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2019 (9) TMI 1198 - ITAT MUMBAIDisallowance of interest expenditure u/s 36(1)(iii) - disallowance of interest expenditure on loans advanced to three parties have been sustained by him primarily for the reason that interest bearing funds have been advanced for non–business purpose - HELD THAT:- As regards assessee’s claim that the loan advanced to the aforesaid three parties were for the purpose of business, we must observe that the loan advanced to the two individuals i.e., Khusru Jujina and Ramesh Jogani cannot be considered to be for the purpose of assessee’s business as they are not the employee of the assessee but are employees of another group company and the assessee has not established the business gain derived by it by advancing such loan. By merely stating that the concerned parties have rendered some services, assessee’s claim cannot be accepted. Insofar as the loan advanced to Nariman Infrastructure Pvt. Ltd., the assessee is required to establish the business expediency in advancing the loan. By merely claiming that the subsidiary is in real estate business assessee’s claim cannot be allowed. However, it is the specific contention of the assessee that the assessee had sufficient interest free fund available to make such advances. The aforesaid contention of the assessee requires verification as neither the AO nor learned Commissioner (Appeals) have factually verified the availability of sufficient interest free fund with the assessee. In case, the assessee is found to be having sufficient interest free funds to advance the aforesaid loans, no disallowance of interest expenditure should be made. Disallowance of expenditure u/s 14A r/w rule 8D - HELD THAT:- Notably, before the first appellate authority, the assessee had specifically pleaded that no disallowance under section 14A r/w rule 8D can be made in the absence of any exempt income earned by the assessee during the year. The fact that the assessee has not earned any exempt income during the year, has not been disputed by the Revenue. That being the case, as per the ratio laid down in the decisions cited before us by the learned Sr. Counsel for the assessee, no disallowance under section 14A r/w rule 8D can be made. Addition for deduction of interest expenditure claimed under section 24(b) - HELD THAT:- When a part of the building is used for commercial purpose and the rest of it is let out, the interest expenditure on the loan availed for construction of building has to be apportioned between the area let out and area used for commercial purpose, as this is the most scientific basis on which the interest can be allocated. It is also very much clear that the Assessing Officer has not pointed out any major deficiency in allocation of interest expenditure between the area used for commercial purpose and area let out. The allegation of the Assessing Officer that the assessee at its own will changes the area let out is on a mere presumption. We do not find any material on record to indicate that the Assessing Officer had carried out any specific enquiry to disprove assessee’s claim regarding the area let out. Moreover, when the allocation of interest expenditure in identical manner has been accepted by the Assessing Officer in past assessment years, there is no valid reason for not accepting it in the impugned assessment year when the facts are identical. In any case of the matter, the expenditure incurred by the assessee would be allowable either under section 24(b) or under section 36(1)(iii) of the Act. That being the case, it will make no difference to the Revenue
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