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TMI Blog2017 (2) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be excluded from the investments for the purpose of computing disallowance u/s.14A. Computation of disallowance 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to such committee. In absence of the same, we find merit in the findings given by the CIT(A) that 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 entitled to receive any divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funded 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 money received by the assessee stands at different footing altogether which is not an asset but a liability in the hands of the assessee and cannot be considered for purposes of working out the average value of investments or assets in terms of Rule 8D. He accordingly directed the Assessing Officer to exclude the amount of ₹ 83,47,553/- and compute the disallowance under Rule 8D by including all other investments. 11. He observed that the assessee has raised the following additional ground before him : "The Ld. Assessing Officer erred in not considering the debit balances in the capital/current accounts of firms as are appearing in the Balance Sheet of the appellant for working out the disallowance u/s.14A r.w.r. 8D of the Income Tax Rules, 1961. The appellant therefore requests Your Honour to kindl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal 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 appellant company was to be considered as part of tax free investments for determining the disallowance u/s. 14A r.w.r. 8D. 1.1] The learned CIT(A) failed to appreciate that the. share application money paid by the appellant company was not in the nature of tax free investments since no shares were allotted to the appellant company in this year and in some of the cases, the share application money was also refunded back to the appellant and accordingly, the share application money could not be considered as tax free investment for the purposes of determining the disallowance u/s. 14A r.w.r. 8D. 1.2] Without prejudice, the appellant company submits that if at all, the share application money paid by the appellant company is to be considered as part of the tax free investments, in that case, only the amount in respect of which sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 case of Ahmedabad Electricity Company reported in 199 ITR 351 he submitted that the additional grounds raised by the assessee should be admitted. 16. After hearing both the sides and considering the additional grounds raised by the assessee being purely legal in nature and no fresh facts are required to be investigated, the additional grounds raised by the assessee are admitted for adjudication. 17. The Ld. Counsel for the assessee while arguing all the grounds submitted that the assessee company has earned dividend income of ₹ 1,73,076/- which was claimed as exempt. Further, the assessee company has also earned share of profit from partnership firms amounting to ₹ 18,83,39,507/-. The assessee on its own made disallowance of ₹ 4,61,16,561/- u/s.14A in the computation of income which consists of disallowance of interest of ₹ 4,24,30,542/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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, following the decision of Hon'ble Bombay High Court in the case of Holcim India Ltd., has held that no disallowance u/s.14A is warranted on account of investment in shares of subsidiary/associate companies where no dividend income has been received. He accordingly submitted that the investments made by it in the group companies should be excluded for the purpose of computing disallowance u/s.14A r.w. Rule 8D. 19. He submitted that apart from the investment in the group companies the assessee has also made certain investments in the partnership firms. While computing the disallowance u/s.14A the assessee has excluded the investments made in the partnership firms. However, the Assessing Officer did not accept the stand of the assessee and has included the investments made in M/s. K.K. Erector, Kumar Sons and Kumar builder, Mumbai on prorata basis. He submitted that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has earned dividend of ₹ 1,73,076/- which it claimed as exempt u/s.14A. The assessee company had also earned share of profit from partnership firms amounting to ₹ 18,83,39,507/-. The assessee on its own had made disallowance of ₹ 4,61,16,561/- u/s.14A in computation of income. The breakup of above disallowance consists of interest of ₹ 4,24,30,542/- and indirect expenditure of ₹ 36,86,019/-. We find the Assessing Officer in the order passed u/s.143(3) made further disallowance of ₹ 2,94,01,003/- over and above the disallowance made by the assessee. While computing such additional disallowance the Assessing Officer included the share application money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which has been considered by the Assessing Officer for the purpose of computing disallowance u/s.14A. From page 46 of the paper book we find whatever dividend the assessee has received is on account of dividend from mutual funds. We find the Pune Bench of the Tribunal in the case of M/s. Kolte Patil Developers Ltd. (Supra) while adjudicating the issue of disallowance u/s.14A on account of investment in shares on which no dividend has been received has held that no disallowance u/s.14A can be made in a case where the assessee has not received any dividend out of the shares held as investment. The relevant observation of the Tribunal at Para 25 of the order reads as under : "25. We find merit in the submission of the Ld. Counsel for the assessee that when no dividend is received on investment in shares worth ₹ 117,85,71,206/- in subsidiary/associate companies no disallowance u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 the Ld. Counsel for the assessee that the question of earning any exempt income simply does not arise on such share application money pending allotment. We find the Mumbai Bench of the Tribunal in the case of Rainy Investments Pvt. Ltd. (supra) has held that share application money cannot be regarded as an investment