DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE- 5(4) MUMBAI, MUMBAI vs. AWAS DEVELOPERS AND CONSTRUCTIONS PRIVATE LIMITED, MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: A BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA 6808/MUM/2025 िनधा�रणवष�/AssessmentYear:2017-18) DEPUTY COMMISSIONER OF AWAS DEVELOPERS AND INCOME TAX CENTRAL CIRCLE- CONSTRUCTIONS PRIVATE 5(4) MUMBAI LIMITED Room No. 427, Kautilya Bhawan, Room No.6, 3rd Floor Capri, Vs. G Block, BKC, Bandra East, Anant Kanekar Marg Bandra Mumbai-400051, Mumbai- (East), Mumbai 400051 400051, Maharashtra Mumbai-400051, Maharashtra अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AADCA0702D

अपीलाथ��ारा/Appellant represented by: Shri Manoj Kumar (CIT DR) ��थ��ारा/Respondent represented by: None सुनवाईकीतारीख/Date of conclusion of hearing: 16-Jul-2026 घोषणाकीतारीख/Date of pronouncement: 21-Jul-2026 आदेश / ORDER PER: ANIKESH BANERJEE, (JM): The instant appeal of the revenue was filed against the order of the Ld. Commissioner of Income Tax (Appeals)-53, Mumbai [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2017-18, date of order 31.08.2025. The impugned order emanated from the order of the Ld. Assistant commissioner of Income Tax-C.C-5(4), Mumbai (for brevity ‘Ld. AO), order passed under Section 143(3) of the Act, date of order 25.12.2019.

1) "The Ld. CIT(A) erred in deleting the disallowance under section 144 r.w.r.8D(2) of the Income Tax rules by holding that investment which yielded exempt income are only to be considered for the purpose of disallowance u/s 14A r.w.r. 8D(2) and to exclude such investment which did not earn exempt income from the total investment for the purpose of computation of disallowance u/s 14A, thereby ignoring the clarificatory Explanation of disallowance u/s. 14A(1) inserted vide the Finance Act 2022 that the provisions of this section shall apply and shall be deemed to have always applied even in a case when exempt income has not accrued or arises or has not been received during the previous year but expenditure has been incurred during the said previous year in relation to earning of such exempt income. 2) The Ld. CIT(A) erred in deleting disallowance made u/s 43B of the Act without appreciating the fact that assessee company have failed to make interest payment to Punjab and Maharashtra Co-operative Bank on or before the due date of filing of return of income which was disallowable u/s 43B of the Act. 3) The Ld. CIT(A) erred in deleting disallowance made u/s 43B of the Act by holding that interest payable to a co-operative bank which was brought within the ambit of Section 43B of the Act with effect from A.Y. 2018-19 without appreciating the act that Punjab and Maharashtra Co-operative bank was included in the Second Schedule to the Reserve Bank of India Act, 1934 and thus comes under definition of Scheduled Bank as per Explanation 4 to Section 43B of the Act. 4) The Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing."

Ground No. 1, Disallowance u/sec. 14A:

“4.9. Further the assessee must have incurred administrative expenses such as documentation, salaries of employees, handling the investment port folio, administrative over heads like stationery, telephone, computer, office equipments, vehicles etc. every year, a part of which can be attributed to the investment port folio. This view finds support from the following case laws. (1) Maruti Udoyg Ltd. vs. Dep. Comm. (Delhi) 92 TTJ 987 (2) DCIT Vs. Shree Synthetics Ltd. – 88 TTJ 717 (Indore). (3) Harish K. Bhatt Vs. ITO – 85 TTJ 872. 4.10. It is also to be noted that, the matter has been extensively covered and decided in favour of the Revenue in the case of ITOVs. M/s.Daga Capital Management Pvt. Ltd. vide ITA No.8057/Mum/03 for A.Y.2001-02 by the Hon’ble Mumbai ITAT (SB). It is also to be noted that, Section 14A disallows expenditure “in relation to income which does not form part of total income” and in order for the expenditure to be disallowed, actual income need not be earned. This view has been confirmed in the case of Chemivest Ltd. Vs. ITO [ITAT, Delhi (SB)] in ITA No.87/Del/2008. 4.11. In view of the discussion held above and the position of law with regard to the applicability of provisions of section 8D as interpreted by the Hon’ble High Court, I am not satisfied with regards to the accounts of the assessee-company in relation to earning income that does not form part of the total income of the assessee-company.”

