TMI Blog2018 (4) TMI 1946X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure claimed by the assessee on a altogether different reasoning by changing the head of interest income shown by the assessee under the head income from other sources to business income . Thus, there is inconsistency even in the stand of the department with regard to the head of income. The most important factor which will have crucial bearing on the disputed issue is the fate of the cases filed by the CBI against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act. A reading of the impugned assessment orders as well as the first appellate order for assessment year 2011 12 would leave no room for doubt that the disallowance of interest expenditure stands on the fulcrum of the allegations made by the CBI against the assessee and other persons in the charge sheet/complaint filed under the Prevention of Money Laundering Act, 2002 and Prevention of Corruption Act, 1988. Undisputedly, these are recent developments much after completion of proceedings before the Departmental Authorities. None of the Departmental Authorities had the benefit of the aforesaid orders passed by the learned Special Judge, CBI (04), New Delhi, which were pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 177.75 crore received as loan by the assessee, in turn, was advanced as loan to Cineyug and out of the said amount Cineyug transferred an amount of ₹ 175 crore to Kalaignar TV (KTV), Chennai in financial year 2009 itself. From the seized documents, the Assessing Officer found that Cineyug has transferred an amount of ₹ 200 crore to KTV, Chennai in financial year 2008 09 and the source of such money originated from D.B. Realty Group companies and routed through Dynamix Realty and the assessee to reach Cineyug. The transfer of money by way of loan between the companies was also recorded in their respective books of account. From the money trail as revealed from the books of account and bank statement, it was found by the Assessing Officer that Dynamix Realty has advanced the money in different tranches to the assessee which the assessee has transferred to Cineyug and Cineyug in turn has paid to KTV, Chennai. In the statement recorded from one of the directors of the assessee Shri Rajiv Agarwal, the aforesaid transaction was also confirmed. On further verification of the material on record during the assessment proceedings, the Assessing Officer found that out of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reatment to be given to the interest income offered by the assessee is concerned, the Assessing Officer found that the assessee has shown interest income on the loan given to Cineyug at ₹ 12,19,17,808 and in turn claimed to have paid interest of ₹ 11,38,00,114 to Dynamix Realty on the loan availed. Thus, the assessee has offered net interest of ₹ 81,17,694 as income from other sources. The Assessing Officer observed, the entire loan transaction between Dynamix Realty, assessee and Cineyug is not in any way connected with the regular business activity either of the assessee or any of them. Therefore, the so called interest income and interest expenditure shown by the assessee cannot be accepted as the loan taken from Dynamix Realty and passing it over to Cineyug is a colorable transaction to ultimately benefit KTV, Chennai for illegitimate or irregular purposes. The Assessing Officer observed, for successfully claiming any expenditure against income offered under the head income from other sources it must be proved that such expenditure has a direct and proximate nexus with the income earned. The Assessing Officer observed, the assessee in no way was able to discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat while the assessee has received interest from Cineyug, in turn, it has paid interest to Dynamix Realty. The assessee has also deducted TDS on the interest paid to Dynamix Realty and Dynamix Realty has also offered the interest received from assessee as income in the return of income filed. The learned Commissioner (Appeals) observed, if accepting the Assessing Officer s view it is held that the transaction are the money trail of illegal gratification from D.B. Group to KTV, Chennai, neither there can be any real interest income nor real interest expenditure. Whereas, While the Assessing Officer has taxed the interest income he has refused to allow interest expenditure. The learned Commissioner (Appeals) held, that, since the source of fund from which the assessee earned interest income and also paid interest is the same the expenditure claimed has to be allowed if the interest income is assessed in the hands of the assessee. Accordingly, he directed the Assessing Officer to allow assessee s claim of interest expenditure. Facts for the Assessment Year 2011 12 are more or less identical, except, for the fact that in the said assessment year learned Commissioner (Appeals) upheld t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in the said year learned Commissioner (Appeals) has taken a correct view by holding that the transaction entered into by the assessee with Cineyug is an adventure in the nature of trade, hence, the income derived there from is assessable as business income. He submitted, as the transaction relating to advancement of loan by the assessee to Cineyug has resulted in illegal gratification to KTV, Chennai and A. Raja involved in 2 G scam, the interest expenditure relating to such unlawful transaction is neither allowable as deduction under section 36(1)(iii) of the Act as it is not related to assessee s business nor it is allowable under section 37(1). He, therefore submitted, learned Commissioner (Appeals) s order for assessment year 2010 11 should be reversed and his order for 2011 12 should be upheld. 