2017 (5) TMI 1051 - AT - Income Tax

Interest paid allowable as business expenditure - Held that - It is not in dispute before us that the facts and circumstances under which the disallowance was made by AO and deleted by CIT(A) in A.Y.2003-04 and 2004-05 are identical to the facts and circumstances as it prevailed in A.Y.2001-02. The decision of the Tribunal for A.Y.2001-02 would therefore equally apply to two assessment years 2003-04 and 2004-05. In this circumstance we are of the view that CIT(A) was fully justified in coming to the conclusion that the addition made by the AO cannot be sustained in the light of the decision rendered in A.Y.2001-02. In these circumstances we are of the view that there is no merit in this appeal filed by the revenue. Accordingly both the appeals of the revenue are dismissed.

Summary

Issues:
- Whether the interest paid on debentures acquired by the assessee would be allowed as a deduction in computing the income from the business.

Analysis:
1. The appeals by the Revenue were against two orders relating to assessment years 2003-04 & 2004-05, questioning the justification of the CIT(A) in allowing the interest paid on debentures as a deduction in the assessee's business income.

2. The Revenue contended that the debentures were held as investments and not stock in trade, thus the interest paid should be part of the debentures' cost and capitalized, not claimed as a deduction in business income. However, the CIT(A) viewed the interest as a business expenditure related to the commercial activity of dealing in shares and securities.

3. The Tribunal noted that a similar issue was previously decided in favor of the assessee for A.Y. 2001-02, where the interest on debentures was allowed as a deduction. The Tribunal concurred with the CIT(A) that the debentures were held as business assets, closely linked to the commercial activity of the assessee, justifying the interest payment deduction.

4. The Tribunal referenced the Hon'ble Supreme Court's decision in a similar case, emphasizing that interest paid on assets acquired for business purposes is a business expenditure. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's grounds for disallowing the interest payment.

5. The Calcutta High Court also dismissed the Revenue's appeal, affirming that the debentures were held as business assets, and the interest expenditure was allowable under the Income Tax Act. The facts and circumstances of the case for the assessment years 2003-04 and 2004-05 were found to be identical to the earlier decision for A.Y. 2001-02, leading to the dismissal of the Revenue's appeals.

6. Considering the consistent findings and decisions in previous cases, the Tribunal concluded that the CIT(A) was justified in allowing the deduction of interest paid on debentures, as the debentures were held as business assets. Therefore, both appeals by the Revenue were dismissed, affirming the allowance of interest as a business expenditure.

This detailed analysis highlights the legal journey of the case, emphasizing the consistent interpretation of the interest payment on debentures as a deductible business expenditure across different levels of adjudication.