TMI Blog2017 (2) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... nce u/s.14A on account of investment in partnership firms we find the assessee has excluded the same for the purpose of computation of disallowance u/s.14A. We find the Assessing Officer included the investments made in K.K. Erector, Kumar Sons and Kumar Builders on a pro-rata basis which has been upheld by the CIT(A). We find the amounts invested in the above firms is much less than the own capital and free reserves of the assessee company. Since the assessee in the instant case has conclusively proved that its own capital and free reserves are much more than the investment in the partnership firms and since we have already held in the preceding paragraphs that the share application money as well as investment in the group companies on which no dividend has been received has to be excluded from the investments for the purpose of computation of disallowance u/s.14A, therefore, in view of the discussions above no disallowance u/s.14A is called for in the instant case. Accordingly, the grounds raised by the assessee including the additional grounds are allowed. Addition being interest received on deposits belonging to the society - Held that:- The assessee could not bring any mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the society maintenance expenditure incurred by the assessee is a business expenditure incurred in the normal course of business activity since the society has not been formed and the maintenance of the society is not handed over to the society or committee. In this view of the matter and in view of the detailed reasoning given by the CIT(A) we find no infirmity in her order. Accordingly, the same is upheld and the grounds raised by the Revenue on this issue are dismissed. - ITA No.1628/PUN/2013 And ITA No.1636/PUN/2013 - - - Dated:- 2-2-2017 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Nikhil Pathak For The Revenue : Shri Hitendra Ninawe ORDER PER R.K.PANDA, AM : These are cross appeals. The first one is filed by the Assessee and the second one filed by the Revenue and are directed against the order dated 21-06-2013 of the CIT(A)-I, Pune relating to Assessment Year 2009- 10. ITA No.1628/PUN/2013 (By Assessee): 2. Grounds of appeal No.1 to 3 and additional grounds of appeal relate to disallowance u/s.14A of the I.T. Act. 3. Facts of the case, in brief, are that the assessee is a company engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to such investment also calls for disallowance of expenses u/s.14A of the I.T. Act. The Assessing Officer on verification of the details noted that assessee has not considered the following exempt assets while calculating the disallowance u/s.14A : ( a) disallowances on account of exempted share of profit received from the partnership firms viz., M/s. Kumar Sons M/s. K.K. Erectors, ( b) disallowances on account of investment for share application money pending allotment. In view of the above, the Assessing Officer disallowed an amount of ₹ 2,94,01,003/- u/s.14A of the I.T. Act. 7. Before CIT(A) it was argued that investment made in respect of share application money pending allotment should not be included for purpose of Rule 8D since such share application money per se does not generate any income of the nature which is not to be included in the computation of total income. Only after allotment of shares, the shares allotted may result in earning of income in the form of dividend which is not to be included in the total income of the recipient. Further, till the time the shares are allotted the payer of the share application money is not entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PBAP Realty Investment Fund Pvt. Ltd. 5,00,000 5,00,000 0 Refunded as on 1-4-2009 4 PBAD Realty Pvt. Ltd. 1,00,000 1,00,000 0 Allotted as on 6-6-2009 5 Kumar Builders Township Developers Pvt. Ltd. 14,48,49,360 4,08,19,499 10,40,29,913 Refunded as on 23-3-2010 6 Kumar IKA Port Developers Pvt. Ltd. 15,00,000 15,00,000 0 Refunded as on 14-9-2010 29,81,16,674 11,77,06,761 18,04,09,913 20,90,36,675 10. Based on the arguments advanced by the assessee the Ld.CIT(A) held that the Assessing Officer has correctly included share application money paid by the assessee amounting to ₹ 29,81,16,674/- in working out the disallowance under Rule 8D(2). He, however, held that the share application mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m its capital account in Kumar Builders during the F.Y. 2008-09 relevant for the A.Y. 2009-10 is seen to be ₹ 6,05,34,662 for making investments in River View Properties Pvt. Ltd. (Rs.95 lakhs), PBAP Realty Investment Fund Pvt. Ltd. (Rs.5 lakhs), Pune Mumbai .Realty Pvt. Ltd, (Rs.2,23,75,213), PBAP Realty Pvt., Ltd. (Rs.1 lakh) and Kumar Builders Township Developers Pvt. Ltd. (Rs.2,80,59,449). Therefore, on the facts of the case, since the appellant himself did not consider the average value of any of its investments representing capital accounts in the partnership firms for purposes of working out disallowance under sec. 14A in its return of income and also since it is seen that the debit balances have occurred due to the over-drawal of its capital balances with the partnership firm, the additional ground of appeal filed before me fails. 13. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : The following grounds are taken without prejudice to each other - On facts and in law, 1] The learned CIT(A) erred in holding that the share application money amounting to ₹ 29,81,16,674/- paid by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is not warranted and the same should be deleted while computing the total income of the assessee. 