“7.1 The AO has made disallowance of Rs.79,927/- u/s. 14A of the IT Act. Also, the AO has calculated MAT on book profits and addition u/s 14A of the Act has been made as per explanation 1(f) to section 115JB(2) to compute book profits. The assessee in its submission has mentioned that it has not received any exempt income for the year under consideration and hence, disallowance u/s 14A r.w.r 8D of the IT Act is not applicable.

7.2 Facts of the case and submission of the assessee have been examined. The assessee has relied upon decision of Hon’ble Mumbai ITAT in the case of Satyam Realtors Pvt. Ltd. (ITA No.2391/Mum/2018 A.Y.2014-15) wherein it is held that if no exempt income is earned during the relevant previous year, then no disallowance u/s.14A of the Act is warranted. The relevant portion of the ITAT is reproduced as under:

“5. We have heard the rival submissions and perused the relevant materials on record. The fact remains that in the present case the assessee has not earned any exempt income. We are of the considered view that the legislative intent is more discernable in the judicial decisions. In CIT vs. Chettinad Logistics (P) Ltd. (2017) 80 taxmann.com 221 (Mad), the Hon'ble Madras High Court has held that section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year. In the case of CIT v. Shivam Motors (P) Ltd. (2015) 55 taxmann.com 262 (All), it has been held that in absence of any tax free income earned by the assessee, disallowance u/s 14A could not be made. In a similar vein, it has been held in Cheminvest Ltd. (supra), Ballarpur Industries Ltd. (2016) (10) TMI 1039 (Bombay High Court) that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

5.1 Facts being identical, we follow the ratio laid down in the above Judgments of the High Courts instead of the order of the Tribunal in Lally Motors (supra) and confirm the order of the Ld. CIT(A). In the case of ACIT v. Vireet Investment [2017] 82 taxmann.com 415 (Delhi Trib.) (SB), it is held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Thus we confirm the order of the Ld. CIT(A).” Since the assessee has not received any exempt income during the year consideration, in view of the decision of the Hon’ble ITAT referred above, disallowance of Rs.79,927/- made u/s.14A of the IT Act by the AO is deleted. Further, AO is also directed to delete disallowance of Rs.79,927/- u/s. 14A r.w.r 8D while computing book profits u/s 115JB of the IT Act. Accordingly, these grounds of the appeal are allowed.” 8. We have heard the rival submissions and perused the material available on record. The sole issue for our consideration is whether the disallowance under Section 14A of the Act can be sustained in a case where the assessee has not earned any exempt income during the relevant previous year. The Ld. AO invoked the provisions of Section 14A read with Rule 8D and computed the disallowance at Rs.48,93,797/- under Rule 8D(2)(ii). However, since the total expenditure claimed in the Profit & Loss Account was only Rs.79,927/-, the disallowance was restricted to the said amount. The Ld. CIT(A), after examining the facts and the judicial precedents relied upon by the assessee, deleted the disallowance on the ground that no exempt income had been earned during the year under consideration. From the records before us, it is an undisputed fact that the assessee did not earn or receive any exempt income during the relevant assessment year. The settled legal position is that where no exempt income is earned in the relevant previous year, no disallowance under Section 14A of the Act can be made. This proposition has consistently been upheld by various High Courts, including the Hon'ble Bombay High Court in Ballarpur Industries Ltd.(supra), and has also been followed by the Coordinate Benches of the Tribunal in several decisions. Therefore, the very foundation for invoking Section 14A is absent in the present case. We also find that the Ld. CIT(A) has correctly directed the deletion of the corresponding adjustment made while computing the book profit under Section 115JB of the Act. It is now well settled by the decision of the Special Bench of the Tribunal in Vireet Investment (P.) Ltd. (supra) that the computation under clause (f) of Explanation 1 to Section 115JB(2) cannot automatically adopt the disallowance computed under Section 14A read with Rule 8D. In view of the above factual position and the settled legal principles, we find no infirmity in the order of the Ld. CIT(A) deleting the disallowance of Rs.79,927/- made under Section 14A of the Act and the consequential adjustment under Section 115JB. The revenue has not brought on record any contrary binding judicial precedent warranting interference with the impugned order. Accordingly, the findings of the Ld. CIT(A) are upheld, and the ground raised by the revenue stands dismissed. Ground No-1 of revenue’s appeal stands dismissed. Ground Nos-2 & 3, Disallowance u/sec. 43B : 9. The Ld. DR contended that the assessee had defaulted in the payment of interest amount to Rs. 12,90,62,131/-. In support of the revenue's case and to narrate the entire factual background, the Ld. DR invited our attention to the impugned assessment order. The relevant paragraphs of the impugned assessment order are reproduced below: “6.3. In response, the assessee filed its submission on 21.12.2019 but despite been specifically asked as to whether the interest on overdraft from Punjab & Maharashtra Cooperative Bank was actually paid on or before the due date of filing of return or not, the assessee remained silent and did not produce any proof of payment. Thus, by remaining silent the assessee has passively accepted the fact that the interest payment on overdraft from Punjab & Maharashtra Co-operative Bank was actually not paid on or before the due date of filing of return. The assessee has simply replied that the provisions of section 43B are not applicable on the interest payment to Punjab & Maharashtra Co-operative Bank. Since, no evidence of payment of interest on overdraft has been produced despite being provided ample opportunities, it clearly proves that the assessee had either not paid any amount of interest or paid interest after the due date of filing the return. In both the cases, provisions of section 43B are clearly applicable. 6.4. Since, the assessee has not made payment of outstanding interest on overdraft from Punjab and Maharashtra Co-Operative Bank on or before the due date of filing of return, the interest expense of Rs. 12,90,62,131/- debited to the Profit & Loss Account and capitalised towards WIP is disallowed u/s 43B of the Act. Consequently, the WIP shall stand reduce by an amount of Rs. 12,90,62,131/-.Penalty proceeding u/s. 270A of the Act is initiated separately for under reporting of income. (Disallowance of Rs 12,90,62,131/- from WIP)”

