DCIT CIRCLE-21(1), NEW DELHI vs. RELIGARE HOUSING DEVELOPMENT FINANCE CORPORATION LTD., NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

“1. On the facts and under the circumstances of the case, the ld. CIT(A) has erred in law and facts in allowing the deduction of Rs.2,98,92,835/- u/s 36(1)(viii) disallowed by the AO.

2. On the facts and under the circumstances of the case, the ld. CIT(A) has erred in law and facts in directing the AO to re-compute the profit of eligible business deduction by allocating interest expenditure on the basis of turnover of business segments without establishing the nexus of interest expenses with the business carried on each segment.”

ITA 6433/Del/2017: A.Y. 2013-14:

5. The ld. CIT (A) after perusing the submissions of the assessee and the assessment order found that similar issue has been decided by the revenue in favour of the assessee for A.Y. 2012-13. The relevant portion of order of CIT(Appeals)-7, New Delhi in appeal no.376/CIT(A)/Del/2016-17 dated 02.02.2017 is reproduced below:-

“4.31 ..The appellant is engaged in housing finance business and has claimed deduction u/s 36(1)(viii) of the Act at Rs.2.87 crores. The AO disallowed claim of deduction u/s 36(1)(viii) of the Act on the ground that the interest expense in respect of housing loan business eligible for deduction u/s 36(1)(viii) was much higher than the non eligible business and therefore, the allocation was not proper. Further, that the appellant had inflated its profit from the housing loan segment in order to avail higher deduction u/s 36(1) (viii). The AO was of the view that housing loans are for a longer duration fetching lesser rate of interest and requires more funding that the loans against property, which are loans at a higher rate of interest and comparatively lesser period.

4.4 The Ld. AR has contended that the loans in both business segments i.e. housing loans and loans against property, [income not entitled to claim deduction u/s 36(1)(viii)] are of same duration and the rate of interest charge is almost similar. It is 3 Religare Housing Development Finance Corporation Ltd. stated that the company maintains separate accounts of income from housing loans and loan against property. The Ld. AR has further stated that ledger accounts were filed before the AO during assessment and it was submitted that the company apportions common expenses such as salary, depreciation, rent, advertisements, printing & stationary, travelling and conveyance, communication expenses, repair & maintenance, auditor’s fee and electricity expenses based on the turnover ratio of the two business segments. Further, expenses viz. Provision for housing loan and non housing loan, contingent provision for standard assets which were directly identifiable, related to either of the two business segments are reduced from the income of these two segments. As regards to interest expenditure, which is common to housing loan and loan against property, the apportionment between the two business segments is on the amounts of loans outstanding recoverable as on the year end i.e. 31.03.2012. Accordingly, on this principle, 65% of the interest expense was allocated towards housing loans and 35% towards loan against property. It is also argued that this methodology of apportionment is accepted by the AO for the last assessment year. It is noted that the AO has summarily disallowed the deduction u/s 36(1)(viii) on the ground that allocation of interest expenditure between the two segments is not in order and the appellant has inflated its profit for higher deduction.

The AO has not examined the submissions furnished by the appellant company and simply disallowed the deduction. The deduction claimed u/s 36(1)(viii) is duly supported by segmental accounting which includes apportionment of expenses, details of which are filed before the AO and in appellate proceedings. In my view, a more acceptable method for determining the profits from eligible business would be allocation of interest expenditure on the basis of turnover of the eligible and ineligible business segments. The AO is directed to re-compute the profit of eligible business deduction by allocating interest expenditure on the basis

4 Religare Housing Development Finance Corporation Ltd. of turnover and not on the basis of balance of outstanding housing loan and loan against property recoverable at the end of the year as apportioned by the appellant company. The deduction u/s 36(1)(viii) i.e. 20% shall be allowed on such profits and gains of the eligible business arrived after apportionment of the interest expenditure on the basis of turnover ratio of the two segments. This ground of appeal is disposed off accordingly.”

4. Since, the issue squarely stands covered by the adjudication of the Tribunal, in the absence of any change in material facts and legal proposition, the appeal of the Revenue is liable to dismissed.