TMI Blog2015 (2) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, we find that the disallowance of interest computed by the Assessing Officer on compounding basis was not sustainable, as the same resulted in notional disallowance, which is not permissible in law, and the learned CIT(A) therefore, was fully justified in directing the Assessing Officer to verify the actual expenditure incurred by the assessee on account of interest on the borrowed funds utilised for making payment of share application money and to restrict the disallowance to that extent. Disallowance on account of interest attributable to the investment made by the assessee in landed property - Held that:- Learned Departmental Representative has contended that since this submission made by the learned counsel for the assessee now before the Tribunal was not made specifically in that manner before the authorities below, the Assessing Officer may be allowed an opportunity to verify the same. Since the learned counsel for the assessee has no objection in this regard, we restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Vijayaraghavan (Vice President) And P. M. Jagtap (Accountant Member) For the Assessee : K. Gopal Choudhary For the Revenue : G. Aparna Rao DR ORDER P. M. Jagtap (Accountant Member) Out of these seven appeals, six appeals are cross appeals for assessment year 2006-07, 2007-08 and 2008-09, while the remaining one is the appeal of the Revenue filed for assessment year 2005-06. Since some of the issues involved in these appeals are common, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience. Revenue s Appeal for Assessment year 2005-06 : 2. First, we shall take up the appeal of the Revenue for assessment year 2005-067, being ITA No.1087/Hyd/2010, which is directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 20.5.2010. 3. Grounds No.1 and 7 raised by the Revenue in this appeal are general, requiring no specific adjudication. 4. The common issue relating to the disallowance of interest attributable to the share application money made by the Assessing Officer and partly sustained by the learned CIT(A) is raised by the Revenue in grounds No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of ₹ 54,03,88,060 made by the Assessing Officer on account of interest attributable to the investments made in share application money on compounding basis was challenged by the assessee in an appeal filed before the learned CIT(A), and after considering the submissions made on behalf of the assessee as well as the material available on record, the learned CIT(A) held that there being no income earned by the assessee either exempt or otherwise, from the share application money paid to the sister concerns, the provisions of S.14A were not applicable, to make a disallowance on account of interest attributable to the investment made in the share application money. He, however, held that borrowing the funds and utilising the same for making investment in the share application money of the sister concern was not the business activity of the assessee, and therefore, interest paid by the assessee on the borrowed funds to the extent attributable to the investments made in the share application money was liable to be disallowed. Accordingly, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on account of interest attributable to the investments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that extent. We therefore, find no merit in ground Nos. 2 to 4 raised by the Revenue in its appeal and dismiss the same. 10. In grounds No.5 and 6, the Revenue has challenged the action of the learned CIT(A) in deleting the addition made by the Assessing Officer by way of disallowance on account of interest attributable to the investment made by the assessee in landed property. 11. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee had utilised the borrowed funds partly for making investment in landed property. According to him, interest attributable to such investments was liable to be disallowed under S.14A of the Act. He also held that the landed property having not been used by the assessee for the purposes of its business, interest attributable to the investment made in the landed property was not allowable as deduction even as per S.36(1)(iii) of the Act. He further held that such interest, in any case, was required to be capitalized to the respective land account till the same was put to use for the purpose of business. Accordingly, interest attributable to the investment made in the landed property to the extent of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. Since the learned counsel for the assessee has no objection in this regard, we restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 and 6 are accordingly treated as allowed for statistical purposes. 14. In the result, Revenue s appeal for assessment year 2005-06, being ITA No.1087/Hyd/2010, is partly allowed for statistical purpose. Cross Appeals for Assessment year 2006-07 15. Now, we shall take up the cross appeals for assessment year 2006-07, being ITA No.1460/Hyd/2010 of the Revenue and ITA No.1506/Hyd/2010 of the assessee, which are directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 3.9.2010. Revenue s Appeal: 16. In the appeal of the Revenue, grounds No.1 and 7 are general, seeking no specific adjudication, while remaining grounds No.2 to 6 read as under- 2. The learned CIT(A) relying on the Hon'ble Punjab Haryana High Court decision in the case of Haryana Land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 is accordingly treated as allowed for statistical purposes. 19. As regards the issue involved in ground No.6 relating to disallowance of interest attributable to the withdrawals made by the assessee out of borrowed funds, it is observed that the assessee-HUF during the year under consideration had made withdrawals from Ushakiron Movies as well as form other concerns for personal purposes. According to the Assessing Officer, these withdrawals were made from the borrowed funds and therefore, interest paid on the borrowed funds to the extent attribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical purposes. 