanied by an application for condonation of delay, duly supported by an affidavit. It stands averred therein that the concerned executive, handling the matters, proceeded on leave, and subsequently left the organization. Hence, the delay. The Revenue did not seriously dispute the same or raise any objection as to the veracity of the reasons stated in the affidavits. The delay was accordingly condoned, and the hearing of assessee's appeals proceeded with, after admitting the same. Disallowance of Interest Expenditure on Borrowed Capital u/s 36(1)(iii):The only issue in the assessee's appeal is in respect of disallowance of interest expenditure on borrowed capital, claimed in the sum of Rs. 259.26 lakhs and Rs. 202.82 lakhs for the two consecutive years respectively u/s 36(1)(iii) of the Act, on the basis that the borrowed capital had not been utilized for the purpose/s of its business by the assessee. The Assessing Officer (AO) drew his findings on the basis of assessee's cash flow statement. The borrowing of Rs. 35 crores was in fact assumed at Rs. 65 crores in the form of Inter Corporate Deposits (ICDs) from Bennett Coleman & Co. Ltd. (BCCL) @ 8% p.a., of which Rs. 30 crores was paid on 15-02-2006. The total interest liability on this account amounted to Rs. 67.86 lakhs. In addition, the assessee-company had paid interest at Rs. 191.39 lakhs to the Ministry of Information and Broadcasting, Government of India (MIB) for delayed payment of the license fees. The AO effected a disallowance for the entire interest claimed, i.e., Rs. 259,25,610/-. In appeal, it was explained that the long term borrowing had been utilized for paying 'One Time Entrance Fee' (OTEF) and acquiring assets, i.e., setting up of broadcasting towers, and had been, rather, to that extent (Rs. 44.93 lakhs), capitalized as a part of the capital cost of the assets. The ICD funds had been taken as temporary loans to finance the working capital requirements. The ld. CIT(A) was of the view that this payment could not be regarded as penal in nature, but only as compensatory toward depriving the use of funds to the Govt. of India for the period of delay. No disallowance in its respect would thus arise. As regards interest on loan of Rs. 35 crores, it was clear that the same was utilized for loans and advances to sister concern as also investment in tax-exempt securities, which had witnessed an increase of Rs. 24.6 Crores during the year. A proportionate disallowance was, thus, called for. Before us, while the Revenue disputes the relief in respect of interest paid to MIB (Rs. 191.39 lakhs), the assessee challenges the proportionate disallowance of interest on borrowing (Rs. 67.86 lakhs). The assessee, apart from on its financial statements, claiming of them to be in support of its case - the reserves & surplus as at the year-end being at Rs. 216.18 lakhs, also relied on the decision in the case of S.A. Builders Ltd. vs. CIT(Appeals) (2007) 288 ITR 1 (SC) and CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). On being queried by the Bench as to the purpose of the loans and advances to sister concern/s, the ld. AR explained that the same was to a subsidiary company and, in fact, carried interest @ 8% p.a., i.e., the rate at which interest was paid on the borrowings. Further, as regard investments, these could not be termed as tax-exempt inasmuch as the investments were in 'Mutual Funds' with growth option, yielding capital gains. These could not, accordingly, be termed as 'tax-exempt'. We have heard the parties, and perused the material on record, as also the case law cited. Our first observation is that the sum under dispute has been wrongly mentioned in both the appeals. While Revenue's appeal states the figure at Rs. 191,30,764/-, the interest paid to
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