TaxTMI 
TaxTMI 
2023 (12) TMI 624
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....siness of the company and the company earned interest from the idle fund to protect the interest of company. (b) Earning of interest income out of borrowed funds not Immediately required for the business is definitely activity part of business and thus, the interest income received from Pride Purple Infrastructure which is set off against interest paid on bank loan should not be treated as Income from Other Sources. 3. While confirming the addition made by the AO, Ld CIT(A) failed to appreciate the contention of the appellant that the interest earned is out of the amount borrowed on which interest has been paid and therefore, netting off the interest received and paid is justified in law without giving any valid reason. 4. The appellant may kindly be permitted to add to or alter any of grounds of appeal, if deemed necessary." Brief Facts of the case: 2. The brief facts of the case are that the appellant is a Private Limited Company engaged in the business of Construction and Real Estate activity. It was incorporated on 21/02/2002 as per the certificate of registration issued by ROC. The return of income for A.Y. 2015-16 was filed by the assessee on ....
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....ncome from Other Sources' unless making of investment or earning of interest income is a separate business activity. It is also held by the Hon. Bombay High Court that in peculiar facts of case, if an assessee is able to prove the linkage of making such investment with his business, in that case only, such interest income can be considered as business income. In the present case, the contention of the appellant is that the earning of interest income out of borrowed fund not immediately required for the business is definitely a business activity. Besides this, the appellant has not furnished anything to substantiate that the funds were given to its sister concern for business purposes or has not furnished anything to substantiate that the interest was earned during the course of business. Since, the appellant has failed to substantiate that the earning of interest income has any linkage to its business activities, the contention of the appellant that the interest income is business income, cannot be accepted? .................. 13. Coming to the second issue as to whether the interest paid on the bank loan can be set off against the Income from Other Sources as cla....
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....iled copy of Audit Report, Loan sanctioned letter, copy of ledger account. The ld.AR relied on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356 and CIT Vs. Lokhandwala Construction Inds 260 ITR 579 (BOM). 5.1 Ld.AR submitted that the Decision of the Hon'ble SC in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs. CIT is distinguishable on facts and hence not applicable to the case of the assessee. Ld.AR submitted that in the case of Tuticorin Alkali Chemicals And Fertilizers Ltd, the Company had not commenced its business, where as in the case of the Assessee Pride Purple Builders Pvt. Ltd., it was incorporated on 21/02/2002 and had commenced business. The assessee is in the business of construction of housing project, the construction had already started. The Assessee had received Booking Advance of Rs. 19,57,99,420/- as on 31.03.2015 and Rs. 2,88,52,242/- as on 31.03.2014. The Assessee follows project completion method. The Ld.AR submitted that based on these facts the case relied by the AO is distinguishable on facts. 5.2 Ld.AR submitted that the assessee availed Loan from State Bank of India for its business pur....
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....as been shown as part of closing work-in-progress. Assessee has incurred expenses of Rs. 35,27,62,121/-. However, assessee has capitalized expenses of Rs. 33,99,79,976/- as closing work-in- progress. Assessee has not capitalized the interest expenses of Rs. 1,27,82,145/-. It is observed that as per the Profit and Loss Account, assessee had incurred interest expenses of Rs. 1,85,90,273/- out of which Rs. 58,08,120/- has been capitalized as part of closing work-in-progress. Assessee claimed that assessee had received interest of Rs. 1,27,82,145/- from its sister concern on account of loan given by the assessee to sister concern and the said amount has been reduced from the total interest income payable. The details of work-in-progress submitted by assessee are as under : Particulars Rs. Rs. Opening stock 20,21,58,776 Add: All costs 35,27.62,121 Material cost 31,76.89.411 Finance expense 2,84.80,273 Other Expense 64,77,073 Depreciation 1,15,364 Add: Profit 38,766 Less: Other Income 1,28,20,911 Closing WIP 33,99,79,976 8. Analysis o....
