Case Law Details
Brief of the Case
ITAT Delhi held In the case of ITO vs. M/s. First American Securities Pvt. Ltd. that the interest expenditure is to be treated as revenue in nature because the assessee is an investment company. It is very specifically mentioned in the objects of the MOU that assessee company is to make strategic investment in the business entities and accordingly, it has made strategic investment in unquoted shares of jointly controlled entities. Therefore, we find that the interest expenditure incurred by the assessee is for business purposes. Hence, there was no basis for treating the interest expenditure claimed by the assessee as capital expenditure.
Facts of the Case
The assessee company is a joint venture entity between the AXA India Holdings and Bharati Enterprises (Holdings) P. Ltd and was engaged in the business of investments. The return of income was filed by the assessee declaring loss of Rs.1,18,34,157/-. The case was processed u/s 143. Subsequently, the case was selected for scrutiny and notice u/s 143(2) was issued on 24.09.2008. During the year under consideration, the assessee company declared NIL gross receipts and posted a net loss of Rs.2.20 crores which after necessary adjustments in computation of income was reduced to a loss of Rs.1.18 crores. During the course of assessment proceedings, the assessee had debited an amount of Rs.1,64,53,604/- under the head “Interest on unsecured loans”. The assessee raised capital and unsecured loans during the year under consideration and invested the same in long term unquoted equity shares of M/s Bharati Axe Life Insurance Co. Ltd of Rs.57.80 crores. The AO asked the assessee to show cause as to why the interest expenses not be deemed to be capital in nature being related to long term investment in unquoted shares of a jointly controlled entity.
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