2018 (4) TMI 1520 - AT - Income Tax

Interest expense as allowable u/s 36(1)(iii) - scope of investment in MHICL - Investment for busniss purposes - Held that - In the absence of any dispute as to the fact of MHICL is the holding company of MMCL, MMCL having the same line of the business as that of the assessee, by such an investment in MHICL, the assessee sought to have controlling interest in MMCL and the said strategy yielded fruits in the form of increase in sales by ₹ 1,84,00,390/- during the assessment year, by no stretch of imagination, could it be said that the investment is not for the strategic for the purpose of expansion of the business simply because the holding company does not do the same business as that of the assessee. There is nothing material on record to brush aside the submission of the assessee that through MHICL the assessee acquired controlling interest in MMCL for furtherance of their business interest. The investment of the borrowed funds by the assessee in MHICL is for business purpose, as such, the interest expense is allowable u/s 36(1)(iii) of the Act. With this view of the matter, we hold that the interest expense claimed by the assessee is allowable u/s 36(1)(iii) and the AO will delete the same. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of expenses u/s 40(a)(i) and 40(a)(ia) of the Income-tax Act, 1961
- Disallowance of interest paid on a loan taken for investment in a foreign company

Issue 1: Disallowance of expenses u/s 40(a)(i) and 40(a)(ia) of the Income-tax Act, 1961

The case involved M/s Super Religare Laboratories Ltd. ("SRL") engaged in diagnostic laboratories business. The Assessing Officer disallowed expenses under sections 40(a)(i) and 40(a)(ia) of the Act. The CIT(A) deleted the additions under these sections. The dispute revolved around discounts offered to customers and payments made to collection centers within and outside India. The CIT(A) held that these payments were not taxable in India, citing precedents. The Tribunal upheld the CIT(A)'s decision, emphasizing consistency and rejecting the Revenue's appeal.

Issue 2: Disallowance of interest paid on a loan taken for investment in a foreign company

The assessee incurred interest expenditure on a loan for investing in a foreign company. The Assessing Officer disallowed this expense, stating it did not serve a business purpose. The CIT(A) confirmed the disallowance without providing reasons. The assessee argued that the investment was strategic for business expansion, citing an increase in sales. The Tribunal held that the investment in the foreign company was for a business purpose, allowing the interest expense under section 36(1)(iii) of the Act. The Tribunal directed the AO to delete the disallowed amount, ruling in favor of the assessee.

In conclusion, the Tribunal's judgment favored the assessee by allowing the appeal related to the disallowance of interest paid on a loan for investment in a foreign company. The Tribunal upheld the CIT(A)'s decision to delete the additions under sections 40(a)(i) and 40(a)(ia) of the Income-tax Act, emphasizing consistency in previous rulings. The judgment highlighted the importance of business purpose in determining allowable expenses and cited relevant precedents to support the decisions.