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.... 94,168.00 -22,27,59,206.50 9.1 It can be seen that there is continuous negative balance, means amounts have been given to Pride Purple Infrastructure from borrowed funds. 9.2 There are transactions on other pages of the Bank statement also, however we do not intend to reproduce all pages. Thus, it can be seen that there is clear nexus between the Investment made by the assessee in sister concern Pride Purple Infrastructure and the credit facility availed by the assessee. 10. The assessee had earned Interest Income from the said Investment made in the sister concern Pride Purple Infrastructure. 10.1 In the Balance Sheet, in Note Number 7, the assessee has shown as under : "Investment in Pride Purple Infrastructure : Rs. 22,71,62,710/-" 10.2 Thus, assessee has shown Rs. 22,71,62,710/- as investment in sister concern Pride Purple Infrastructure. 11. It is a fact that the Assessee was constructing a housing project called "Park Ivory". The construction of the said project had already started in earlier years and assessee had also received Booking Advance. It means the assessee had also already started sale. 11.1 In these facts and circumstanc....
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....ns received and the accruing of interest therefrom were not a part of the business of the assessee-company. In the present case, the fact situation is that the income admittedly arose out of a running business of the assessee-company. Interest was earned out of such monies accruing from the business of the assessee- company and the same was also utilised for the purpose of business. This is not a case where the assessee did not have a running business during the assessment year. 7. The advocate appearing for the respondent relied upon a judgment of the Division Bench of this Court in the case of CIT v. Paramount Premises (P.) Ltd.[1991] 190 ITR 259 . The facts of Paramount Premises (P.) Ltd.'s case (supra) were almost similar to the facts before us. The assessee in that case had received deposits in instalments from prospective purchasers while the work of construction was in progress. If the purchasers failed to make deposits by stipulated dates, they were required to pay interest. Idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on these amounts. In due course the a....
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....which is not to be excluded from total income under the IT Act would be chargeable under this head if it is not chargeable under Section 14 heads 'A' to 'E'. " Unquote. 12.2 Thus, Interest income would be chargeable as Business Income if it is directly related to business of the assessee. 13. The Concept of Netting Off has been recognized by the Hon'ble Supreme Court in the case of Keshvaji Ravaji & Co Vs CIT [1990] 183 ITR 1 (SC). 14 The Hon'ble Delhi High Court in the case of CIT Vs U K Bose [2013] 29 taxmann.com 219 (Delhi) has held as under : Quote , " 15. That leaves us with the second substantial question of law in ITA No. 258/2010 which is as under: - (ii) Whether the ITAT was correct in law in deleting the addition of Rs. 10,12,529/- made by the assessing officer on account of interest paid by the assessee on loan taken for purchase of an exempted asset?" We may notice the facts giving rise to the question. The assessee received interest of Rs. 17,87,426/- from Sahara India Commercial Corporation Ltd. (SICCL) against which it claimed deduction of Rs. 10,12,524/-, being interest paid to the sameentity i.e. SICCL and declared the net interest of ....
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.... the Revenue.. " Unquote. 15. Thus, Hon'ble Delhi High Court held that when nexus is established between Interest paid and Interest earned then only Net Interest shall be taxed. 16. The Hon'ble Delhi High Court in the case of PCIT Vs Triumph Reality Pvt. Ltd., [2023] 450 ITR 271 (Delhi) has held as under: Quote, "3. The admitted facts of the present case are that the assessee had taken Foreign ECB loan of Rs. 82.37 crores for the purpose of acquisition of a capital asset i.e. renovation and refurbishment of hotel acquired by the assessee under SARFAESI Act. The entire ECB loan was disbursed in a single trench in the year under consideration and during this year, the assessee could utilize only Rs. 33.70 crores. Therefore, the assessee had temporarily parked the ECB loan in FDRs till utilization for fixed asset/capital expenditure strictly in compliance with RBI instructions. The assessee had paid interest of Rs. 13.38 crores and has earned interest on FDRs of Rs. 4.03 crores. The net amount of interest of Rs. 9.35 crores has been added to the preoperative expenditure pending capitalization. 4. The judgment passed in Tuticorin Alkali Chemicals & Fertilizers L....