2. The assessee submits that the disallowance offered by it on account of indirect expenditure of ₹ 36,86,019/- u/s 14A r.w.r. 8D in the return of income is not warranted and the same should be- deleted while computing the total income of the assessed. 3. The assessee submits that the investments on which no tax free income has been earned during the year should be excluded for the purposes of computing the disallowance u/s 14A r.w.r 8D. 4. The assessee further submits that the investments made by it in sister concerns are strategic investments and hence, should be excluded for the purposes of computing the disallowance u/s. 14A r.w.r.8D. 15. The Ld. Counsel for the assessee at the outset submitted that the additional grounds raised before the Tribunal are purely legal in nature and no fresh facts are required to be investigated. Referring to the decision of Hon ble Supreme Court in the case NTPC Ltd. reported in 229 ITR 383 and in the case of Jute Corporation of India Ltd. reported in 187 ITR 688 and the decision of Hon ble Bombay High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of which is placed from pages 7 to 42 of the paper book the Ld. Counsel for the assessee submitted that assessee has received commission income in the form of dividend of ₹ 1,73,076/- and share of profit of ₹ 18,83,39,507/-. Referring to page 46 of the paper book he submitted that the entire dividend income is earned from mutual funds. Referring to page 20 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the details of investment according to which the investment in various group concerns is ₹ 90,75,82,590/- as on 31-03- 2009. He submitted that this investment has been considered by the Assessing Officer for the purpose of disallowance u/s.14A. However, the assessee company has not received any dividend on these investments during the year. Therefore, the investments made in the group companies should be excluded for the purpose of computing disallowances u/s.14A r.w. Rule 8D. For the above proposition, he relied on the decision of Pune Bench of the Tribunal in the case of Kolte Patil Developers Ltd. Vs. DCIT Vide ITA Nos. 1656 to 1659/PN/2014 order dated 29-04-2016 for A.Yrs. 2008-09 and 2009-10 wherein the Tribunal, follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21. So far as the decision of Special Bench of the Tribunal in the case of Cheminvest Ltd. relied on by the Assessing Officer and the CIT(A) are concerned he submitted that the same has been reversed by the Hon ble Delhi High Court in ITA No.749/2014 order dated 02-09-2015. The Hon ble High Court after thoroughly discussing the issue has held that no disallowance u/s.14A of the Act can be made in a year in which no exempt income has been earned or received by the assessee. He accordingly submitted that the disallowance made by the Assessing Officer and offered by the assessee in the return of income also should be deleted. 22. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that assessee has made investment in various group companies and in different partnership firms the dividend income or the share of profit from the firm as the case may be would have been exempt from tax. Under these circumstances, the detailed order of the CIT(A) justifying the disallowance u/s.14A should be upheld and the grounds raised by the assessee should be dismissed. 23. We have considered the rival arguments made by both the sides, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies in which it has invested in shares, therefore, no disallowance u/s.14A is called for. So far as the investment in share application money is concerned it is his submission that in view of the decision of Mumbai Bench of the Tribunal in the case of Rainy Investments Pvt. Ltd. (Supra) and the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd. (Supra), the decision of Kolkata Bench of the Tribunal in the case of LGW Ltd. (Supra) share application money should be excluded from the total investments for the purpose of computation of disallowance u/s.14A. So far as the investment in partnership firms is concerned it is the submission of the Ld. Counsel for the assessee that since the own capital and free reserves of the assessee company are much more than the investment in partnership firms, therefore, in view of the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 no disallowance u/s.14A is called for. 26. We find merit in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that no dividend has been received by the assessee from the shares invested in the group companies wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the assessee is not in doubt, the question framed is required to be answered in favour of the assessee and against the revenue. . . . . . . . . . . . . . . . . . . . . . . 