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TMI Blog2023 (11) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of the documents submitted by the assessee, it is sufficiently evident that the interest expenditure on non-convertible debentures was either not debited to the profit and loss account or not claimed to be for the purpose of the project in earlier years unlike in the year under consideration. Thus, we are of the considered view that the issue of allowability of interest on non-convertible debentures, which arose in the present case, did not come up for consideration before the lower authorities in earlier years and therefore, we find no merits in the plea of the assessee that the interest paid on non-convertible debentures has been allowed in the preceding years and following the principle of consistency should be allowed in the year under consideration. We find that the AO has compared the rate of interest paid on unsecured redeemable cumulative non-convertible debentures with the rate of interest at which the secured loan was borrowed by the assessee, which in our considered view is wholly erroneous as various risks factors associated with unsecured debentures such as credit risk, liquidity risk, etc. cannot be compared with secured interest rate. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid expenditure is allowable under section 80G of the Act. No infirmity in the impugned order passed by the learned CIT(A) in allowing the claim of deduction under section 80G of the Act on CSR expenses incurred by the assessee - Shri Om Prakash Kant, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Naresh Kumar For the Revenue : Smt. Sanyogita Nagpal ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the Revenue challenging the impugned order dated 10/03/2023, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [ learned CIT(A) ], for the assessment year 2020-21. 2. In its appeal, the Revenue has raised the following grounds: 1. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of expenses of Rs. 26,53,85,916/- when the rate of interest for secured loan at the time of issuance of debentures was 14.1% which was also reflected in the sanction order submitted by the assessee while the assessee had issued debentures at the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bentures were issued at the interest rate of 21.3% after considering various factors such as quantum of loan, risk factor, credit, security, pledge, etc. during the period of 2014 to 2020. It was further submitted that the market situation differs from time to time and therefore there is no comparison of the interest rate of secured term loan taken on 25/02/2020 and unsecured redeemable cumulative non-convertible debentures issued on 08/03/2014. The assessee submitted that during a period of 2014, the interest rate against the secured term loan was in the range of 14%-16.5% and the assessee has itself borrowed a loan on 19/09/2013 at the rate of 14.10%. The Assessing Officer ( AO ) vide order dated 26/09/2022 passed under section 143(3) read with section 144B of the Act did not agree with the submissions of the assessee and held that the rate of interest for secured loan at the time of issuance of debentures was 14.10%, however, the assessee has issued debentures at the rate of 21.3% which is much more than the market rate of interest. Accordingly, the AO restricted the interest expenses claimed on debentures to 14.1% instead of 21.3% and disallowed the excess interest claim of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite details of interest expenses to support its claim u/s 36(1) (ii) of the Act. The appellant has offered Rs. 281,44,08,394/- as revenue from operations during the year against which the interest of Rs. 46,45,48,508/- has been claimed in profit and loss account. The appellant has contended that the entire funds borrowed are utilized for the project undertaken by it during the year under consideration. It has also been observed that the borrowings were actually made in AY 2014-15 and the interest on debentures @ 21.30% were claimed from AY 2014-15 till AY 2020-21 and the said interest rate on debentures was duly accepted in earlier assessment years. The disallowance of excess interest of Rs. 26,53,85,916/- has been made without any logical reasoning in the year under consideration. Being aggrieved, the Revenue is in appeal before us. 6. We have considered the submissions of both sides and perused the material available on record. The assessee has undertaken a project under the name and style of Rustomjee Elements . During the year under consideration, the assessee recognised an amount of Rs. 8033 lakh as the borrowing cost. The breakup of the total finance cost of Rs. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the basic facts, therefore following the principle of consistency the impugned addition is unsustainable. In support of this submission, the assessee has also placed on record the assessment orders passed in the assessment years 2014-15, 2017-18, and 2018-19. The assessee has also placed on record the assessment orders for the assessment years 2012-13 and 2013-14, however since the unsecured debentures were issued in the assessment year 2014-15, therefore these assessment orders are of no relevance. 9. From the perusal of the assessment order for the assessment year 2014-15, we find that the interest expense of Rs. 21,31,58,233 was not included in the work in progress and the said expense was, inter-alia, debited to the profit and loss account. The AO vide order dated 28/12/2016 passed under section 143(3) of the Act did not agree with the submissions of the assessee in the absence of project-wise breakup of the expenses and the details of the ratio in which the revenue has been offered to tax. Accordingly, the AO, inter-alia, transferred the interest expenditure claimed by the assessee to capital work in progress. 10. From the perusal of the assessment order for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be allowed in the year under consideration. 13. At the same time, we find that the AO has compared the rate of interest paid on unsecured redeemable cumulative non-convertible debentures with the rate of interest at which the secured loan was borrowed by the assessee, which in our considered view is wholly erroneous as various risks factors associated with unsecured debentures such as credit risk, liquidity risk, etc. cannot be compared with secured interest rate. Therefore, we are of the view that in order to decide whether the assessee has paid a higher interest rate on non-convertible debentures it is necessary to determine the interest rate on unsecured non-convertible debentures at the relevant time in an arm s length situation. Accordingly, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication after determining the arm s length interest rate during the relevant period in case of issuance of unsecured redeemable cumulative non-convertible debentures. We further find that while making the disallowance of Rs. 26,53,85,916 the AO considered the entire interest of Rs. 78,51,00,000 at the rate of 21.30%. However, it is to be noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(A), vide impugned order, after noting that the assessee has disallowed CSR expenditure amounting to Rs. 11,00,000 under section 37(1) of the Act and claimed the deduction under section 80G of Rs. 5,50,000 for the year under consideration allowed the ground raised by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us. 17. We have considered the submissions of both sides and perused the material available on record. We find that the coordinate benches of the Tribunal have consistently taken the view in favour of the taxpayer and held that the CSR expenses even though not allowed under section 37 of the Act pursuant to insertion of Explanation-2 to section 37 vide Finance Act, 2014 with effect from 01/04/2015. However, the said expenditure is allowable under section 80G of the Act. We find that the learned CIT(A) has also followed these judicial precedents and decided the issue in favour of the assessee, by observing as under:- Ground No.1 In this Ground of appeal, the Appellant has agitated the disallowance of deduction U/s 80G of the Income Tax Act, 1961, of Rs. 5,50,000 which as per the appellant has been expended in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O has allowed deduction u/s 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that he A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s 80G of the IT(TP) A No.2355/Bang/2019 Act. We consider it appropriate to refer to the Clauses (iiihk) (iiihl) of sub-section 2 of Section 80G of the Act which are read as under: *(iiihk) the Swachh Bharat Kost, set up by the Central Government, other than the sum spent by the assessee in pursuance of corporate social responsibility under sub-section (5) of section 135 of the companies Act, 2013 (18 of 2013); or (iiihl) the clean ganga fund, set up the Central Government, where such assessee is a resident and such sum is other than the sum spent by the assesse in pursuance of corporate social responsibility under sub-section (5) of section 135 of the companies Act, 2013) (18 of 2013). Where these two exceptions are provided in section 80G of the Act, it can be inferred that the other contributions made u/s 135(5) of the companies Act are also eligible for deduction u/s 80G of Income Tax Act subject to assessee satisfying the requis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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