in shares or an asset yielding tax free income and neither is it capable of yielding any tax free income. The relevant observation of the Tribunal from Para 4 reads as under : "4. We have heard the parties, and perused the material on record. Section 14A r/w r. 8D is mandatory in its application where the assessee earns income which is claimed tax- exempt, as dividend income in the instant case. In fact, there is no doubt with regard to this; the assesse itself conceding to the same before us and, besides, being engaged in the business of making investments and earning dividend income as an integral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Counsel for the assessee brought to our notice the decision of ITAT, Chennai Bench in the case of MSA Securities Services Pvt. Ltd. vs ACIT in ITA Nos.1523- 1524/Mds/2012 dated 17.10.2012 and in the case of Rainy Investments P.Ltd vs ACIT in ITA No.5491/Mum/2011 dated 16.01.2013. The Honourable benches have taken the view that the share application money gets converted into shares only on allotment by the company. Till such time the share application money is converted into shares, the applicant does not have any rights of a shareholder/member. The share applicant see was not entitled to any dividend. Therefore share application money cannot be considered as investment which is likely to earn tax free dividend income. Hence, there can be no disallowance u/s 14A of the Act. 7. We have given a careful consideration to the rival submissions. We are of the view that order of CIT(A) on this issue has to be upheld. As rightly conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant 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. He, therefore, asked the assessee to explain as to why assessee should advance money to the sister concerns which inturn would earn income from interest there on while no interest accrued to the assessee on the large balances with it. He therefore disallowed a part of the interest expenditure. According to the AO since the amount of interest which the assessee would have got if he had charged interest on these amounts, far exceeded the amount of interest paid by it to outsiders in this year, therefore he disallowed the entire amount of interest claimed by the assessee as a deduction. The AAC confirmed the action of the AO. On further appeal, the Tribunal held that the assessee was entitled to the entire amount of interest as an allowable deduction u/s.10(2)(iii) of the I.T. Act. On further appeal by the revenue, the Hon'ble High Court observed as under : "As we have already pointed out, it is undisputed that the amounts borrowed from out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 free investments. Once the assessee submits that there is no diversion of interest bearing funds for tax free investments, the onus shifts to the AO. We find in the instant case the AO has not conclusively proved that borrowed funds have been diverted for investment in tax free funds. We further find investments, the income of which is taxable like debentures, NSC etc. have been considered by the AO as tax free investments. Further, for the purpose of computing the surplus amount available with the assessee the AO has reduced the net fixed assets and net current assets from such free reserves and own capital which in our opinion is not justified in the light of various decisions including the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra) and HDFC Bank Ltd. (Supra). 30. We find the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (Supra) at para 15 and 16 of the order has held as under : "15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder 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 section 143(3) of the Act. The CIT(A) passed an order on 21st November, 2011 dismissing the petitioner's appeal. On both the dates, when the orders were passed by the Assessing Officer and CIT(A), the authorities did not have the benefit of the order of this Court in HDFC Bank Ltd. (Supra) rendered on 23rd July, 2014. Once the issue is settled by the decision of this Court in HDFC Bank Ltd. (Supra), there is now no need for the assessee to establish with evidence that the amounts which has been invested in the tax free securities have come out of interest free funds available with it. This is because once the assessee is possessed of interest free funds sufficient to make the investment in tax free securities, it is presumed that it has been paid for out of the interest free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the Revenue." 31. Since the assessee in the instant case has conclusively proved that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 credit of the TDS and therefore there was no reason for not offering the interest income to tax. 37. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 38. The Ld. Counsel for the assessee submitted that the assessee had collected one time maintenance deposit from the customers which was retained by it till the society of the flat owners is formed and then the said amount is handed over to the society. Instead of keeping the funds idle the amount has been kept in fixed deposit with banks and the interest along with principal amount is handed over to the society. He accordingly submitted that since there is no income accrued to the assessee, therefore, it has not accounted for the above interest. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 39. After hearing both sides, we find the Ld.CIT(A) while dismissing the ground raised by the assessee on this issue at Para 9.6 of the order has observed as under : "9.6 I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that substantial interest free funds are available with the company on account of own capital and free reserves etc. out of which it has advanced interest free funds and therefore no disallowance is called for. 43. However, the Assessing Officer was not satisfied with the explanation given by the assessee. Relying on the decision of Hon'ble Kerala High court in the case of CIT Vs. V.I. baby and Company reported in 254 ITR 248 where the Hon'ble High Court has upheld the disallowance of interest made by the Assessing Officer on account of diversion of borrowed funds for nonbusiness consideration, disallowed an amount of ₹ 58,75,491/- being interest @12% on the amount advanced. 