TMI Blog2017 (8) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of the assessee and decide afresh in accordance with law. Disallowing the interest and other expenses under section 14A - Held that:- In so far as the finding of the CIT(A) that the interest on borrowed funds were utilized towards investment in equity shares are concerned, the same has not been negated before us by the Revenue. Therefore, the same is hereby affirmed. Even otherwise, we find that even with respect to the quantum of disallowance out of other expenses is concerned, we find no infirmity in the order of the CIT(A), which is hereby affirmed. Thus, in so far as Grounds of appeal No.1 to 3 of the Grounds of appeal, the Revenue has failed to produce any evidence in support of its claim, therefore, the same are dismissed. Disallowance of interest expenditure under section 36(1)(iii) - Held that:- No fault can be found in the plea set-up by the assessee, so however, it was essential for the CIT(A) to take into consideration the specified observation of the Assessing Officer to the effect that the assessee had failed to prove the utilization of such funds by the subsidiaries. Even at the time of hearing before us, when this was put across to the parties, the Ld. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj Hindustan Ltd for a period of 60 months from April 2009 to March 2014. During the year under consideration, assessee earned rental income of ₹ 71,89,200/- from the lease of office premises. It transpires from the record that in the return of income originally filed on 30/09/2011, such rental income was offered to tax under the head income from house property while in the revised return of income filed on 28/03/2013, assessee claimed the assessability of such rental income under the head profits and gains from business . In the assessment proceedings, assessee justified the stand taken in the revised return on the ground that the premise was a business centre and, therefore, the rental income thereupon was assessable as business income . The Assessing Officer has differed with the assessee and has assessed the rental income as an income assessable under the head income from house property . In coming to such conclusion, the Assessing Officer has relied on the lease agreement and concluded that it was a normal rent agreement for letting out of properties and the ingredients of a business centre agreement were missing. The Assessing Officer has also noted that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortfolio were comparable to the cost of the premises, which have been leased out in order to justify that leasing of property was a major activity. At the time of hearing, Ld. Representative for the assessee relied upon the judgments of the Hon'ble Supreme Court in the case of Rayala Corporation Private Ltd. vs. ACIT, 386 ITR 500 and in the case of Chennai Properties Investments Ltd., 373 ITR 673 in support of the plea that the rental incomes is assessable as business income. 3.3 On the other hand, the Ld. Departmental Representative has reiterated the stand of the Assessing Officer in support of the case of the Revenue. Apart therefrom, the Ld. Departmental Representative emphasized that there was no specific amenities or services provided by the assessee so as to say that the lease agreement was in the nature of a business activity. The Ld. Departmental Representative also emphasized that in the return of income originally filed, assessee had declared such income as income from house property and that it is only in the revised return of income that income was claimed to be assessable as business income . 3.4 We have carefully considered the rival submissions. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to acquire and hold the properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon the security of lands and building or other properties or any interest therein. What we emphasize is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. Notably, the Hon'ble Supreme Court noted that the main object of the company was to acquire and hold the properties in question before it and letting out the same. The Hon'ble Supreme Court emphasized that acquiring and holding of the two specified properties, and letting out them was the main object of the company. In the present case, it is not the main object of the company to acquire and hold the impugned property and to let out the same. We may add here that it is only the ancillary or incidental object of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case is quite different inasmuch as it is nobody s case that leasing of property is the only business of the assessee-company or that it is the only activity undertaken by the assessee-company. At the time of hearing, it was a common point between the parties that assessee had earned interest income from lending activities, which has been declared as business income by the assessee-company as also accepted by the Tribunal in the past. Thus, the fact-situation in the instant case is qualitatively distinct and, therefore, the ratio of the Hon'ble Supreme Court in the case of Rayala Corporation Private Limited(supra) is not applicable. 