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TMI Blog2019 (12) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the borrowing has been made for the purpose of business, interest paid thereon would become eligible for deduction u/s.36(1)(iii) Merely because the assessee company had not claimed any depreciation on Goodwill during the year under consideration, it would not make any difference or alternatively it would not change the character of the assets taken over by the assessee company which are purely in the form of liquid assets such as finance receivables, trade receivables and claims receivables thereby forming part of stock in trade of the assessee. We direct the ld. AO to grant deduction of interest paid on borrowed capital in the sum u/s.36(1)(iii) of the Act in the A.Y.2015-16. Accordingly, the ground raised by the assessee is allowed. Disallowance of expenses being the cost of arranger fees, credit rating fees and loan processing fees to obtain loan funds - HELD THAT:- There is no dispute that the entire payments were made by the assessee company in connection with raising loan funds for the purpose of business. As rightly observed by the assessee, the allowability of the expenses incurred for raising loan funds would not depend on the utilisation of the loan funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd (earlier known as Rajasthan Leasing Pvt Ltd) with effect from 18 March 2015 and made a fresh issue of equity shares of ₹ 1500 crores to its holding company as under:- Date of Receipts Date of Allotment Amount (Rs. In crores) 12 March 2015 13 March 2015 10 23 March 2015 23 March 2015 1190 31 March 2015 31 March 2015 300 Total 1500 3.1. Post the acquisition of the company by Tata Motors Finance Ltd, the assessee was converted into a Public Ltd company from Private Limited and therefore the name of assessee was changed to Tata Motors Finance Solutions Ltd with effect from 14 June 2015. 3.2. In the meanwhile, the assessee under a slump sale agreement dated 24 March 2015, purchased from its holding company (Tata Motors Finance Ltd), a Loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,195.71 7.67 3.5. Apart from the above borrowings, as mentioned above, assessee had also issued equity shares amounting to ₹ 1500 crores. 3.6. Thereby, the net assets acquired vide the slump sale agreement together with its respective sources are as under:- Particulars Amt (Rs. In crores) Remarks A. Net Assets - Other than Fixed Assets/Capital Assets (In the nature of stock in trade Finance Receivable (net of NPA provisioning) 4337.04 ₹ 4,850 crores paid out of borrowings Balance ₹ 916.48 crores paid out of equity funds Trade Receivables 1338.16 Other claims receivable 180.00 Less: Trade Payables, Other provisions liabilities, (88.72) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowability of the interest was dismissed. Further the ld. CIT(A) has also upheld the other points raised by the ld. AO while making the aforesaid disallowance. However, the ld. CIT(A) gave relief on alternate ground to capitalize the interest cost to corresponding asset and allow depreciation on the same. 3.10. We find that the aforesaid primary facts are not in dispute before us. We find that the borrowed funds have been utilized by the assessee for the purpose of purchase of assets during the year. Hence, it could be safely concluded that the borrowed funds were used for the purpose of business on which fact there is no dispute. The short point that arises for our consideration is whether since the acquisition process has been completed only at 11:59 pm on 31/03/2015, can it be said that the assets were not put to use and hence, the proviso to Section 36(1)(iii) of the Act would come into operation thereby make the assessee ineligible for claim of deduction of interest. It is pertinent to note that in the instant case, the funds have been borrowed for purpose of business which was mainly to acquire stock in trade, which is evident from the list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eivables, trade receivables and claims receivables thereby forming part of stock in trade of the assessee. Hence, the arguments of the ld. DR in this regard is dismissed. 3.13. We find that the basis on which the disallowance has been made by the ld AO and confirmed by the ld CIT(A) have already been addressed by us in detail hereinabove. We find that the reliance placed by the ld. AR on the following decisions to support its case are very well founded:- a) Bombay Steam Navigation Co. vs. CIT reported in 56 ITR 0052 b) CIT vs. Srishti Secutiries (P) Ltd. reported in 321 ITR 498 (Bom HC) c) CIT vs. Aditya Popcorn Pvt. Ltd. in ITA No.82/2014 dated 10/10/2017 (Rajasthan High Court) d) Kolkata Tribunal in the case of Magma Fincorp Ltd. vs. DCIT reported in 165 ITD 375. The operative portions of respective judgments are not reiterated herein for the sake of brevity. 3.14. In view of our aforesaid observations and in the facts and circumstances of the case and respectfully following the aforesaid judicial precedents, we direct the ld. AO to grant deduction of interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2. The ld. AO observed that all the aforesaid payments were made in connection with loan obtained by the assessee and since the loans were utilised for purchase of assets under slump sale agreement, the aforesaid payments made would also go to expand the capital base of the assessee and thereby it partakes the character of capital expenditure. The ld. AO observed that the direct nexus between the expenses incurred and purchase of assets have been duly established but since the loans were utilised for purchase of assets under slump sale, the expenses of ₹ 15.35 Crores also would go to increase the capital cost of the assets. With these observations, he disallowed the expenses u/s.37(1) of the Act. 4.3. We find that the ld. CIT(A) had deleted the disallowance by observing as under:- 7.3 I have carefully considered the facts of the case, discussion of the AO in the assessment order, oral contentions and written submission of the appellant and material available on record. It is the fact of the case that the appellant has incurred an expenditure totalling to ₹ 15,35,00,000/- for the purpose of raising funds by way of debent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h raising loan funds for the purpose of business. As rightly observed by the assessee, the allowability of the expenses incurred for raising loan funds would not depend on the utilisation of the loan funds for the purpose of procured assets. What is to be seen is whether the loans have been borrowed for the purpose of business by the assessee. In the instant case, there is absolutely no dispute that the loans have been borrowed by the assessee for the purpose of its business. The expenses payments of ₹ 15.35 Crores are only payments made to various parties who had assisted in procuring those loans and loan processing fees paid to banks. Hence, this is linked with the liabilities i.e. loans borrowed by the assessee. We also find that the ld. CIT(A) has also placed reliance on the CBDT Circular No.56 dated 09/03/1971. Accordingly, the said expenses are squarely allowable as deduction, which relief has been rightly granted by the ld. CIT(A) on which we do not find any infirmity warranting interference. Accordingly, the grounds raised by the revenue are dismissed. Cross Objection No.216/Mum/2019 - Assessee Cross Objection 5. We find that the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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