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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 ..... ii) of the Act by applying the proviso thereon, in the facts and circumstances of the case. 3. We have heard rival submissions and perused the materials available on record. We find that during the year under appeal, assessee company was acquired by Tata Motors Finance Ltd ('TMFL') with effect from 19 January 2015 by subscribing entire share capital at Rs. 49,74,000 thereby becoming wholly owned subsidiary of TMFL. Then assessee had changed its name to Tata Motors Finance Solutions Pvt Ltd (earlier known as Rajasthan Leasing Pvt Ltd) with effect from 18 March 2015 and made a fresh issue of equity shares of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,750/- on the following grounds:- * Interest expenditure has been incurred for acquiring a capital asset which was not put to use and accordingly, is not allowable as a deductible expenditure under proviso to section 36(l)(iii) of the Act; * Asset acquired is in the nature of capital asset and not stock-intrade; * The asset acquired is loan portfolio from which assessee earns interest income i.e. assessee earns income from application of assets and not from sale of asset. Therefore, loan portfolio is not an asset eligible for sale and hence it is not stock in trade of the Assessee." 3.8. While making the above disallowance, on alternate contention of assessee, that only interest proportionate to loan of Rs. 4850 crores to be disallowed as balance Rs. 400 [i.e. 343.94 crores (net of discounting chares on commercial papers)] crores is lying in bank account as unutilized, the ld. AO held that there is no business income (very miniscule) and expenditure corresponding to the funds borrowed for routine business operations of the assessee cannot be used for such minuscule business operations during the year and that the funds are not utilized for the purpose of business. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utting use of the same would require some time. From the list of assets taken over by the assessee as tabulated above, we find that even the fixed assets taken over by the assessee company comprised predominantly of Goodwill to the tune of Rs. 582.25 Crores and very miniscule operation of fixed assets of Rs. 1.27 Crores were taken over by the assessee which admittedly was paid out of equity funds and the borrowed funds were not utilized at all for the same. This fact is not controverted by the revenue before us. Hence, it could be safely concluded that the borrowed funds were used for acquiring only stock in trade by the assessee and hence, the same were meant only for the purpose of business of the assessee. Accordingly, the proviso to Section 36(1)(iii) of the Act would not come into operation at all. Once, the borrowing has been made for the purpose of business, interest paid thereon would become eligible for deduction u/s.36(1)(iii) of the Act. 3.12. We also find that one of the crucial points observed by the ld. AO that the capital asset purchased by the assessee had not been put to use as on 31/03/2015 is evident from the fact that assessee had not claimed any depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Amount (Rs.) NCD: CITI group Global Markets Pvt Ltd Arranger Fees for placement of unsecured NCDs of Rs. 2,000 crores 4,00,00,000 Secured Loans SBI Capital Markets Ltd Arranger Fees for placement of Secured Loans of Rs. 2,000 crores 2,00,00,000 Commercial Papers CITI group Global Markets Pvt Ltd Arranger Fees for placement of Commercial papers 1,25,00,000 Cash Credit SBI Capital Markets Ltd Arranger Fees for Cash Credit of Rs. 500 crores 50,00,000 Loan Processing Fees State Bank of India Upfront Loan Processing Fees 7,00,00,000 Credit Rating Fees CRISIL Credit Rating Service Fees 60,00,000 Total 15,35,00,000 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expenses incurred for obtaining loan funds which are allowable in the light of the decision of Hon'ble Supreme Court in the case of India Cements, the provisions of section 35D of the Act will not apply on the same. In view of the facts and circumstances of the case and discussion hereinabove, the action of the AO is not found to be justifiable and the disallowance so made by the AO is therefore, directed to be deleted. Grounds No.3,4 and 5 are accordingly, allowed. 4.4. We find 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 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 Rs. 15.35 Crores are only payments made to various parties who had assisted in procuring those ..... 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