23. In the context of the facts enumerated hereinbefore the court answers the question framed by holding that the expression does not form part of the total income in section 14 A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 29. Since in the instant case the assessee has not received any dividend on the investment made in shares of group companies, therefore, the investment made in the group companies should be excluded from the investments for the purpose of computing disallowance u/s.14A r.w. Rule 8D. 30. So far as inclusion of share application money is concerned, it is an admitted fact that no shares are allotted as on 31-03-2009. We find merit in the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard shares of private limited companies, subject to stringent procedure, as is generally in place for such funds. We may further clarify that the exclusion of 'share application money', as opined by us, is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapable of any such income. The same is only in the nature of application (offer) money, which would though, on allotment, get adjusted against the cost of the said shares, and only whereupon any rights in the investee company inure to the allottee. No rights, not even inchoate, in the share capital of the issuing company arise on the payment of the share application money, irrespective of the time period for which it may outstand. The same may at best yield interest income (for which a special procedure though has to be followed by the company concerned), which is in any case taxable, so that there is no scope for application of sec. 14A thereon. 31. We find the Kolkata Bench of the Tribunal in the case of LGW Ltd. (supra) has observed as under : 6. We have heard the submissions of the ld. DR, who relied on the order of AO. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Kolte Patil Developers Ltd. (supra) while adjudicating the issue of disallowance u/s.14A, has held that no disallowance can be made u/s.14A where the own capital and free reserves are much more than the investments, the income of which is tax free. The relevant observation of the Tribunal read as under : 28. As regards the submission of the Ld. Departmental Representative that if the assessee had sufficient interest free funds, then there was no need to borrow is concerned we do not find any merit in the same. It is for the assessee to arrange its affairs and the revenue cannot direct the assessee to do its business in a particular manner. The Revenue has to see whether money borrowed has been utilized for the purpose of business or not. We find a somewhat similar issue had come up before the Hon ble Bombay High Court in the case of Bombay Samachar Ltd. (Supra). In that case, the assessee had borrowed money prior to the relevant previous year on which interest had been paid and claimed the same interest expenditure in the profit and loss account. During the course of assessment proceedings the AO noted that assessee had given interest free funds to sister concerns. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital was necessary for the business so that if at the time of borrowing the assessee had sufficient amount of its own, the deduction could not be allowed. Similarly, the Madras High Court in Amna Bai Hajee Issa v. Commissioner of Income tax has held that in deciding whether a claim for interest on borrowing can be allowed the fact that the assessee had ample resources at its disposal and need not have borrowed, is not a relevant matter for consideration. The matter to be decided is whether the amount of interest was paid in fact in respect of the capital borrowed for business. We therefore do not find any merit in the arguments of the Ld. Departmental Representative that if the assessee had sufficient interest free funds, there was no need to borrow from financial institutions. 29. As regards the argument of the Ld. Departmental Representative that assessee was not able to demonstrate that no borrowed funds have been utilized by the assessee towards the investment in shares/mutual funds/partnership firms, the income of which is tax free is concerned, we find the assessee before the AO had demonstrated that no borrowed funds have been utilized for investment in tax f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing Co. Ltd. (Supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (Supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej and Boyce manufacturing Co. Ltd. (Supra) had nothing to do with the rest of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd. (Supra). 16. At the hearing Mr. Suresh Kumar, Learned Counsel for the Revenue urged that on the facts of this case no fault can be found with the order of the Tribunal. It is submitted that, the petitioner was not able to establish before the Assessing Officer and the CIT(A) that the amounts invested in the interest free securities came out of interest free funds available with the petitioner. In that view of the matter, it is submitted by him that the order of this Court in HDFC Bank Ltd.(Supra) would not apply to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the Assessment order on 22nd December, 2010 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to be ultimately transferred to the flat owners' society and hence, the interest received on such deposits could not be taxed as an income of the appellant company. 4.2] The learned CIT(A) erred in holding that the appellant company has claimed credit of the TDS deducted on such interest and hence, the interest income should be taxed in the hands of the appellant company without appreciating that no such credit was claimed by the appellant in its return and therefore, the question of taxing such interest income simply did not arise . 36. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that assessee has received interest amounting to ₹ 12,24,391 (i.e., from IDBI Bank Ltd. - ₹ 13,534/- from State Bank of Travancore ₹ 12,10,857/-) which the assessee has not offered to tax. He, therefore, confronted the same to the assessee. Rejecting the various explanations given by the assessee, the Assessing Officer made addition of ₹ 12,24,391/- to the total income of the assessee. