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2022 (5) TMI 1028 - AT - Income TaxAllowable business expenditure - disallowance of interest expenditure - DR argued that the amount borrowed was not for the purpose of business as investment is not business of the assessee. The assessee has borrowed money for investment in shares, therefore, interest paid on loan is not an allowable expenditure - HELD THAT - To control and develop the business it was important for assessee to own the company Bitwise Inc., USA. Therefore, it is a strategic investment by assessee. The purchase of the shares of the company i.e. Bitwise Inc., USA, was a business decision based on business necessity. Therefore, the interest expenditure is allowed as revenue expenditure. Accordingly, the Ground raised by the assessee are allowed.
Issues Involved:
1. Disallowance of interest expenditure under section 36(1)(iii) of the IT Act, 1961. 2. Disallowance of contribution made to gratuity scheme under section 36(v) of the IT Act, 1961. 3. Eligibility for deduction of Education Cess expenditure. Issue 1: Disallowance of Interest Expenditure: The appeal challenged the disallowance of interest under section 36(1)(iii) of the IT Act, 1961, by the ld.CIT(A) and the Assessing Officer. The Assessing Officer disallowed the interest based on precedents where interest on loans for acquiring controlling interest in a company was not considered expenditure for earning income. The appellant argued that the investment in shares was strategic for business necessity, as Bitwise Inc., USA was the sole work provider to the appellant company. The appellant presented various reasons supporting the strategic investment, such as customer relationships, VISA facilitation, commercial value benefits, employee retention, employee morale, and futuristic opportunities. The Tribunal referred to the decision in PCIT vs. Concentrix Services (I)(P.) Ltd., where interest on loans for acquiring controlled interest in a company in the same line of business was considered allowable expenditure under section 36(1)(iii). The Tribunal found that the investment in Bitwise Inc., USA was a business decision for controlling and developing the business, thus allowing the interest expenditure as revenue expenditure. Consequently, Grounds 1, 2, 3, and 4 raised by the assessee were allowed, and the appeal was partly allowed. Issue 2: Disallowance of Gratuity Scheme Contribution: The additional ground of appeal contested the disallowance of the contribution made to a gratuity scheme under section 36(v) of the IT Act, 1961. The ld.CIT(A) and the Assessing Officer disallowed the contribution, resulting in its addition to the total income of the appellant. However, during the appeal before the Tribunal, the appellant did not press this ground, indicating a waiver of this challenge. Issue 3: Deduction of Education Cess Expenditure: The appellant contended that they were eligible for a deduction of Education Cess expenditure amounting to Rs.9,95,885. The appellant argued that several decisions of the Honourable jurisdictional and other High Courts supported their claim for this deduction. However, no specific ruling or decision related to this issue was detailed in the judgment. In conclusion, the Tribunal partially allowed the appeal filed by the assessee against the order of the ld.CIT(A) regarding the disallowance of interest expenditure under section 36(1)(iii) of the IT Act, 1961. The decision was based on the strategic nature of the investment in shares of Bitwise Inc., USA for business development and control, aligning with the precedent set in PCIT vs. Concentrix Services (I)(P.) Ltd. The other issues raised in the appeal, such as the disallowance of contribution to the gratuity scheme and the deduction of Education Cess expenditure, were either waived by the appellant or not explicitly addressed in the judgment.
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