2022 (9) TMI 1137 - AT - Income Tax

Disallowance of interest expenditure - diversion of funds for non-business purpose - CIT(A) deleted the disallowance - HELD THAT - It is clear that the assessee obtained loan from Saraswat Co-operative Bank, part of which paid towards purchase of shares of its ONP, having purely business purpose to save the assessee s interest from outside private entities. It is also observed that the purchase of shares of its sister concern was only for saving of assessee s own business, as a result the assessee took over the entire shareholding of ONP which is its sister concern and avoided interference from third party business operations. In order to examine the allowability of interest expenditure on funds borrowed, when the part of such borrowed funds utilized for purchasing of shares in ONP, the interest paid by the assessee on the amount borrowed for purchasing of such shares of its managed company, in our opinion, is allowable deduction. The funds borrowed by the assessee from the Saraswat Cooperative Bank were utilized for the purpose of business and the interest paid thereon would constitute an allowable deduction. There is no diversion of funds for non-business purpose and no finding or allegation from assessing officer to that effect. Assessee utilized borrowed funds for its own business, therefore, assessee is entitled to claim deduction on account of interest expenditure and we find no infirmity in the order of CIT(A) in deleting the disallowance made by the AO on account of interest expenditure.The order of CIT(A) is justified. Ground No. 1 raised by the appellant-revenue is dismissed. Addition made on account of processing fee paid to banking institutions - CIT(A) deleted the said addition by recording its reasons taking into consideration the relief granted to the assessee on account of interest payment - HELD THAT - In view of our decision on ground No. 1, where we confirmed the order of CIT-A in holding the expenditure on account of interest payment on loans availed from bank for business purpose is allowable deduction, therefore, we find no infirmity in the order of CIT(A) in holding the assessee is entitled to claim deduction on account of processing fees. Thus, we agree with the reasons recorded by the CIT(A) in impugned order and it is justified. Thus, ground No. 2 raised by the appellant revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on account of interest on loan utilized for purchase of shares.
2. Deletion of addition made on account of processing fee paid to banking institutions.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Interest on Loan Utilized for Purchase of Shares:

The Revenue challenged the CIT(A)'s decision to delete the disallowance of interest on a loan used to purchase shares of Oyster & Pearl Hospital Pvt. Ltd. The Revenue argued that the assessee had agreed to the disallowance before the AO and should not have contested it before the CIT(A). The DR emphasized that the CIT(A) did not consider the merits of the case and should have followed the principle of consistency, as the assessee opted for the Vivad Se Vishwas Scheme for subsequent years.

The assessee countered by citing the Supreme Court's decision in Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola & Ors., arguing that concessions on mixed questions of fact and law cannot bind the party and can be contested in appeal. The Tribunal agreed with the assessee, stating that a concession made by the authorized representative before the AO does not preclude the assessee from challenging the issue in appeal. The Tribunal also noted that the Vivad Se Vishwas Act does not imply conceding the tax position and cannot be used to argue that the assessee acquiesced in the decision by settling the dispute.

The Tribunal found that the CIT(A) had provided an independent finding, considering the facts and sequence of events, and concluded that the interest was incurred for business purposes. The Tribunal observed that the assessee had borrowed funds to purchase shares to maintain control over the business and avoid interference from third parties. The Tribunal upheld the CIT(A)'s decision, confirming that the interest expenditure was allowable as it was incurred for the purpose of the assessee's business.

2. Deletion of Addition Made on Account of Processing Fee Paid to Banking Institutions:

The Revenue also challenged the deletion of the addition made on account of processing fees paid to banks. The CIT(A) had allowed the deduction, reasoning that the loans from Bank of Baroda and Saraswat Cooperative Bank were used for business purposes.

The Tribunal agreed with the CIT(A), noting that it is common in business to replace high-cost loans with low-cost ones. The Tribunal found that the loans were utilized for business purposes, including repaying an earlier business loan and purchasing shares to maintain control over the business. Therefore, the processing fees paid to the banks were also considered a business expense and allowable as a deduction.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the disallowances on account of interest on the loan and processing fees. The Tribunal confirmed that the expenditures were incurred for business purposes and were allowable deductions under the Income Tax Act.