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer on the ground that assessee has claimed cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te disallowance of ₹ 58,75,491/- which was made by the Assessing Officer on account of diversion of borrowed funds and amount of ₹ 12,95,32,777/- on account of enhancement of income. 42. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that the assessee in the profit and loss account has debited/credited on account of interest paid/received under various heads. From the various details furnished by the assessee the Assessing Officer observed that assessee did not charge any interest on the loans given to its subsidiary companies namely Kumar City Club Ltd. and L.K Developers Pvt. Ltd., the details of which are as under : Kumar City Club Ltd. 13 LK Developers Pvt. Ltd. 261,243 Pune Techno Polis Dev. Pvt. Ltd. 5,614,234 Total 5,875,491 He, therefore, asked the assessee to explain the reasons for the same as to why proportionate interest amounting to ₹ 58,75,491/- should not be disallowed. It was explained by the assessee that substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y falls within the ambit of the exempting provisions of the Act. The principles equally apply in cases of deductions claimed. Once the assessee claims any such interest as deduction in their books of account the onus is always on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee were for the purpose of business. If in the process of examination of genuineness of such deduction, it transpires that the assessee has. advanced certain funds to sister concerns charging no interest, there would be a very heavy onus on the assessee to discharge before the Assessing Officer to the effect that in spite of outstanding loans on which the assessee is incurring liability to pay interest, there would be sufficient justification to advance the loans to sister concerns for non-business purposes without charging any interest. This was the finding of the Honourable Allahabad High Court in 352 ITR 8 [CIT vs Sahu Enterprise (P) Ltd]. 10.7. The Honourable Punjab and Haryana High Court in Abhishek Industries Ltd. reported in 286 ITR 1 came to a finding that once it is borne out from the record that the assessee had borrowed certain funds on which liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,673 which has been debited to the P L account. Interest amounting to ₹ 7,22,93,707 has also been paid to others. Thus, the total interest outgoings are to the tune of ₹ 28,25,86,380. Interest bearing funds of ₹ 11,77,06,761 have also admittedly been borrowed for making share application advances (see chart at para 4.5 supra). The appellant has advanced huge sums of money of ₹ 29,81,16,675 as share application money which is standing in the books of its subsidiary companies as on 31.3.2009. It has made these share application advances, admittedly, from interest bearing loans taken from partnership firms or other subsidiary companies/related parties amounting to ₹ 11,77,06,761. In fact, it has subsequently not been allotted shares in most of the cases and has been refunded ₹ 20,90,36,675 in the subsequent years, after the subsidiary companies have made good use of these interest free funds. During the year, it has made fresh investments amounting to ₹ 34 crores in subsidiary companies (closing balance ₹ 90.75 crores), made investments in the form of share application money to sister concerns/ subsidiary companies to the tune of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent interest free funds at, its disposal and the bank loans of ₹ 119 crores and other interest-bearing loans of ₹ 11.77 crores (as stated in para 10.8 supra) nave been utilized towards making the impugned interest free advances. That being the position, there would be no escape from the finding that interest being paid by the appellant to the extent the amounts are diverted to sister concern on interest free basis are to be disallowed. The view that where the amount is advanced from a mixed account or share capital or sale proceeds or profits, it would not be deemed as diversion of borrowed capital or that the Revenue had not been able to establish nexus of the funds advanced to the sister concerns with the borrowed funds, is not correct. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay interest is being incurred and on the other hand certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under Section 36(1)(iii) of the Act. In fact, the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on its borrowed loans. Having laid down the test for determination of the allowability of deduction u/s.36(1)(vii) the Apex Court set aside the matter to be decided afresh. This decision of the Supreme Court overruled a host of High Court decisions to the contrary which gave a limited interpretation to the scope of the phrase for the purposes of business or profession used in section 36(1)(iii). This decision overruled the Bombay High Court decisions in the case of Phaltan Sugar Works Ltd. reported in 208 ITR 989 and 215 ITR 582, and approved the Delhi High Court decision in CIT V. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377. 10.11 Subsequent to this decision of the Apex Court, the Dept. filed an SLP against the Delhi High Court s decision in Addl.CIT Vs. Tulips Star Hotels Ltd. reported in 338 ITR 482 wherein the High court had held that the interest liability on loans borrowed to acquire the equity capital of a subsidiary company which was in the same line of business was allowable deduction u/s.36(1)(iii). While admitting the SLP of the Department, the Supreme Court vide order dated 30.4.2012 directed that the earlier view of the Court in S.A. Builders Ltd. vs. CIT sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions dated 26.2.2013, reproduced at para 4.5 supra) Further, the appellant has purchased the 32,500 shares at the premium of RS 9230.77 per share, thereby incurring additional cost of ₹ 30 crores. The balance amount of ₹ 26,75,90,063 represents interest free advance, adjusted against allotment of equity. The subsidiary incurred losses of Rs.