21. In the result, Revenue s appeal for assessment year 2006-07, being ITA No.1460/Hyd/2010, is partly allowed for statistical purposes. Assessee s Appeal: 22. Grounds No.1 and 5 raised in the appeal of the assessee for assessment year 2006-07, being ITA No.1506/Hyd/2010, are general seeking no specific adjudication. Ground No.2 relating to the disallowance of interest made by the Assessing Officer and sustained by the learned CIT(A) to the extent of ₹ 59,29 crores on account of interest attributable to the investment made in share application money, is not pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed. 23. The issue involved in ground No.3 of the assessee s appeal for assessment year 2006-07 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of ₹ 4.39 crores on account of interest attributable to the investment allegedly made by the assessee in the residential building out of borrowed funds. 24. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee-HUF had constructed resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made by the assessee on similar issue before the learned CIT(A) for assessment year 2005-06, that out of the total investment of ₹ 29.68 crores made in the residential building, a sum of ₹ 18.68 crores was out of own funds, whereas the balance amount of ₹ 11 crores only was utilised out of the funds borrowed on interest . He has contended that interest attributable only to the borrowed founds, therefore, is liable to be disallowed and the disallowance of ₹ 4,39,25,177 made by the Assessing Officer on this count is excessive and unreasonable. In this regard, it is observed that keeping in view the similar stand taken by the assessee in assessment year 2005-06, a direction was given by the learned CIT(A) to the Assessing Officer to verify the exact amount of interest expenditure incurred by the assessee with respect to the residential building at Ramoji Film City and make a disallowance to that extent. In his impugned order for assessment year 2006-07, the learned CIT(A) has followed his own order for the assessment year 2005-06 and has given a similar direction to the Assessing Officer to verify the exact amount of interest expenditure claimed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile of the Assessing Officer for the limited purpose of working out, as done in the preceding year as per the directions of the learned CIT(A) for that year, the actual quantum of interest actually paid by the assessee on the borrowed funds utilised for the construction of the relevant assets which were not put to use in the year under consideration and restrict the disallowance to that extent. He shall accordingly redecide this issue after giving reasonable opportunity of hearing to the assessee. Ground No.4 is accordingly treated as partly allowed for statistical purposes. 30. In the result, appeal of the assessee for the assessment year 2006-07, being ITA No.1506/Hyd/2010, is partly allowed for statistical purposes. Cross Appeals for Assessment year 2007-08 31. Now, we shall take up the cross appeals for assessment year 2007-08, being ITA No.1461/Hyd/2010 of the Revenue and ITA No.1507/Hyd/2010 of the assessee, which are directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 3.9.2010. Revenue s Appeal: 32. In the appeal of the Revenue, grounds No.1 and 7 are general, seeking no specific adjudication, while remaining gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made in landed properties. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 is accordingly treated as allowed for statistical purposes. 35. As regards the issue involved in ground No.6 relating to disallowance of interest attributable to the withdrawals made by the assessee out of borrowed funds, the learned representatives of both the sides have agreed that this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the forego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2007-08 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of ₹ 4,44,52,660 on account of interest attributable to the investment made by the assessee out of borrowed funds in fixed assets created for the purpose of tourism, but not put to business use. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the conclusion drawn in assessment year 2006-07, and restore the matter to the file of the Assessing Officer for the limited purpose of working out, as done in the assessment year 2005-06 as per the directions of the learned CIT(A) for that year, the actual quantum of interest actually paid by the assessee on the borrowed funds utilised for the construction of the relevant assets which were not put to use in the year under consideration and res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on drawings in view of the fact that the entire HUF is running on borrowed funds; the investments made in various Units of HUF are out of these borrowed funds only; and the assessee-HUF on the whole is returning losses year after year thereby there are no accumulated profits/internal accruals. 44. As agreed at the time of hearing before us by the learned representatives of both the sides, the common issue involved in grounds No.2 to 4 relating to disallowance made by the Assessing Officer and sustained by the learned CIT(A) on account of interest attributable to the investments made in share application money, is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and uphold the impugned order of the learned CIT(A) on this issue. Grounds No.2 to 4 are accordingly dismissed. 45. As regards the issue involved in ground No.5, it relates to disallowance of interest attributa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutable to the investment made in share application money, is not pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed. 49. The issue involved in ground No.3 of the assessee s appeal for assessment year 2008-09 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of ₹ 8,54,31,999 on account of interest attributable to the investment allegedly made by the assessee in the residential building out of borrowed funds. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the conclusion drawn in assessment year 2006-07, and uphold the impugned order of the learned CIT(A) on this issue. Ground No.3 of the assessee s appeal is accordingly dismissed. 50. The issue involved in ground No.4 of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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