Tata Chemicals Limited Vs PCIT-2 (ITAT Mumbai)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Mumbai has granted relief to Tata Chemicals Limited, allowing the deduction of ₹156 crore in interest on loans utilized for overseas investments. The decision, pronounced on December 30, 2024, overturns a revisionary order issued by the Principal Commissioner of Income-tax (PCIT)-2, Mumbai, which had deemed the original assessment “erroneous and prejudicial to the interest of the Revenue.”
The case, pertaining to the assessment year 2017-18, saw Tata Chemicals appeal against the PCIT’s order dated December 28, 2021, issued under Section 263 of the Income-tax Act, 1961. The core of the dispute revolved around the deductibility of interest expenditure under Section 36(1)(iii) of the Act.
Background of the Case
Tata Chemicals had filed its return of income for the assessment year 2017-18, declaring a total income of ₹808.97 crores. The assessment was completed under Section 143(3) read with Section 144C(13) and 144B, with the Assessing Officer (AO) assessing the total income at ₹824.20 crores.
Subsequently, the PCIT-2 reviewed the assessment records and noted that Tata Chemicals had claimed an interest expenditure of ₹276.66 crores. Of this, ₹156.12 crores pertained to interest on loans specifically utilized for investments in its overseas subsidiaries. The PCIT contended that this interest expenditure was not eligible for deduction under Section 36(1)(iii), reasoning that the dividend income from these investments would be taxable as “income from other sources,” and therefore, the AO had not adequately verified this aspect. Consequently, the PCIT initiated proceedings under Section 263, aiming to revise the assessment order.