(-)60.51 lakhs in the previous year and Rs.(-) 77.83 lakhs in the current year. The pro rata interest on such advance @12% of ₹ 2,99,15,174 is clearly disallowable in view of SC decision in Tulip Star Hotels Ltd. and also for the reasons discussed in the subsequent paragraphs. 3 Khiranagar Development Pvt. Ltd. Paid on behalf of wholly owned subsidiary engaged in redevelopment of Khiranagar CHS, Santa Cruz, Mumbai for purchasing the flats from the flat holders The appellant company successfully bid for redevelopment tender for Khiranagar Co-operative Housing Soc. In the year 2007. During the year all the expenses/investments towards this project transferred to newly formed subsidiary company shown as advance in Schedule 9 of the balance sheet. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development rights of property owned by subsidiary at Manjari Budruk, Pune to be transferred to appellant The appellant has advanced unsecured loan for utilization in investment in land, and the MOU dated 28/05/2008 shows that the subsidiary had clear title over the said property. The balance sheet of the wholly owned subsidiary company shows the unsecured loans from the appellant and the land and development rights under the head Inventory . The appellant s contention that it is purely a business transaction with the subsidiary is acceptable. 6 L.K.Developers Pvt. Ltd. The appellant sold its property at Manjari to the outstanding represents amount receivable on sale of property thus it is in the nature of sundry debtors and not advance. The amount actually represents purchase of land through the subsidiary. Vide MOU dated 3/10/2008, the development rights over land for special township in the land belonging to the appellant admeasuring 1 hectare 25.5 ares at Manjri transferred to the subsidiary ₹ 53 crores advanced as against requirement of token amount of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of High Court. 10.14. The Hon'ble Supreme Court in S A Builders Ltd. cited supra held that it is not in every case that interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. The tax authorities are therefore, entitled to probe the facts and circumstances under which the assessee has made certain interest free advances available to its subsidiaries. The observations of the Apex Court made in para 35 in the case of S.A. Builders Ltd. supra to the effect that where it is obvious that a holding company has a deep interest in its subsidiary, and, hence, if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, (in the opinion of Supreme Court) ordinarily be entitled to deduction of interest on its borrowed loans required reconsideration/ review by another bench of the Supreme Court because the commercial expediency aspect cannot be said to have been satisfied merely on the basis of holding/subsidiary relationship, more so when the two companies are independent entities in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses but purely with the intention of long term investments for earning dividends, interest income and income from capital gains, as discussed above. This aspect is also considered extremely relevant and critical to the issue at hand. For claiming any deduction under sections 30 to 43D in computing the income of the assessee, the condition precedent is that the income from the connected receipts is computed under the head 'Profits and gains from business or profession'. According to the Scheme of the Income Tax Act, all incomes of the assessee are to be classified under various heads described under section 14 and then income is to be computed under those very heads in accordance with the provisions contained under those very heads, lf the receipt falls under a particular head, then, the income from such receipt must be computed in accordance with the provisions under the very head, irrespective of the nature of receipts. The receipts and the expenditure having nexus with each other must be considered under one head only. If the expenditure incurred by the assessee is not allowable under that head, then it cannot be allowed even if it has been incurred by the assessee. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsidiary companies; namely Pune Mumbai Realty', Pvt. Ltd., Kumar Builders Township Venture Pvt. Ltd., Riverview Properties Pvt. Ltd. and Sinew Developers Pvt. Ltd. are classified in the balance sheet as 'long term investments'. Profits on the same, are taxable under the head capital gains, as claimed by the appellant in the current year and also in the A.Y. 2010-11. Dividend income, if any, received is taxable under the head 'income from other sources'. Further, divesting shares at a later date through circular trading is also an issue that cannot be ruled out, as held by the Supreme Court in CIT vs Ashini Lease Finance (P) Ltd. (309 ITR 320] where the court set aside to the Gujarat High Court to examine the issue related to circular trading entered into solely with the idea of' evading tax since the' record indicated, prima facie, that the assessee company had acquired the shares of AEC, through finances arranged mainly from Torrent Group (sister companies) along with two other companies only to enable Torrent Group to acquire and takeover the business of AEC. 