The AO has specifically asked the assessee whether the interest on overdraft was paid on or before due date of filing of return against which no response have been submitted. The assessee, however, stated that provision of Sec. 43B was not applicable on interest payment to PMC Bank since, it had not claimed any deduction in respect of such amount. The AO was of the opinion that since interest on overdraft has not been paid as per provision of sec. 43B(e) attracts in this instant case. Vide para 5.4 the AO stated that since the interest on overdraft had been capitalised towards WIP, he reduced the same by an amount of Ra 14,77,80,860/-~ 2.9. CTT(A)'s observation :- The Ld. CIT(A) has decided the case in favour of the assessee. The issue was discussed in para 9 of the CIT(A)'s order. Para 9.5 of the CIT(A)'s order contending the decision is reproduced hereunder- "9.3 Facts of the case have been examined. The Hon'ble ITAT in the above referred decision has held that provisions of Section 49B, as per which certain deductions are to be allowed only on actual payments, is made applicable to the interest payable to a Cooperative bank by the Finance Act, 2017 w.e.f. 1.4.2018 (Le. A.Y. 2018-19). Since the assessment year involved in respect of the appeal under consideration is A.Y. 2017-18, provisions of section 43B are not applicable to the assessee for that year. In view of the facts of the case and decision of ITAT as referred above, disallowance of Rs. 14,77,80,860/-u/s 43B of the IT Act made by the AO is deleted. Accordingly, ground no.4 of the appeal of the assessee is allowed." 2.5. The ground of the Revenue, is that the CIT(A) has wrongly considered the PMC Bank as non-scheduled bank. As per Explanation to sec. 11(5)(iii), scheduled bank includes any bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934. Now scheduled banks include commercial Indian banks, foreign banks, and certain Multi-state Co-operative banks. The PMC Bank was multi-state co- operative bank founded in the year 1984, and hade 137 branches in Maharashtra, Karnataka, Goa, Delhi, Madhya Pradesh & Gujarat, out of which 100 branches were in Maharashtra. The bank faced financial trouble due to it's exposure in HDIL (a real estate company), and ultimately merged with Unity Small Finance bank in 2022 pursuant to RBI notification dated. 25.01.2022.

