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TMI Blog2020 (1) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... terest income as business income and allow interest expenditure against the same to the extent as specified in the impugned order. The ground stand dismissed to that extent. We find that factual matrix would require our indulgence only to the extent of interest on tax refund of ₹ 7.77 Lacs earned by the assessee which is a part of overall interest income of ₹ 144.41 Lacs. The said interest income, undisputedly, could not be held to be business income for the assessee rather it was assessable as Income from Other Sources. Therefore, we direct Ld.AO to modify order giving effect dated 27/11/2015 accordingly. The ground stand partly allowed to that extent. Proportionate disallowance u/s 36(1)(iii) - The issue as well as factual matrix being identical as in AY 2011-12 and since we have decided the issue on merits in AY 2011-12, taking the same, we confirm the stand of CIT(A) in directing AO to accept interest income as business income. The interest on tax refund, if any, would be assessable as Income from other sources. No indulgence would be required against proportionate disallowance u/s 36(1)(iii) as confirmed by Ld. CIT(A). - I.T.A. No.5584/Mum/2016 And I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be used as an anticipated benefit for Government Departments. Reliance has also been placed on the decision of Hon ble Supreme Court rendered in P.K.Ramachandran V/s State of Kerala Anr. (7 SCC 556). The Ld. AR also drew attention to the fact that during appellate proceedings, the assessee had submitted that there was direct nexus between interest income and interest expenditure as the assessee had given interest yielding loans out of interest-bearing funds. The learned first appellate authority, allowed the same to be assessable under the head business income after categorical findings / observations and relying upon various judicial decisions. 2.2 We have carefully considered the rival arguments on condonation of delay. It is quite evident that the subject matter of dispute under appeal spread over multiple years and therefore, no useful purpose would be served by dismissing the appeal merely for want of condonation of delay. No doubt, the parties are expected to be vigilant in the matter of appellate proceedings, however, as per settled legal position, a liberal approach may be adopted by appellate authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate that notwithstanding a partial nexus between interest paid on borrowings utilized for interest yielding advances, the entire interest attributable to borrowings not utilized for making interest yielding advances could not have been allowed as business loss in view of the fact that neither the business had commenced nor was it carried on during the year? The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 9(1)(2) be restored. 4. We have carefully heard the rival submissions including written submissions and documents placed on record. We have also deliberated on judicial pronouncements as cited before us including decision rendered by Tribunal in assessee s own case for AY 2012-13 in an appeal filed by the revenue vide ITA No.5582/Mum/2016 order dated 06/02/2017. 5.1 Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in the business of real estate, was assessed for year under consideration on 14/03/2014, wherein the income of the assessee was determined at ₹ 146.65 Lacs after certain additions / adjustments as agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was assessed under the head Income from other sources and total income was determined at ₹ 146.65 Lacs. The interest expenditure of ₹ 238.56 Lacs was not allowed as deduction either u/s 36(1)(iii) or u/s 57 of the Act. 6.1 Before learned CIT(A), the assessee, inter-alia, submitted that the assessee had borrowed funds for the purpose of its business. However, due to slowdown in the market, the projects could not be commenced whereas the assessee s liability to pay interest on borrowed funds had started. Therefore, the loans were advanced by the assessee so as to reduce the overall interest cost. It was also submitted that under normal circumstances when the assessee did not earn any income during the year, still the expenses would be allowable which would ultimately result into losses to the assessee. To avoid huge financial losses and to reduce overall financial burden towards interest liability, the assessee advanced money out of the borrowed funds to its associated entities. If such loans were not given, the resultant accumulated losses would even lead to bankruptcy or liquidation of the assessee. In the aforesaid background, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be said that the said activity violated the objectives of the assessee. Reliance was placed, inter-alia, on the decision of Hon ble Bombay High Court rendered in CIT V/s Lok Holdings (308 ITR 356) wherein it was held that interest received by the assessee property developer, on temporary deposits of surplus money out of advances received by from intending purchases was business income and not income from other sources. In the above background, it was also noted that interest income as well as interest expenditure was accepted by the department in earlier years to be the business income of the assessee. Therefore, Ld. AO was directed to treat the interest income as business income and allow interest expenditure against the same. Alternatively, if the interest income was to be treated as Income from other sources, then interest expenditure would still be allowable u/s 57 of the Act. At the same time, Ld. CIT(A) confirmed the stand of Ld. AO in making proportionate disallowance of ₹ 40.96 Lacs, being interest paid at excess rates since the borrowed capital was diverted at lower rates of interest. 7.3 The perusal of order giving effect dated 27/11/2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociation, could receive deposits as well as advance money and therefore, it could not be said that the said activity violated the objectives of the assessee. The ratio of decision of Hon ble Bombay High Court rendered in CIT V/s Lok Holdings (308 ITR 356) was clearly applicable wherein it was held that interest received by the assessee property developer, on temporary deposits of surplus money out of advances received by from intending purchases was business income and not income from other sources. Therefore, no fault could be found in the impugned order, in this regard. 11. Keeping in view the entirety of facts and circumstances, we find that Ld. CIT(A) was correct in directing Ld.AO to assess the interest income as business income and allow interest expenditure against the same to the extent as specified in the impugned order. The ground stand dismissed to that extent. 12. Having said so, we find that factual matrix would require our indulgence only to the extent of interest on tax refund of ₹ 7.77 Lacs earned by the assessee which is a part of overall interest income of ₹ 144.41 Lacs. The said interest income, undisputedly, could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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