8. The learned Authorised Representative submitted, the fact that the assessee has obtained loan of ₹ 200 crore from Dynamix Realty and in turn has advanced the money to Cineyug has not been disputed by the Assessing Officer. He submitted, the source of the loan credited in the books of account of the assessee is, therefore, explained. He submitted, the source of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of Money Laundering Act has acquitted the assessee and other accused persons from all charges. In this context, he drew our attention to the orders dated 21st December 2017, passed by the learned Special Judge, CBI (04), New Delhi, and read out the relevant observations of the Trial Court in this regard. Therefore, he submitted, no reliance can be placed on the allegations made in the charge sheet/complaint filed by the CBI before the Trial Court. The learned Authorised Representative submitted, even in the statement recorded from the director of the assessee he has categorically stated that the investment made is in the nature of strategic investment. He submitted, if the assessee for the purpose of its business has decided to make investment in the shares of another company, the Assessing Officer certainly cannot step into the shoes of the assessee and question his prudence in making such investments. In this context, he relied upon the decision of the Hon'ble Supreme Court in CIT v/s S.A. Builders, 288 ITR 001 (SC). Learned Authorised Representative submitted, when the Assessing Officer himself in assessment year 2010 11 and 2011 12 has assessed the interest income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record the orders of ld. Special Judge, CBI, New Delhi in the trials conducted against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act, which according to the assessee will have crucial bearing on the present appeals. Thus, the appeals were refixed for hearing and finally heard on 19.01.2018. Though, the disputed issue concerning allowability of interest expenditure claimed by the assessee on the surface appears to be a simple issue, however, on deeper scrutiny of facts and materials it is not so. Through a maze of bank transactions funds worth ₹ 200 crore have been transferred between number of entities including the assessee. As could be seen from facts on record, while filing the original return of income for the assessment year 2010 11 assessee did not declare the interest income claimed to have been received from Cineyug. Subsequently, through a revised return of income filed on 07.09.2011 assessee offered the said interest income. Further, the assessing officer has observed that in the audited balance sheet as at 31.03.2009 which was before survey, the assessee had shown unsecured loan of Rs..31.50 crore from Dynamix Realty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o business income . Thus, there is inconsistency even in the stand of the department with regard to the head of income. 12. Moreover, the most important factor which will have crucial bearing on the disputed issue is the fate of the cases filed by the CBI against the assessee under the Prevention of Corruption Act and Prevention of Money Laundering Act. A reading of the impugned assessment orders as well as the first appellate order for assessment year 2011 12 would leave no room for doubt that the disallowance of interest expenditure stands on the fulcrum of the allegations made by the CBI against the assessee and other persons in the charge sheet/complaint filed under the Prevention of Money Laundering Act, 2002 and Prevention of Corruption Act, 1988. However, learned Special Judge, CBI (04), New Delhi, while delivering his judgment on 21st December 2017 in C.C. no.01/2011, the case filed under the Prevention of Corruption Act, 1988, has acquitted the assessee from all charges leveled against it on the following observations: 18 1 6. Thus, the genesis of the instant case lies not so much in the actions of Sh. A. Raja but in the action/inaction of others, referred to abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accused are entitled to be acquitted and are acquitted. 14. Undisputedly, these are recent developments much after completion of proceedings before the Departmental Authorities. None of the Departmental Authorities had the benefit of the aforesaid orders passed by the learned Special Judge, CBI (04), New Delhi, which were produced for the first time in course of appeal hearing before us. Rules of natural justice and fair play demand that the Departmental Authorities must be given an opportunity to analyze and examine the impact the orders passed by the learned Special Judge, CBI (04), New Delhi, may have on the disputed issue arising in the present appeals. 15. Therefore, regard being had to the facts discussed by us herein before and the changed scenario arising due to the orders passed by the learned Special Judge, CBI (04), New Delhi, referred to above, we are of the considered opinion that the issues raised in the present appeals are required to be restored back to the Assessing Officer for de novo adjudication after considering all incidental facts and material including the orders of the learned Special Judge, CBI (04), New Delhi. Needless to mention, the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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