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TMI Blog2019 (7) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... wed interest expenditure on borrowed fund is, it is not directly related to the interest income earned on ICDs - HELD THAT:- It is a fact on record that the assessee had borrowed the funds for development of the SEZ project. Therefore, the interest on such borrowed funds is allowable as business expenditure. It is also relevant to observe, learned CIT (A) has accepted that the assessee had mixed funds. On a careful perusal of the order of learned CIT (A), it is also noticed that he has completely overlooked assessee s main claim that the interest expenditure should be allowed as business expenditure. When there is no dispute that the borrowed funds were utilized for the purpose of business, the interest expenditure on such borrowed funds has to be allowed as business expenditure. In any case of the matter, since while deciding ground no.1, we have held that the interest earned on ICDs is to be treated as business income of the assessee, logically, the interest expenditure has to be allowed. Accordingly, the ground raised is allowed. Alternative claim of deduction under section 57(iii) of the Act in respect of interest expenditure - HELD THAT:- While deciding grounds no.1 and 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BER And SHRI N.K. PRADHAN, ACCOUNTANT MEMBER Revenue by: Shri Madhur Agarwal Assessee by: Shri D.G. Pansari ORDER PER SAKTIJIT DEY, J.M. Aforesaid appeals, three by the assessee and one by the Revenue, arise out of separate orders passed by the learned Commissioner of Income Tax (Appeals), Mumbai. For the assessment years 2010 12 and 2012 13 are by the assessee only, whereas, there are cross appeals for the assessment year 2011 12. ITA no.4939/Mum./2014 Assessee s Appeal A.Y. 2010 11 2. In ground no.1, the assessee has challenged the decision of learned Commissioner (Appeals) in holding that interest earned on inter corporate deposits (ICDs) is to be treated as income from other sources. 3. Brief facts are, the assessee company is engaged in the business of setting up and development of infrastructure facilities in India. For the assessment year under consideration the assessee filed its return of income on 25th September 2010, declaring income of ₹ 16,14,158. In the course of assessment proceedings, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerns at concessional rate of interest cannot be regarded as business income. 5. Shri Madhur Agarwal, the learned Authorised Representative for the assessee submitted, surplus funds which were not immediately required by the assessee for utilization in its business project was invested in short term deposits in bank and ICDs since the assessee did not want to keep the funds idle. As a prudent businessman assessee wanted to earn some income by investing the surplus funds. He submitted, since such funds are business funds and for the purpose of earning some income during the period when it was not required to be invested in the business, it has to be treated as business income. The learned Authorised Representative submitted, since the nature character of deposits both in the fixed deposits and ICDs are similar, there is no reason to treat the interest earned on ICDs as income from other sources. 6. Shri D.G. Pansari, the learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals). 7. We have considered rival submissions and perused the material on record. Though, the Assessing Officer has treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) has completely misconstrued the submissions of the assessee as the deduction claimed under section 57 of the Act is by way of an alternative submission. He submitted, the main contention of the assessee was, the interest expenditure incurred towards borrowal of funds being wholly and exclusively for the purpose of business, it should be allowed as expenditure. He submitted, learned Commissioner (Appeals) has failed to adjudicate the aforesaid main claim of the assessee. The learned Authorised Representative submitted, since learned Commissioner (Appeals) has accepted that assessee s business has commenced, the expenditure claimed should have been allowed as business expenditure. He submitted, in assessment year 2013 14, learned Commissioner (Appeals) has allowed similar expenditure claimed by the assessee. In this context, he furnished a copy of the order passed by the learned Commissioner (Appeals) for the assessment year 2013 14. Thus, he submitted, the assessee s claim should be allowed. 12. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 13. We have consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture has been allowed by learned Commissioner (Appeals) in assessment years 2009 10 and 2010 11 and the issue has attained finality as neither the assessee nor the Revenue has contested the order of learned Commissioner (Appeals). Therefore, even otherwise also, assessee s claim of deduction under section 57(iii) of the Act is allowable. The ground is disposed of accordingly. 15. In ground no.5 the assessee has challenged disallowance of ₹ 46,50,272, under section 14A r/w rule 8D. 16. It is the contention of the learned Authorised Representative before us that during the year under consideration, the assessee had not earned any exempt income, therefore, question of making any disallowance under section 14A r/w rule 8D does not arise. 17. Having considered rival submissions and perused material on record, the factual position which emerges is, in the year under consideration the assessee has not earned any exempt. That being the case, as per settled principle of law, no disallowance under section 14A r/w rule 8D can be made. In this context, we may refer to the decision of the Hon'ble Jurisdictional High Court in PCIT v/s Rivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncern @ 6%, disallowance has to be made by applying the provisions of section 40A(2)(b) of the Act. 24. In rejoinder, the learned Authorised Representative submitted, the assessment order does not reveal application of section 40A(2)(b). 25. We have considered rival submissions and perused the material on record. Undisputedly, the Assessing Officer had observed that assessee s business has not commenced. however, learned Commissioner (Appeals) has held that assessee s business has commenced from the assessment year 2003 04. Therefore, when assessee s business has already commenced, there is no question of allowing or disallowing capitalization of interest expenditure. Undisputedly, the assessee has debited the interest expenditure to the Profit Loss account. Therefore, such expenditure has to be set off against the business income. As regards the submission of the learned Departmental Representative that the Assessing Officer has applied section 40A(2)(b) of the Act, we do not find such submission to be factually correct. Neither the Assessing Officer nor learned Commissioner (Appeals) has made any reference to the provisions of section 40A(2)(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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