2.4. As per RBI website, fifty Urban co-operative banks have been listed as Scheduled banks and name of the Punjab & Maharashtra Co-operative Bank comes at sl.36 of the said list (prepared and published in the year 2014). A copy of the said list is enclosed. Hence the PMC Bank was a scheduled bank within the meaning of sec. 43B(e), and accordingly amendment made w.e.f 01.04.2018 is not applicable in this instant case. The CIT(A) had not examined necessary facts before proceeding towards deletion of the addition claiming that the assessee being a co-operative bank, sec. 43B(e), was not applicable. A copy of list of scheduled co-operative banks is 2.5. Regarding the fact, that the interest was capitalized in the WIP, it is to be noted that the capitalization of interest in revenue W.LP only defers claiming of such expenditure in the P & L a/c, since, the assessee being in real estate business will claim deduction on account of expenditure which are part of the WLP when revenue stream commences. The capitalization of interest, is deduction claimed in an indirect manner, and comes within purview of sec. 438 of the Income tax act 2.6. It is well settled that a finding or conclusion not supported by evidence brought on record or are against the law or suffer from the vice of procedural irregularity are perverse findings. The expression "perverse findings" would mean a finding which is not only against the weight of evidence but is altogether against the evidence itself. A deliberate departure from what is normal and reasonable is also termed a perverse. It is further well settled that a finding/conclusion/verdict arrived at that no reasonable person could have arrived on the basis of the material before him is also termed as perverse. Thus, a finding/conclusion arrived at by the quasi-judicial authorities/Courts by considering irrelevant evidence or ignoring relevant evidence or against not properly weighing the evidence or against the evidence would be perverse and the order would be liable to be set aside on this ground alone. The Hon'ble Supreme Court in Sudarshan Silk & Sarees v. CIT (2008) 300 ITR 205 169 Taxman 321 (SC) has laid down the attributes of perversity by holding that an order or finding is perverse on facts if it falls under any of the following categories: (a) The finding is without any evidence. (b) The finding is contrary to the evidence. (c) There is no direct nexus between the conclusion of fact and primary fact upon which that conclusion is based?

