TMI Blog2019 (9) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is engaged in service centre business, leasing of premises, etc. In simple words, the assessee is in real estate business. For the assessment year under dispute, the assessee filed its return of income on 30th September 2009. Subsequently, it filed a revised return of income on 10th February 2011, declaring income of ₹ 9,68,61,713. During the assessment proceedings, the Assessing Officer on examining the Balance Sheet of the assessee for the year under consideration noticed that the assessee had taken secured and unsecured loan aggregating to ₹ 41,21,88,995, in respect of which it has claimed interest payment of ₹ 52,12,41,939, and financial charges of ₹ 1,75,67,680. He also noticed that the assessee had given loans and advances of ₹ 188,83,93,532. After calling for and examining the break up of loans and advances, he was of the view that the assessee had diverted interest bearing fund for advancing loans to related entities at much lower rate of interest than the rate of interest at which it had availed the loan. Further, he found that the assessee had diverted interest bearing fund for non business purpose, such as, advances given for fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal, Mumbai Bench, in Rioplast Technologies Pvt. Ltd. v/s DCIT, ITA no.7502/Mum./2016. 6. Shri Anadi Verma, the learned Departmental Representative submitted, assessee s claim regarding availability of sufficient interest free fund has not been examined either by the Assessing Officer or by learned Commissioner (Appeals). Therefore, it requires verification. Further, he submitted, assessee s claim that the loans were utilised for the purpose of business also requires verification since the assessee needs to establish its claim through proper evidence. Thus, he submitted, the issue may be restored back to the Assessing Officer for fresh adjudication. 7. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. As noticed from the order of learned Commissioner (Appeals), 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. As regards assessee s claim that the loan advanced to the aforesaid three parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee by directing the Assessing Officer to re compute the disallowance under section 14A r/w rule 8D after excluding share application money and investment in flat at Bandra Kurla Complex from the average value of investment. 12. The learned Sr. Counsel for the assessee submitted, during the year under consideration, the assessee has not earned any exempt income. Therefore, no disallowance under section 14A r/w rule 8D can be made. In support of such contention, he relied upon the following decisions: i) CIT v/s Chettinad Logistics Pvt. Ltd., [2018] 98 taxmann. com 250 ii) DCIT v/s L T Power Development Ltd., ITA no.874/Mum./ 2017; 09.08.2018; iii) DCIT v/s Future Market Networks Ltd., ITA no.5781/Mum./ 2016, etc., dated 03.10.2018; iv) Tejaskiran Pharmachem Industries Pvt. Ltd. v/s DCIT, ITA no.3307/Mum./2014, dated 13.12.2017; v) Sajjan India Ltd. v/s ACIT, [2018] 89 taxmann.com 21 (Mum.)(Trib.); vi) Chand N. Bhojawani v/s DCIT, ITA no.272/Mum./2015, etc., dated 28.07.2017; and vii) Techprocess Payment Services Ltd. v/s DC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest paid on borrowed funds. He, therefore, called upon the assessee to furnish loan sanction letter, details of interest paid, utilization of borrowed funds, etc. In response to the query raised by the Assessing Officer, the assessee furnished its reply vide letter dated 5th December 2011, wherein, the assessee furnished the basis of allocation of interest expenditure to rental income. From the said reply, the Assessing Officer found that the assessee allocated interest expenditure for claiming deduction under section 24(b) of the Act on the basis of area used for commercial purpose and the area let out. The Assessing Officer observed that the deduction of interest on borrowed fund as per section 24(b) of the Act is not dependent upon the area used for letting out but the utilization of fund. Alleging that the assessee failed to provide any evidence showing utilization of fund for construction of house property, he disallowed the deduction claimed under section 25(b) of the Act amounting to ₹ 7,23,51,153. The assessee challenged the aforesaid disallowance before the first appellate authority. 18. The learned Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the issue is revenue neutral. 21. In rejoinder, the learned Departmental Representative submitted, the basis of allocation of interest expenditure devised by the assessee is de hors the statutory provisions, hence, cannot be allowed. 22. We have considered rival submissions and perused material on record. The factual matrix of the issue reveals that the loan was sanctioned by HDFC Bank for constructing a 10 story building named Piramal Towers by Piramal Holdings Pvt. Ltd. Subsequently, the building and the loan sanctioned was transferred to the assessee. A part of the building was utilized by the assessee and its group companies for commercial purpose and the rest of the building was leased out by the assessee. It is evident, the area leased out for rental purpose depends on the occupancy of the property for commercial purpose. Therefore, the area let out changes from time to time. It is also evident, from the past years the assessee had been allocating the interest on loan on the basis of area let out and the aforesaid basis of allocation of interest commensurate with the area let out was accepted by the Department from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act has accepted additional evidences and deleted part of the addition. 24. We have already dealt with the issue while deciding ground no.(i) of assessee s appeal in ITA no.779/Mum./2014. In view of our decision, therein, separate adjudication of these grounds is not required. Hence, they are dismissed. 25. In ground no.(v) and (vi), the assessee has challenged the decision of learned Commissioner (Appeals) in granting partial relief with regard to the disallowance under section 14A r/w rule 8D. In view of our decision in ground no.(ii) of assessee s appeal in ITA no. 779/Mum./2014, hereinbefore, there is no necessity to adjudicate these grounds separately. Suffice to say, the decision of the Tribunal, Amritsar Bench, in Lalli Motors India Pvt. Ltd. v/s PCIT, [2018] 93 taxmann.com 39, cited by the learned Departmental Representative would be of no help to the Revenue in view of the various decisions of the High Courts including the decision of the Hon'ble Jurisdictional High Court as referred to above by us. Accordingly, these grounds are dismissed. 26. In the result, Revenue s appeal is dismissed. 27. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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