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TMI Blog2021 (9) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. - I.T.A. 5589/Mum/2016 - - - Dated:- 14-9-2021 - SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI RAJESH KUMAR (ACCOUNTANT MEMBER) Appellant by : Shri Bharat Andhle, DR Respondent by : Shri Krunal Gaglani, AR ORDER Per Saktijit Dey (JM) Captioned appeal by the revenue arises out of order dated 29-06-2016 of learned Commissioner of Income Tax (Appeals)-16, Mumbai for the assessment year 2012-13. The effective grounds raised by the revenue read as under:- i) Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in following the precedent of the assessee's appeal for AY 2011- 12 not appreciating that in that year, the interest income of ₹ 1,59,47,8597- was held to' be having a direct nexus with interest expenditure of ₹ 1,44,15,962/- resulting in net income of ₹ 15,31,897/- and the assessability of such income under the head 'Profits and gains from business or profession' instead of 'Income from other sources' and consequently the eligibility of the set off of brought forward business losses against it had a tax effect below the ceiling for the filing of appeal to the lTAT? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted, in assessee s own case in assessment year 2013- 14, the assessing officer had accepted the interest income as Income from business and allowed corresponding expenditure. Though, the assessment order was revised under section 263 of the Act; however, the Tribunal, while deciding assessee s appeal, quashed the revision order. Thus, he submitted, the order passed by learned Commissioner (Appeals) should be upheld. 4. Though, learned departmental representative agreed that the issue is covered by the decisions of the Tribunal; however, he relied upon the observations of the assessing officer. 5. We have considered rival submissions and perused materials on record. It is observed, identical dispute arose in case of assessee s sister concern, M/s Asian Infra Projects Pvt Ltd in assessment years 2009-10 and 2011-12. Though, learned Commissioner (Appeals) decided the issue in favour of the assessee; however, the revenue carried the matter in further appeal before the Tribunal. While deciding the appeals in ITA Nos 5584 5583/Mum/2016 in order dated 03-01-2020, the co-ordinate bench held as under:- 3. The grounds raised by the revenue read as under: - i) Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed administrative and other expenses of ₹ 1.64 Lacs as well as interest expenditure of ₹ 238.56 Lacs. 5.3 As per the observations of Ld. AO, the loans obtained by the assessee appeared to have been diverted to directors / sister concerns. The assessee paid interest of 12% to couple of lenders and interest of 16% to one lender whereas it was receiving interest of 12% on its own lending which was evident from the fact that interest income was ₹ 136.57 Lacs ITA Nos.5583-84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 2011-12 against income expenditure of ₹ 238.58 Lacs. It was noted that the assessee was not a financing company and it had no license of money lending and therefore, the interest income was assessable under the head income from other sources as against business income offered by the assessee. The failure of the assessee to defend the same during the course of assessment proceedings led Ld. AO to treat the interest income as income from other sources. Consequently, interest expenditure was not allowed as deduction since the assessee failed to substantiate the nexus of interest expenditure with the interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... started. Therefore, the interest expenditure having direct nexus with interest income was an allowable deduction. 6.3 Without prejudice, it was submitted that even if interest income was to be assessed as Income from Other Sources, the corresponding interest expenses having direct nexus with such income ought to have been allowed to be reduced / set-off therefrom since the prime intent of the assessee was to reduce the interest cost so as to avoid default in timely ITA Nos.5583- 84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 2011-12 servicing of loans by way of repayment of principal and interest on funds borrowed. The attention was drawn to the financial statements to support the fact that there was direct nexus between borrowings and lending. 6.4 Finally, the assessee also assailed the proportionate disallowance of ₹ 40.96 lacs as proposed by Ld.AO, in the alternative, by submitting that interest expenses were incurred for the existence of business. 7.1 After due consideration of factual matrix, it was observed by learned first appellate authority that the assessee had already started real estate business and given and received advances for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the right perspective. It is quite evident that the business of the assessee was already set-up since the assessee had already reflected income from real estate business during AY 2008-09. The perusal of assessee's financial statements for year under consideration would show that the assessee has obtained unsecured loans of ₹ 583.56 Lacs which has substantially been ITA Nos.5583-84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 2011-12 advanced to directors others (to the extent of ₹ 185.45 Lacs) and to make-up for the accumulated losses of ₹ 317.31 Lacs incurred by the assessee over the years. The assessee do not have any other source of fund except Share capital of ₹ 1 Lac. Therefore, there was complete nexus between the borrowings and lending made by the assessee. This being the case, the interest expenditure having direct nexus with interest income was clearly allowable to the assessee. 9. So far as the question of applicability of head of income is concerned, rule of consistency favor's assessee's stand which is evident from the fact that the assessee was following consistent method of offering such income ..... 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