44. In appeal the Ld.CIT(A) while deleting the proportionate disallowance of ₹ 58,75,491/- made by the Assessing Officer on account of diversion of borrowed funds in its two subsidiary companies namely L.K. Developers Pvt. Ltd. and Pune Technopolis Development Pvt. Ltd. directed the Assessing Officer to make pro-rata interest disallowance in respect of interest free advances given to M/s. Sinew Developers Ltd. and Riverview Properties Pvt. Ltd. amounting to ₹ 12,95,32,777/- by enhancin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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). Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. It was held: "The entire money in a business entity comes in a common kitty and the appellant's business is no different. The monies received as share capital, as term loan, as working capital loan, as sale proceeds etc. do not have any different colour. The only thing sufficient to disallow the interest paid on the borrowing to the extent the amount is lent to sister concern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 29.81 crores (as stated above) and made interest free advances of ₹ 122 crores to subsidiary companies on which no interest is shown as receivable. The total of the loans and advances made by the appellant in the books at year end are ₹ 307 crores and inventories stand at ₹ 71.11 crores. The position of the interest free advances as on 31.3.2009 and amounts advanced during the year is 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 Total Rs.214,36,92,019 Rs.122,36,48,546 10.9 As against the same, the average balance of share capital and reserves stands at ₹ 180.89 crores. The advances of ₹ 75.34 crores received from subsidiaries (adjusted towards property ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests, which has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assesseefirm. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee-firm and working solely in the interest of the assesseefirm/ company, would have extended such interest free advances. In that view of the matter, the appellant's claim that it had sufficient interest free funds at its disposal amounting to ₹ 258.38 crores (average) in the form of Share Capital and Reserves, advances received from subsidiaries, share application money and one-time maintenance deposits during A.Y. 2009-10 is not acceptable nor material to the facts of the case. 10.10 Coming to the legal precedents on the issue, it is seen that the highest court of the land, namely the Hon'ble Supreme Court in S.A. Builders Ltd. Vs. CIT (288 ITR 1) has held that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding 1 Kumar Perfumeries Pvt. Ltd. Funds for developing a commercial project 'Hindmata' at Dadar, Mumbai by the subsidiary Sister concern is in same line of business and is wholly owned subsidiary; developed commercial building "Kumar Fun & Shop" and transferred the entire project to appellant by MOU dated 16/11/2007. The subsidiary ha real estate revenues of ₹ 7 crores and ₹ 1.30 crore for year ending 30-30-07 and 31-03-08 respectively. It earned ₹ 1,52,13,837 and Rs.(-) 55,71,795 as profits/losses after tax for those years. It is a wholly owned subsidiary in the same line of business; hence the contention that it was a commercially expedient transaction stands accepted. 2 River View Properties Pvt. Ltd. Subscribing to the equity of the of the subsidiary, which is engaged in developing township at Mhalunge, Pune since timely execution of the project is in the interest of the appellant The appellant is holding 74% stake in the subsidiary. There is no MOU between the two parties but the investment represents purchase of shares in the subsidiary which were allotted as on 17/06/2009, i.e. subsequent year. Here it is seen that the appellant borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the following reasons :- (a) the subsidiary showed book losses of Rs.(-) 20,77,35,988 for Y.E. 31.3.2008 & Rs.(-) 1,20,67,829 for Y.E. 31.3.2009 and there are no clear indications that it could be a profit-earning venture as it involves slum clearing & resettlement. It does not appear to be a prudent business decision; (b) heavy interest burden was already being incurred towards borrowings from Suvarna Sah Bank by SDL; clearly interest bearing funds were utilized for making the payment to the bank in the light of the discussion at para 10.8 & 10.9 supra; 445,000 shares have been acquired at face value of ₹ 10 but premium of ₹ 565 per share has also been paid. The premium alone amounts to ₹ 25,14,25,000 out of the total share investment of ₹ 25,58,75,000. Again this does not appear to be a prudent and sound business decision; the equity is a long term investment and can be divested at any time, leading to capital gains (refer subsequent para 10.15) The pro rata interest on such advance @12% of ₹ 9,96,17,603 is clearly disallowable in view of SC decision in Tulip Star Hotels Ltd. and also for the reasons discussed in the subsequent paragraphs. 5 Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g investment in shares, which would give a dividend of 4 per cent only and having regard to fact that borrowing was made from sister concern and investment was also in another sister concern, claim for interest was to be disallowed. The Commissioner (Appeals) upheld the order of Assessing Officer. However, on second appeal, Tribunal allowed assessee's claim holding that it could not be prevented from making investment only because return from shares was low; and that the wisdom of assessee in choice of investment was not open to question, even if such transactions were not prudent. The High Court held that since Tribunal, while taking its decision, had not applied test of business expediency, that" order was to be set aside. While doing so, the question as to whether having regard to relationship between different concerns, where a transaction, which is patently imprudent, takes place, the taxing authority should examine the question of business expediency and not go merely by fact that assessee had taken a decision in its wisdom which may be wrong or right, was referred to a Larger Bench of High Court. 