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TMI Blog2022 (3) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no failure on the part of the assessee to disclose truly and fully all material facts necessary for the purposes of making the assessment as laid down in the first proviso to section 147 of the Act cannot be accepted, as it is evident from the original return of income filed that the assessee made claim that interest expenditure incurred on the loans borrowed from HUDCO for the purpose of housing project against the interest earned on the loans advances made to the sister concerns, knowing fully well that the there was no nexus between the borrowed funds and loans advances to the sister concerns. It is settled position of law that for the purpose of allowing the expenditure against the interest income earned, the loans should be borrowed for the purpose of earning the interest income as laid down by the Hon ble Supreme Court in the case of Seth R. Dalmia [ 1977 (9) TMI 1 - SUPREME COURT] Thus in the present case there was tangible material in the form of audit objection. Thus, we do not find any merit in the contentions raised by the assessee challenging the validity of the reassessment proceedings. Therefore, we uphold the validity of the reassessment proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2010 passed u/s 143(3) of the Act accepting the returned income and allowing deduction u/s 80IB(10) of ₹ 6,96,40,134/-. Subsequently, the Assessing Officer issued notice dated 31.03.2015 u/s 148 proposing to re-assess the income for the assessment year 2008-09 and calling upon the appellant to file the return of income. The reasons recorded for issuance of notice u/s 148 are extracted below :- 1. The assessee engaged in the construction of residential project viz. Swar Ganga and Ganga Skies at Pimpri Village, Pune and claimed deduction U/s 80IB(10) of ₹ 6,96,40,134/-. Verification of the records revealed that during the previous year the assessee had received interest of ₹ 2,22,20,568/- on loans and advances given to associated concerns. The same was set off against the interest payable HUDCO and other unsecured loans in respect of Swar Ganga project. The net interest of ₹ 4,14,417/- was debited to P L account (vide schedule 'O' r.w. schedule 03) and profits thereof was claimed deduction U/s 80IB(10). Instead the gross interest should have been considered separately and taxed as income not derived from housing project. The omission to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, no borrowed funds have been utilized for the purpose of utilizing in the housing project in respect of which deduction of profits were claimed u/s 80IB(10) of the Act. Thus, it was contended that the interest expenditure incurred on the funds borrowed from HUDCO cannot be claimed as deduction against the profits earned from the housing project whose profits are eligible for deduction u/s 80IB(10) and there was a direct nexus between the borrowed funds and loans advances made to the sister concerns. Therefore, the interest expenditure can be only setoff against the interest income earned on the loans advances made to the sister concerns. Further, it was pleaded that interest earned on loans and advances made to the sister concerns is eligible for deduction u/s 80IB(10) placing reliance on the certain judicial precedents. 6. The ld. CIT(A), on due consideration of the submissions, had upheld the validity of the reassessment proceedings by holding that the reassessment proceedings were initiated by the Assessing Officer based on the information received from audit party placing reliance on the decision of the Hon ble Supreme Court in the case of Larsen Toubro Ltd. vs. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that there was failure on the part of the appellant to disclose truly and fully all material facts that was necessary for the purpose of making the assessment. On merits, the ld. Sr. DR submitted that in the absence of nexus between the borrowed funds and the loans advances, as the loans were borrowed from HUDCO for the purpose of business i.e. building, construction housing project. Therefore, there was no nexus between the borrowed funds and loans advances made to the sister concerns. In the absence of such nexus, the interest expenditure cannot be set-off against the interest income earned on the loans advances made to the sister concerns. 12. We heard the rival submissions and perused the material on record. The ground no.1 relates to the preliminary ground challenging the very validity of the reassessment proceedings. The appellant sought to challenge the very validity of the reassessment proceedings primarily on the ground that there was no fresh tangible information which came into the possession of the Assessing Officer enabling him to form an opinion that the income got escaped assessment to tax. Secondly, on the ground that there was no failure on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, there was no tangible material on record to conclude that the income had escaped assessment, whereas in the present case there was tangible material in the form of audit objection. Thus, we do not find any merit in the contentions raised by the assessee challenging the validity of the reassessment proceedings. Therefore, we uphold the validity of the reassessment proceedings. Accordingly, the ground no.1 stands dismissed. 13. The ground nos.2 and 3 challenges the action of the lower authorities in assessing the interest income earned on the loans and advances made to the sister concerns under the head Income from other sources . It is an admitted position that the interest expenditure was incurred on loans borrowed from HUDCO for the purpose of housing project. The contention of the appellant that the loans and advances were made to the sister concerns for the business purpose and out of business expediency cannot be accepted for the reason that the appellant had not led any evidence proving the business expediency, as it is question of fact which requires to be proved by leading necessary evidence. Even assuming for a moment, the loans and advances were made to the sister ..... X X X X Extracts X X X X X X X X Extracts X X X X
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