10.17 It can be thus seen from the judicial precedents and facts that are elabora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) the Ld. Counsel for the assessee drew the attention of the Bench to the interest free advances given by the assessee during the year the details of which are given as under : Sr. No. Advances to subsidiary companies Balance as on 31-03-2009 Advanced during the year 1 Kumar perfumeries Pvt. Ltd. Rs.36,66,96,497 Rs.31,01,00,000 2 River View Properties Pvt. Ltd. Rs.26,75,90,063 Rs.7,75,87,539 3 Khiranagar Development Pvt. Ltd. Rs.19,37,99,436 Rs.19,37,99,436 4 Sinew Developers Ltd. Rs.72,74,39,982 Rs.5,40,95,482 5 Pune Technopolis Development Pvt. Ltd. Rs.5,75,14,834 Rs.5,75,14,000 6 L.K. Developers Pvt. Ltd. Rs.53,06,51,207 Rs.53,05,52,089 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission of the Ld. Counsel that the own capital and free reserves of the assessee are much more than the interest free advances given to the above two companies and therefore no disallowance of interest is called for. 50. We find merit in the above submission of the Ld. Counsel for the assessee. We find identical issue had come up before the Pune Bench of the Tribunal in the case of Trinity India Ltd. (supra) where the Assessing Officer had made disallowance of interest expenditure of ₹ 29,36,965/- by invoking the provisions of section 36(1)(iii) on the ground that assessee had diverted interest bearing funds towards interest free loans to its sister concerns. Accordingly the Assessing Officer had disallowed proportionate interest @12% on the advances so made. Before CIT(A) the assessee made two fold arguments, i.e. (a) the advances were made for business purposes and therefore no disallowance is called for and (b) the assessee had sufficient interest free advances available with it and therefore in view of the decision of Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. reported in 313 ITR 340 no disallowance of interest is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and tax is to the extent of ₹ 5,14,84002/-, which alone is enough to cover the impugned interest-free advances. In our considered opinion, the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra) is clearly applicable in the present case inasmuch as there are funds available with the assessee both interest-free and interest bearing, and the A.Y. 2008-09 Interest-free funds available with the assessee are sufficient to cover the impugned interest-free advances made to the sister concerns, then the presumption is that the impugned interest-free advances made to the sister concerns are out of interest-free funds. In such a situation, following the judgement of the Hon'ble Bombay High Court the disallowance of interest expenditure made by the Assessing Officer becomes untenable. 7. In-fact, the factual aspects of the said proposition have not been faulted by the CIT(A), though he has not found it fit to apply the said proposition to the assessee's case. As per the discussion made by the CIT(A) in para 5.3.2 it emerges that according to the CIT(A) the aforesaid proposition laid down by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te disallowance of interest of ₹ 12,95,32,777/-. Ground raised by the assessee on this is accordingly allowed. 52. So far as the ground raised by the revenue is concerned we find the Ld.CIT(A) has given a categorical finding that the interest free advances to Pune Technopolis Development Pvt. Ltd. and L.K. Developers Pvt. Ltd. are for business expediency and therefore in view of decision of Hon ble Supreme Court in the case of S.A. Builders Ltd. (supra) no disallowance of interest u/s.36(1)(iii) is called for under the facts and circumstances of the case. The Ld. Departmental Representative could not controvert the factual finding given by the CIT(A) that the advances given to the above two concerns are for commercial expediency. So far as the decision of Hon ble Kerala High Court relied on by the Ld. Departmental Representative in the case of CIT Vs. Baby Co. Reported in 254 ITR 248 is concerned we find the same is not applicable to the facts of the present case in view of the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and the factual finding given by Ld.CIT(A). We, therefore, do not find any infirmity in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses have been incurred by the assessee in the course of its business and for the purpose of business. As a Builder and Developer it is the responsibility of the assessee to maintain the building till such time the society is formed and handed over to the committee thereof. Till that period irrespective of any business receipt the assessee has to take care of such matters. It also reflects the reputation of the assessee in the market. Since the business of the assessee is a continuous one and it is not a one-time activity, therefore, the Assessing Officer is not justified in disallowing the expenses. 58. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the disallowance made by the Assessing Officer by observing as under : 8.1 Having considered the submissions made by the appellant it is seen that the Assessing Officer has disallowed the expenditure in respect of project Kumar Suraksha on the ground that the same related to a completed project in respect of which the sales have been shown by the appellant in earlier years. However, the appellant is a builder and developer and it is a normal business practice that the builder is responsible for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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