Case Law Details
ACIT Vs Rustomjee Realty Private Limited (ITAT Mumbai)
Introduction: The Income Tax Appellate Tribunal (ITAT) Mumbai recently ruled on a crucial case involving Rustomjee Realty Private Limited’s challenge against the disallowance of expenses and deduction under Section 80G for CSR activities. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi.
Detailed Analysis: The Revenue raised multiple grounds, including challenges to the disallowance of interest expenses on non-convertible debentures and the denial of Section 80G deduction for CSR expenses. The tribunal focused on grounds 1 and 2, examining the disallowance of interest expenses. The Assessing Officer (AO) had restricted the interest expenses claimed on debentures to 14.1% instead of the claimed 21.3%, resulting in a disallowance of Rs. 26,53,85,916.
The tribunal observed that the AO’s comparison of interest rates on secured loans with those on unsecured non-convertible debentures was erroneous. Various risk factors associated with unsecured debentures, such as credit risk and liquidity risk, make such a comparison invalid. The tribunal directed the AO to determine the arm’s length interest rate for unsecured debentures and reconsider the disallowance proportionately.
Moving on to ground 3, the tribunal addressed the disallowance of Section 80G deduction for CSR expenses. The AO disallowed the deduction, arguing that the expenditure was mandatory under the Companies Act, lacking the voluntary nature required for Section 80G. However, the tribunal referred to precedents and upheld the deduction, stating that the nature of CSR expenses under the Companies Act did not preclude eligibility for Section 80G.
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