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TMI Blog2019 (11) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... dly it is not in dispute that the interest expenditure has been assessed as business income , therefore, no disallowance u/s.57(iii) can be made. - I.T.A. No.2216/DEL/2017 (Assessment Year: 2012-13) - - - Dated:- 1-10-2019 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER Appellant by: Smt. Sulekha Verma, CIT-D.R. Respondent by: Shri Gautam Jain, Adv. ORDER PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the Revenue against the impugned order dated 10.01.2017, passed by Commissioner of Income Tax (Appeals)-XXXVI, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal the assessee has raised following ground: 1. On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in law in deleting the addition of ₹ 25,30,80,822/- made by the Assessing Officer without appreciating the fact that the funds borrowed by the assessee were utilized for the purpose of investment and as such the disallowance of interest on funds used for investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Pvt. Ltd. for ₹ 200 crore. The Assessing Officer further noticed that assessee has given interest on all the funds borrowed by it at the rate of interest ranging from 8% to 12.5%. However, funds which were converted into investment in the books carried a rate of interest of 10.25%. After taking note of these facts, Assessing Officer asked the assessee as to why the interest expense relatable to investment should not be disallowed as the investment would either result in capital gains or exempt income or both. The assessee s submission was that during the year under consideration, the assessee has not earned any exempt income, and therefore, the provisions of section 14A read with Rule 8D cannot be applied. Further, assessee has not earned any exempt income from the investment on 31.03.2012 and in the later year also till their redemption. The investments were redeemed during the Financial Year 2014-15. The ld. Assessing Officer observed that, firstly, interest expense is not related to business as assessee company is not an NBFC and hence is not allowable u/s.36(i)(iii) nor u/s.57(iii). Thereafter, he made total disallowance of ₹ 25,30,80,822 u/s. 14A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the investment made above is clearly out of the borrowed funds. There is direct nexus between the interest expenses relatable to fund, which is used for the purpose of investment. As such the claim of the assessee that no expense was incurred for earning exempt income is without any basis. There was no dividend earned by the assessee. Delhi Special Bench of the ITAT in Cheminvest Ltd. v ITO (2009) 121 ITD 318 (Del) (SB) took a view that when the expenditure is incurred in relation to exempt income, it has to suffer disallowance irrespective of the fact whether any exempt income is earned by the assessee or not. Total disallowance of ₹ 25,30,80,822/- is made u/s. 14A of the I.T Act. This is notwithstanding the grounds taken for the disallowance of interest expense under other provision of the Act. 4. Ld. CIT(A) after perusing the entire facts, material on record and the submissions made by the assessee as well as the order of the Assessing Officer noted that the financial statement reflected that interest income is from inter corporate deposits and the expenses are also on interest on inter corporate deposits. Thus, they are similar in nature. The interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans and investments in share capital which did not have any dividend income during the year. The AO has not discussed that in case where the interest earned is considered as business income then what would happen to the expenses on interest (on similar inter corporate deposits), which have actually been made. It is not the case of the AO that the assessee has adopted any colourful device or dubious method or that the interest was not actually paid on amount borrowed for business purpose which may include investment in other companies. The assessee has relied upon a number of case laws wherein it has been decided that the purpose of business does not have a narrow view and interest expense, if it has been incurred in the course of business of the assessee is allowed even if there is no income. It is also observed that the AO has not even quantified or separated the amount of the interest that he holds as disallowable u/s. 36(1)(iii) of the Act and has merely mentioned/that interest expense relatable to investment is not allowable u/s. 36(l)(iii) of the Act. 6. Before us, the ld. CIT-DR after referring to the various observations made by the Assessing Officer also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent years. Thus, in view of the judgment of Hon ble Jurisdictional High Court in the case of Cheminvest Ltd. vs. CIT, 378 ITR 33 (Del), no disallowance u/s.14A can be made. Moreover, the Tribunal in assessee s own case has held that the interest income and interest expenditure were directly linked to the business of the assessee. The relevant observation and the finding of the Tribunal reads as under: 9. The ground No. 1 - 3 of the appeal of the assessee pertains to the disallowance of interest of ₹ 31,26,79,151/-. 10. We have carefully considered the rival contentions and orders of the lower authorities. We have also perused the relevant documents produced by the assessee in the form of paper book as well as various decisions cited before us as far as they are relevant in deciding the issue before us. Undoubtedly, assessee is a company of India Bulls group. It has received unsecured loans of ₹ 3931.32 crores from 10 companies on interest at the rate of 9% to 13%. It has also repaid ₹ 3521.07 crores to these companies. Therefore, assessee has paid interest of ₹ 312, 673, 614 /- during the year. The surplus fund from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying interest maximum at the rate of 25% and that too to IndiaBulls financial services Ltd for a limited period of September to December. The same company is also paid interest of to the August 2010 at the rate of 9% and from January to March 2011 at 14%. Therefore all the loans taken by the assessee are generally carrying interest rate of 9% to 13% except in case of one transaction where the rate of interest has gone up to 25%. The analysis of the interest received by the assessee shows that assessee is receiving interest at the rate of 9% to 12% generally. In one case of Shiv Shakthi financial services private limited where the assessee has earned interest of ₹ 261,277,098/- the rate of interest in the month of May to July was 27%, from July to September 36 percent, from October to December 52% and from January to March 45 percent. The Ld. AO as well as the Ld. departmental representative before us could not controvert these transactions of the assessee. Therefore on analysis of the details of interest paid and received by the assessee it is apparent that assessee is engaged in the business of money lending. Hence, the natural corollary that follows is that assessee is incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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