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TMI Blog2017 (11) TMI 2068X X X X Extracts X X X X X X X X Extracts X X X X ..... [1997 (7) TMI 4 - SUPREME COURT] was given by the Hon'ble Jurisdictional High Court. The facts of the assessee's case are identical. Therefore, the above decision of Hon'ble Jurisdictional High Court would be squarely applicable. Considering the facts of the case and respectfully following the above decision of Hon'ble Jurisdictional High Court, we hold that learned CIT (A) was fully justified in directing the AO to allow deduction of interest paid by the assessee against the interest received by the assessee. AO has disallowed the interest mainly by following the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. [supra] which we have already dealt with - Disallowance of interest while computing the assessee's income from other sources and alternatively observed that interest paid by the assessee is also disallowable u/s 14A because borrowed money is utilized for investment in shares. Therefore, the limited issue open for our examination is whether the borrowed money has been utilized for the purpose of investment in shares. CIT (A) has recorded the finding that no borrowed money was utilized for investment in shares. After considering the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff against the interest income. The conclusion of the Assessing Officer is in paragraph 2.10 and 2.11, which are reproduced below for ready reference :- "2.10 In view of the facts mentioned above, to sum up, the expenditure on account of interest amounting to Rs. 12,02,07,944/- which has been set off against the interest income of Rs. 12,52,71,157/- is disallowed for the following reasons :- i. During the year, the assessee has not started any business activity as explained above, but to carry out the business activity had raised the funds as explained in its letter dated 16.01.2013, the relevant extracts of which have been reproduced in Para 2 above. ii. As a commercial expediency measure, the assessee chose not to keep the funds, so raised idle and opted to earn interest income there from. This has been explained by the assessee in its letter dated 16.01.2013. iii. Since the assessee had not started its business during the year under consideration, no expenditure will be allowed and the expenditure incurred prior to the start of the business will have to be capitalized. iv. The funds raised by the assessee had been utilized for investments in shares. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 45 ITR 589. 8. The learned counsel for the assessee, on the other hand, stated that in the case of the assessee, during the year under consideration, no business activities had commenced and it was only the borrowing and lending of the money during the year under consideration. The main object of the assessee is investment in real estate, but, in the year under consideration, no real estate project has commenced and therefore, on these facts, the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) would not be applicable because, in that case, the assessee had already started setting up of its business and the assessee has claimed the deduction of interest income against the preproduction expenses which were ultimately to be capitalized. Since the facts of the assessee's case are altogether different, the above decision of Hon'ble Supreme Court would not be applicable. He stated that on these facts, the decision of Hon'ble Jurisdictional High Court in the case of Vodafone South Ltd. Vs. CIT - [2015] 378 ITR 410 (Delhi) would be squarely applicable. He referred to page 111 of the assessee's paper book which is the list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company disclosed the said sum of Rs. 2,92,440/- as "income from other sources". It also disclosed business loss of Rs. 3,21,802/-. After setting off the interest income against the business loss, the company claimed the benefit of carry forward of net loss of Rs. 29,360/-. The company later on realized its mistake and on December 26, 1984, it filed a revised return showing business loss of Rs. 3,21,802/-. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses had to be capitalized, and that, therefore, the interest income of Rs. 2,92,440/- should go to reduce the pre-production expenses (including interest and finance charges), which would ultimately be capitalized. The Income-tax Officer rejected the assessee's claim that the interest income was not exigible to tax. The view of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). The company's further appeal to the Income-tax Appellate Tribunal was dismissed. In view of the conflict of decisions between the Madras and Andhra Pradesh High Courts, the Tribunal referred the question regarding taxabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the money advanced is set off, it is found that except ₹40,74,720/-, the entire borrowed money was advanced. The total borrowed was ₹290 crores and 50 lakhs, out of which, more than ₹290 crores was advanced by the assessee. Thus, in this case, there is direct and clear nexus of money borrowed by the assessee and the money advanced by the assessee. 13. In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), admittedly, the money was borrowed for the purpose of setting up of the factory. However, since the borrowed funds were not immediately required, the same were invested in short term deposits with the bank. However, the facts in the case of the assessee are altogether different. The main object as per memorandum of articles of association is the development of infrastructure and real estate business. However, during the year under consideration, no infrastructure project or real estate development project had commenced and therefore, the question of borrowing of any money for the purpose of such project does not arise. Therefore, in our opinion, the facts of the assessee's case are altogether different than the facts in the case of Tuticorin A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date. Without the facility of credit by the HSBC, the assessee could not have advanced the loan to SCL. Therefore, there was a direct nexus between the earning of interest on the loan advanced by the assessee to SCL and payment of interest to HSBC on the loan drawn in terms of the sanction letter dated August 2, 2001. The income earned on the loan advanced to SCL was rightly offered to tax by the assessee as "Income from other sources". Since the interest paid to HSBC on the loan availed of was the nature of an expenditure wholly and exclusively laid out for the purpose of earning the interest income, it ought to be permitted to be netted against such "Income from other sources" in terms of section 57(iii)." 17. After considering the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra), the above decision was given by the Hon'ble Jurisdictional High Court. The facts of the assessee's case are identical. Therefore, the above decision of Hon'ble Jurisdictional High Court would be squarely applicable. Considering the facts of the case and respectfully following the above decision of Hon'ble Jurisdictional High Court, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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