The Delhi Bench of the Income Tax Appellate Tribunal ruled that interest paid on share application is allowable as Business Expenditure.
The grounds of appeal as raised by the revenue is that on the facts and under some circumstances of the case, the CIT (A) has erred in law and the facts in deleting the addition made by the Assessing officer of Rs 33, 64,918/- on account of interest paid on share application money by ignoring the facts, that the above said expense is capital in nature”.
Before the Tribunal AR mentioned that the assessee is a company and engaged in the business of investment, to advance, lend or loan money on interest or without interest. The return filed by the assesse amounted to Rs. 13, 01,580/-.was picked up for scrutiny and assessment under section 143(3) of the Income-tax Act, 1961.During the course of assessment ,the AO disallowed the amount of Rs 33,64,918/.since it was the figure of interest paid by assesse to M/s Conquer Investment and Finance Pvt Ltd.
The relevant observation of the assessing officer was that the aforesaid amount has been debited to the profit and loss account as interest paid on share application to conquer investment. Through a note sheet entry AR asked to exhibit their reasons. In return the assesse company stated that the share application of Rs. 6.10 crores was received for allotment of share and after discussion with the company it was decided to pay one year interest i.e. for AY 2012-13 .The Assessee also stated that it has received interest on share application paid by it to various companies. The submission of the assessee found not tenable. Since the interest paid on share application is a capital expense and cannot be claimed as revenue expense.
Aggrieved with the order of AO assessee filed an appeal before the CIT (A) and contended that appellant company has to allot equity shares against share application money received from M/s Conquer Investment Pvt Ltd, up to 31.03.2011 otherwise appellant company will have to pay interest @12% and refund the share application money with interest to M/s Conquer Investment (Pvt) ltd. Therefore, the assessee was forced required to pay the interest and also refunded the share application money of Rs 5.55 Crore.
The assessee pointed out before CIT is that the appellant company engaged in buying and selling of shares and securities and also added that receiving and giving money as share application must be considered as their daily business running activities. He pointed that he had earned an income of Rs. 73, 95,209/- on investment of these funds and this 5 income has been taxed under the head business income and not income from other sources.
Before CIT, DR argued that CIT (A) has wrongly admitted share investment agreement between assessee and Conquer and there was no purpose for incurring these expenses and such an attempt is not permissible in view of the guidelines of SEBI.
After hearing both the parties opinion the tribunal bench of Accountant Member B.P Jain has dismissed the appeal of the revenue and the bench observed that DR has raised this legal plea only in rejoinder 11 proceedings, when the AR of the assessee has already countered the main submissions of the DR. Therefore, having regard to the facts that there is no ground in memo of appeal and there is no application of admission of additional ground the plea taken by the DR particularly in the rejoinder proceedings is not tenable.
The tribunal also added that assessee is an investor company and making investment and receiving interest is the main business of the assesse Company. Therefore, the purpose of receiving share application money and payment of interest is apparent from the financial and audited account of the assesse, which was very much before the AO. CIT (A) has categorically recorded that the interest has been paid on the basis of clause 4 of the agreement dated 25.05.2010, which fact is not refuted by the ld. DR.
While dismissing the appeal, the tribunal also observed that Hon’ble Supreme Court has categorically held that interest paid on borrowed capital is allowable under section 36(1)(iii) of the Act and it does not make any difference as to whether the expenses has been incurred in capital filed or revenue filed.
Read the full text of the Order below.
