Case Law Details
Vodafone India Ltd. Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that once it is established that the funds are used wholly and exclusively for the purpose of business interest paid on such borrowed funds is allowed u/s. 36(1)(iii) of the Income Tax Act.
Facts- Assessee contested disallowance of interest on loans advanced to the subsidiaries by the assessee. It was submitted that the assessee and its subsidiaries are engaged in the business of providing mobile telecom services PAN India. There is significant inter-dependance between the assessee and its group companies for providing cellular services in different telecom circles. Therefore, loan advanced by the assessee to its group concerns were driven by commercial expediency.
Further, the assessee has assailed disallowance of interest Rs.1,63,96,415/- on Capital Work-in-Progress and disallowance of interest Rs.38,70,010/- on ECB. It is submitted that the assessee has acquired fixed assets from the borrowed capital during the year relevant to the assessment year under appeal. The assets were acquired not for the purpose of extension of its existing business but to provide better quality of services to the customers. AO while disallowing interest on capital work-in-progress and interest on ECB has erred in holding that the assessee has extended its existing business, by making substantial addition to the fixed asset base of the company. AO on wrong appreciation of facts has erred in coming to the conclusion that interest paid on capital borrowed is for acquisition of assets for extension of business, hence, not allowable as deduction u/s. 36(1)(iii) of the Act.
Further, assessee also contested disallowance of expenditure on raising of loans.
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