10.14. The Hon'ble Supreme Court in S A Builders Ltd. cited supra he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een reflected over the last several years. The share of profits in registered firms also exempt u/s 10(2A). There is also another aspect to the issue. The shares purchased in these two subsidiary companies and other subsidiary companies are held as 'investments' in the books of the appellant. While, examining the balance sheet of the appellant, it was noticed that the appellant had sold part of its 'investments' i.e. shares in another subsidiary co. Kumar Builders Township Venture Pvt. Ltd. during the year and earned long term capital gains on the transaction. The appellant sold 5,43,479 shares for ₹ 20 crores to the Landmark group of Mauritius and earned long term capital gains of ₹ 19.45 crores thereon. In the subsequent A.Y. 2010-11 the appellant has sold 800 shares in another subsidiary company Pune Mumbai Realty Pvt. Ltd. for the sale consideration of ₹ 30 crores and shown long term capital gains amounting to ₹ 29.99 crores. In other words, the investments made by the appellant company in several subsidiary companies are not for business purposes but purely with the intention of long term investments for earning dividends, interest incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. It is not in dispute that the business of the assessee is to manufacture and deal in yarn. In making investment in shares by taking recourse to borrowed funds, the assessee company may have acquired an asset and became its owner, it had not necessarily incurred expenditure for the purposes of the business. It has to be borne in mind that a deduction under section 37 of the I.T. Act is available to an assessee while calculating "profits and gains from business and profession" under section 28 of the I.T. Act. It cannot be disputed that on acquiring shares in a company the assessee would stand to gain by way of dividend which would add to the income of the assessee. But this income would not be a business income as understood under section 28 of the I.T. Act. Therefore, given the fact that there was a clear finding as regards the utilization of borrowed funds in the investment made in shares, the disallowance made by the Assessing Officer will have to be sustained" 10.16. The appellant is not an investment company, but a builder and developer. However, the shares held in the subsidiary companies; namely Pune Mumbai Realty', Pvt. Ltd., Kumar Builders Township Venture P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) both the assessee as well as the revenue are in appeal before us. 46. The Ld. Counsel for the assessee submitted that the assessee company had advanced funds to its group concerns. The Assessing Officer disallowed an amount of ₹ 58,75,491/- being interest @12% on the amounts advanced to M/s. L.K. Developers Pvt. Ltd. and Pune Technopolis Development Pvt. Ltd. on which the assessee has not charged any interest. He submitted that while the CIT(A) deleted the interest disallowance worked out by the Assessing Officer in respect of advances made to the above two concerns however she directed the Assessing Officer to make pro-rata disallowance of interest in respect of interest free advances given to M/s. Sinew Developers Pvt. Ltd. and Riverview Properties Pvt. Ltd. amounting to ₹ 12,95,32,777/-. While justifying the reasons given by the CIT(A) for deletion of the disallowance of interest made by the Assessing Officer, the Ld. Counsel for the assessee strongly objected to enhancement of income by ₹ 12,95,32,777/-. Referring to page 39 of the order of the CIT(A) the Ld. Counsel for the assessee drew the attention of the Bench to the interest free advances give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the same has been advanced for non business consideration. We find in appeal the Ld.CIT(A) deleted the disallowance in respect of interest free advances to both the companies on the ground that there is commercial expediency. She, however, held that the amounts advanced to Sinew Developers Pvt. Ltd. and Riverview Properties Pvt. Ltd. are for non business purposes and therefore she enhanced the income of the assessee by directing the Assessing Officer to disallow interest expenditure of ₹ 12,95,32,777/-. It is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed interestfree advances made to the sister concerns. In this connection, Balancesheet as on 31.03.2008 has been referred to, which is placed in the Paper Book. Factually speaking, it is seen that as on 01.04.2007 i.e. at the beginning of the year the funds available with the assessee by way of Share Capital and Reserves & Surplus was enough to cover the said impugned interest-free advances to the sister concerns. In-fact, as per the Profit and Loss account for year ending 31.03.2008 the profit for the year after depreciation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince in the instant case the Ld. Counsel for the assessee has conclusively proved that the own capital and free reserves of the assessee company is much more than the interest free advances given to Sinew Developers Pvt. Ltd. and Riverview Properties Pvt. Ltd. therefore, respectfully following the decision of Coordinate Bench of the Tribunal in the case of Trinity India Ltd. (supra) we hold that the CIT(A) is not justified in enhancing the income of the assessee by directing the Assessing Officer to disallow proportionate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier years and as such no such asset has been reflected either as work-in-progress or fixed assets. Further, no receipts from the flat holder as maintenance charges or otherwise has been claimed. He, therefore, held that the expenses incurred are not related and therefore cannot be allowed. He accordingly disallowed the expenses of ₹ 2,80,224/-. 57. Before CIT(A) the assessee made elaborate submission justifying the claim of such expenses. It was submitted that the society maintenance 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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