TaxTMI 
TaxTMI 
2017 (11) TMI 2068
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....hire or otherwise acquire and deal in all real or personal estate/properties. During the year under consideration, the business activities have not been started by the assessee. For the year under consideration, the assessee has shown income of Rs.94,62,276/- in the profit & loss account, the details of which are as under :- i. Interest income Rs.50,63,213/- ii. Dividend on units on mutual fund Rs.43,93,076/- iii. Profit on redemption of mutual fund Rs.5,987/- Total Rs.94,62,276/- 4. However, when the details were called for and examined by the Assessing Officer, he found that during the year under consideration, the assessee has earned interest amounting to Rs.12,52,71,157/- and the assessee paid interest amounting to Rs.12,02,07,944/-. In the profit & loss account, the assessee has shown only the net interest i.e., Rs.50,63,213/- (Rs.12,52,71,157 - Rs.12,02,07,944). The Assessing Officer raised the query regarding the allowability of interest paid by the assessee amounting to Rs.12,02,07,944/-. After considering the assessee's submission, the Assessing Officer was of the opinion that payment of interest cannot be set off against the i....
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....r consideration, the business of the assessee has not commenced and therefore, interest on borrowed money cannot be allowed while considering the interest received by the assessee. She stated that on the facts of the assessee's case, the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT - [1997] 227 ITR 172 (SC) would be squarely applicable and, in view of the above decision, the interest payment would not be allowed even while computing the income from other sources. She further submitted that the Assessing Officer has held that interest income is disallowable u/s 14A. Learned CIT(A), without properly appreciating the factual as well as legal position, held that no disallowance is required u/s 14A. In support of her contention for disallow-ability of interest income u/s 14A, she relied upon the decision of Hon'ble Jurisdictional High Court in the case of Indiabulls Financial Services Ltd. Vs. DCIT - [2016] 76 taxmann.com 268 (Delhi) and also the following decisions of the ITAT :- (i) DCIT Vs. Viraj Profiles Ltd. - 46 ITR 626. (ii) NYK Line India Ltd. Vs. ACIT - 175 TTJ 180. (iii) Super Auto Forge (P....
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....hemicals and Fertilizers Ltd. (supra) would be squarely applicable. 10. We have carefully considered the arguments of both the sides and perused the material placed before us. The Revenue has heavily relied upon the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra). The facts in that case were that for the purpose of setting up of the factories, the company had taken term loans from various banks and financial institutions. That part of the borrowed funds which was not immediately required by the company was kept invested in short-term deposits with banks. Such investments were specifically permitted by the memorandum and articles of association of the company. The company had also deposited certain sums with the Tamil Nadu Electricity Board. It had also given interest-bearing loans to its employees to purchase vehicles. Up to the assessment year 1980-81, interest earned by the company from the various loans given by the company and also from the bank deposits was shown as income and was taxed accordingly. For the accounting year ending on June 30, 1981 (assessment year 1982-83), the assessee received a total amount of interest....
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....s per memorandum and articles of association has not commenced at all. The money was not borrowed for any specific purposes. The assessee had borrowed the money from some persons and has advanced it to others. He paid interest to the persons from whom the money was borrowed and charged interest from the person to whom the money was advanced. The details of the persons from whom money was borrowed and to whom money was advanced are at page 111 of the assessee's paper book. The same is reproduced below for ready reference :- "Mahalaxmi Designs Private Limited Assessment Year 2010-11 Details of Other Liabilities as on March 31, 2009 Party Name Amount J R Modi Finance P.Ltd. (25,000,000) Narendra Gehlaut (32,500,000) Virendra Dhingra (20,000,000) Pradeep Burman (30,000,000) Rajiv Rattan (2,794,450,000) Audit Fees Payable 224,720 Saurabh Mittal 800,000 Aarchi Properties P. Ltd. 805,000,000 Gungan Properties P. Ltd. 750,000,000 Gurvit Properties P. Ltd. 750,000,000 Siddhidayak Properties P. Ltd. 600,000,000 Total 4,074,720 12. In the above list, the last four parties are parties fr....
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....ure of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;" 15. From the above, it is evident that any expenditure which is laid out or expended wholly or exclusively for the purpose of earning of interest income is allowable u/s 57(iii). In the case under appeal before us, we find that the borrowed money has been utilized for the purpose of giving advances to others. There is a direct nexus between the money borrowed by the assessee and money advanced by the assessee. The assessee paid interest on the money borrowed by it and has received the interest on the money advanced by it. Therefore, we have no hesitation to hold that the interest paid by the assessee was incurred wholly and exclusively for the purpose of earning of interest income and therefore, the same was rightly claimed u/s 57(iii) and the learned CIT (A) rightly directed for allowing the same. 16. 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, wherein Hon'ble Jurisdictional High Court held at page 420 of the report as under....