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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 ..... rought forward business losses against it had a tax effect below the ceiling for the filing of appeal to the lTAT?" ii) "Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) failed to give any cogent reason why the interest on idle funds borrowed for the business which had not commenced nor was carried on during the year, is assessable as business income eligible to be set off against brought forward business losses?" 2. Briefly the facts are, the assessee, a resident company is engaged in the business of real estate development. In course of assessment proceedings, the assessing officer, while verifying the Profit and Loss Account of the assessee noticed that the assessee has credited interest income received on loan advanced amounting to Rs. 1,71,90,376/- and has also booked corresponding expenditure. Being of the view that the interest income received on loan advanced cannot be treated as 'Income from business' since the assessee is not in money lending business, the assessing officer show caused the assessee to explain as to why such income should not be assessed under the head "Income from other sources". Though, the assessee furnished its reply j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench held as under:- "3. The 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 holding that there was a nexus between interest bearing borrowings and interest yielding advances ignoring that, at best, there was only partial nexus and not complete nexus as evidenced by the fact that interest earned was Rs. 1,44,41,920/- whereas interest paid on borrowings made for making the interest yielding advances was Rs. 2,38,56,459/-? ii) Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) failed 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 docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure with the interest income earned by the assessee. 5.4 The interest expenditure was also not allowed by invoking explanation to Section 37(1) since the assessee, in the opinion of Ld.AO, could not carry out the business of money lending and such activity was in violation of provisions of the Bombay Money Lenders Act. In the alternative, Ld. AO held that the excess interest of 4% amounting to Rs. 40.96 Lacs being paid to one of the lender entities was to be disallowed u/s 36(1)(iii) / 57 of the Act. 5.5 Finally, the interest income was assessed under the head Income from other sources and total income was determined at Rs. 146.65 Lacs. The interest expenditure of Rs. 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 ITA Nos.5583-84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 & 2011-12 started. Therefore, the loans were advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances for this purpose in earlier years also. In fact, the assessee earned profit from real estate business in AY 2008-09. To support the same, the details of income earned by the assessee during AYs 2008-09 to 2010-11 has already been tabulated in para 5.1.1 of the impugned order. 7.2 Upon perusal of various clauses of Memorandum of Association (MOA), it was seen that although the primary business of the assessee was to acquire / develop properties but the assessee could invest and deal with the money of the company not immediately required. The assessee 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. 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 ITA Nos.5583-84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 & 2011-12 above background, it was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR has placed on record status of assessment for AYs 2008-09 to 2015-16, the perusal of which would reveal that similar interest income has been accepted by revenue as business income in scrutiny assessment proceedings u/s 143(3) for AYs 2013-14 to 2014-15. In AYs 2008-09, 2010-11 & 2015-16, there was no scrutiny assessment and assessee's claim was accepted in self-assessment. Further, relying upon AY 2011-12, similar view was taken by Ld. CIT(A) in AY 2012-13, against which revenue preferred further appeal before this Tribunal vide ITA No. 5582/Mum/2016 order dated 06/02/2017 wherein the appeal of the revenue was dismissed. 10. Finally, the undisputed findings are that the assessee, in terms of its Memorandum of Association, 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 ITA Nos.5583-84/Mum/2016 Asian infraprojects Private Limited Assessment Years-2009-10 & 2011-12 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 tempor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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