3.8 Another aspect canvassed by the assessee was that in assessment year 2010-11, the income from lease has been assessed as business income . Under normal circumstances, the aforesaid plea would have been potent in support of the plea that in the instant year also such income be taxed as business income. However, a perusal of the assessment order dated 24/12/2012 passed under section 143(3) for assessment year 2010-11 does not reveal any discussion on this aspect. On the contrary, the discussion in the assessment order in the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. Now, we may take up the appeal of the Revenue in ITA No.789/Mum/2015. The Revenue has raised the following Grounds of appeal:- 1. Whether on the facts and in the circumstances of the case and in law, the Id.CIT(A) was justified in deleting the disallowance of ₹ 78,99,196/- made under section 14A read with Rule 8D(2)(i) of I.T.Rules-1962 without appreciating the fact that assessee had neither proved the nexus that the investments have been made out of interest free funds available with it nor furnished the utilization of the borrowed funds. 2. Without prejudice to the Ground No.1 of above, if the disallowance made under section 14A read with Rule 8D(2)(i) is not accepted, as worked out in the assessment order, the disallowance under Rule 8D(2)(ii) shall be taken at ₹ 34,45,372/-. 3 Whether on the facts and in the circumstances of the case and in law, the Id.CIT(A) was justified in holding that the disallowance out of administrative expenses be restricted to ₹ 4,08,033/- as against ₹ 25,45,561j- made under section 14A read with Rule 8D(2)(iii) without appreciating the fact that disallowance out of administrative expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in P L account was only ₹ 91,38,871/-. 6.2 The CIT(A) did not agree with the Assessing Officer with regard to the disallowance out of interest expenditure, as according to him, the interest expenditure on borrowed funds could not be allocated towards equity shares and, therefore, he deleted the disallowance of interest made by the Assessing Officer. With regard to the disallowance out of expenses, the CIT(A) observed that disallowance worked out by the Assessing Officer under rules 8D(2)(iii) of the Rules at ₹ 24,45,561/- could not exceed the expenses debited in the P L account and accordingly he limited the disallowance toRs.4,08,033/-. In sum-and-substance, out of the total disallowance of ₹ 91,38,871/-, the CIT(A) restricted the disallowance to the extent of ₹ 4,08,033/- and deleted the balance disallowance. The aforesaid action of the CIT(A) has been challenged by the Revenue by way of Ground of appeal No.1 to 3. 6.3 In so far as the finding of the CIT(A) that the interest on borrowed funds were utilized towards investment in equity shares are concerned, the same has not been negated before us by the Revenue. Therefore, the same is hereby affir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unsecured loan on which interest was paid @10% per annum, whereas assessee had advanced monies to Bajaj International Realty Pvt. Ltd. and Bajaj Infrastructure Development Co. Ltd., which were its subsidiary and stepdown subsidiary respectively at a lower interest rate of 7.50%. On being asked to justify, the assessee contended that the advancing of monies to its subsidiaries was on grounds of commercial expediency and that the funds were advanced for utilization by the subsidiaries in their business of construction activity. The assessee company relied on the judgment of the Hon'ble Supreme Court in the case of S.A Builders vs. CIT, 288 ITR 1(SC) to justify the advancing of loan to the subsidiaries and submitted that no part of interest be disallowed. The Assessing Officer noted that there was no material furnished by the assessee to show that as to whether the amounts advanced by the assessee were actually utilized by the subsidiaries in their businesses. The Assessing Officer also held that assessee was not able to prove any commercial expediency for advancing funds to the subsidiaries at a rate lower than the rate of interest paid on borrowings. Therefore, he disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Grounds appeal No.5 is concerned, the same relates to the taxing of interest earned on money lending operations of ₹ 2,48,56,400/-. The Assessing Officer taxed the interest earned on loans and advances as income from other sources instead of business income . The CIT(A) noted that it was a recurring issue and following the order of the Tribunal in assessee s own case for assessment year 2008-09 and also his own decision in assessment year 2010-11, directed the Assessing Officer to tax the interest income of ₹ 2,48,56,400/- earned on loans and advances under the head income from business and profession. . 8.1 At the time of hearing, the Ld. Representative for the assessee pointed out that the order of the CIT(A) for assessment year 2010-11 has also been affirmed by the Tribunal in ITA No.2326/Mum/2014 vide order dated 29/09/2015, therefore, the order of the CIT(A) deserves to be affirmed. 8.2 The Ld. Departmental Representative has not disputed the aforesaid factual matrix. Considering the precedents in assessee s own case, we find that similar income by way of interest on money lending operations has to be assessed as business income . Therefore, the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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