Dismissing the appeal of the assessee the Tribunal held that ; advance to subsidiary companies out of borrowed funds who further gave said advances to SPVs of assessee who utilised for carrying on business activities of construction and development of airports .As no business activities under taken, expenditure incurred on finance charges is held to be not allowable as deduction. Tribunal also held that there is evidence of nexus of borrowing funds being invested in sister concern and assessee sources of income can only be earning dividend income, the entire interest income has to be considered for disallowance under section 14A under rule 8D2(i)/(ii) for the impugned assessment year. ( AY.2012-13
GVK Airport Developers Ltd. v. ITO (2018) 172 ITD 109/ 195 TTJ 246 / 66 ITR 9 (SN)/ 169 DTR 209 (Hyd) (Trib.)
S. 36(1)(iii) :Interest on borrowed capital -Business expenditure -Advance to subsidiary companies out of borrowed funds who further gave said advances to SPVs of assessee who utilised for carrying on business activities of construction and development of airports – No business activities under taken – Expenditure incurred on finance charges is held to be not allowable as deduction- there is evidence of nexus of borrowing funds being invested in sister concern and assessee sources of income can only be earning dividend income, the entire interest income has to be considered for disallowance under section 14A under rule 8D2(i)/(ii) for the impugned assessment year. [ S.14A, 37(1),R.8D(1)(ii) ]