(d) When an authority draws a conclusion which cannot be drawn by any reasonable person or authority on the material and facts placed before it. The import of "perversity" was explained by the Hon'ble Apex Court in PSEB case, in the following terms: "28. If a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then the finding is rendered infirm in the eyes of law. If the findings of the Court are based on no evidence or evidence which is thoroughly unreliable or evidence that suffers from the vice of procedural irregularity or the findings are such that no reasonable person would have arrived at those findings, then the findings may be said to be perverse. Further, if the findings are either ipse dixit of the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity of non- Municipal Committee, application of mind and thus, stands vitiated." Hoshairpur v. Punjab State Electricity Board (2010) 13 SCC 216. In this instant case, the all the parameters that makes an appellate order" perverse" have been satisfied. The CIT(A) thus arrived at a conclusion which should not be drawn by a reasonable person on the backdrop of facts stated above. 2.7. It is therefore respectfully submitted that the order of the CIT(A) is erroneous in facts and law and liable to be considered "perverse" in nature and accordingly be set aside.” 8. On contrary to DR’s argument the observations of the Ld. CIT(A) related to this issue is noted in paragraph no.9 to 9.3 which is reproduced as below:- “9. Ground No.4. The Ld. AO during the course of assessment proceedings had asked the assessee to furnish details of interest payment and whether the interest was actually paid on or before the due date of filing return. Further, the AO had asked in case of failure of outstanding interest payment before due date of filing of return, why the same should not be added total income/reduced from WIP as per provisions of section 43B of the IT Act. In response, the assessee in its reply to the AO has submitted as under: "6. Sir, the Assessee Company had provided copy of ledger account of interest expenses incurred during the year under consideration along with justification why amount of interest expenses should not be disallowed u/s 43B of the IT Act, 1961 vide office letter dated 03/12/2019 (point no. 11). Sir, in this connection, we wish to categorically state that, during the year under considerations the Assessee Company has opening overdraft to the tune of Rs. 75,56,31,607/- & closing overdraft to the tune of Rs.90,31,12,467/-, resulting into net increase in overdraft during the year to the tune of Rs. 14,74,80,860/- The said increase in overdraft of the Punjab & Maharashtra Co-op Bank is nothing but towards finance/interest expenses of Rs. 14,77,80.860/-minus Rs. 3,00,000/- dividend receipt. In other words, there is no additional overdraft facility utilized during the year under consideration by the Assessee Company. Furthermore, interest expenses on the said overdraft were allowed in A.Y. 2012-13 to 2014-15 to the Assessee Company Furthermore, in this connection, we wish to state that in the present case since the Assessee has not debited the amount of interest expense incurred to the Profit & Loss Account as expenditure nor has claimed any deduction in respect of the amount, the question of disallowing the expenditures under section 43B of the Act not claimed would not arise.... Sir, in the view of above factual & legal submission, provisions of section 43B of the IT Act, 1961 is not applicable on Interest on Overdraft to the tune of Rs. 14,75,44,300/- and therefore no disallowance should be made." 9.1. After examining the submission of the assessee, the AO has mentioned that since the assessee has not made payment of outstanding interest on overdraft from Punjab & Maharashtra Co-operative Bank on or before the due date of filing of the return, he has applied provisions of section 438 of the IT Act and accordingly. interest expenses of Rs. 14,77,80,860/- debited to P&L account and capitalized towards WIP was disallowed u/s 438 of the IT Act. 9.2. During the course of appellate proceedings, the assessee has mentioned that a similar issue has been covered in its favor in the case of in own associates, Awas Developer & Construction Private Limited for the A.Y. 2016-17 by the decision of the Hon'ble Mumbai ITAT dated 20.07.2022, ITA No. 551/Mum/2021 (A.Y. 2016-17). Relevant portion of the order of the ITAT is reproduced as under: "4. I have heard learned DR and perused the record. I noticed that the provisions of section 43B, as per which certain deductions are to be allowed only on actual payments, is made applicable to the interest payable to a Cooperative bank by the Finance Act, 2017 w.e.t. 1.4.2018. The word "co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank was inserted in Clause (d) of sub-section 43B w.e.f. 1.4.2018, meaning thereby, interest payable to a cooperative bank which is not paid on or before the due date prescribed for filing of return of income under section 139(1) of the Act shall be liable to be disallowed under section 438 of the Act only w.e.f. A.Y 2018-19.1 notice that the year under consideration is A.Y. 2016-17 For this year, interest payable to a co- operative bank has not been included in the provisions of section 43B of the Act. Accordingly, disallowance made by the Assessing Officer and confirmed by learned CIT(A) is not in accordance with law Accordingly. I set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowance of interest payable to M/s Punjab and Maharashtra Co-operative Bank made under section 438 of the Act." 9.3. Facts of the case have been examined. The Hon'ble ITAT in the above referred decision has held that provisions of section 43B, as per which certain deductions are to be allowed only on actual payments, is made applicable to the interest payable to a Cooperative bank by the Finance Act, 2017 w.e.f. 1.4.2018(i.e. A.Y.2018-19). Since the assessment year involved in respect of the appeal under consideration is A.Y.2017-18, provisions of section 43B are not applicable to the assessee for that year. In view of the facts of the case and decision of ITAT as referred above, disallowance of Rs. 14,77,80,860/-u/s. 43B of the IT Act made by the AO is deleted. Accordingly, ground no.4 of the appeal of the assessee is allowed.” 9. We have carefully considered the rival submissions and perused the material available on record. The Ld. CIT(A) deleted the disallowance made by the Ld. AO under section 43B of the Act by relying upon the decision of the Coordinate Bench of the ITAT, Mumbai in the case of Awas Developers & Constructions Private Limited (supra), wherein it was held that the provisions of section 43B relating to interest payable to a co-operative bank were applicable only from A.Y. 2018-19 onwards. However, upon careful examination of the facts of the present case, we find that the reliance placed by the Ld. CIT(A) on the said decision is misplaced. The Ld. DR has specifically brought on record that Punjab & Maharashtra Co-operative Bank (PMC Bank) was a scheduled co-operative bank, and its name appears in the list of scheduled banks maintained by the Reserve Bank of India as per Explanation to Sec 11(5)(iii) under the Second Schedule to the Reserve Bank of India Act, 1934. Therefore, the interest payable to such a bank falls within the ambit of the provisions governing interest payable to a bank for the purpose of section 43B of the Act. Further, it is also observed that the assessee had capitalized the interest expenditure to Work-in-Progress (WIP). Such capitalization merely postpones the claim of deduction and does not take the expenditure outside the purview of section 43B. The requirement of actual payment as contemplated under section 43B cannot be circumvented merely by capitalizing the expenditure instead of debiting it to the Profit and Loss Account. In view of the above factual and legal position, the decision relied upon by the Ld. CIT(A) in the case of Awas Developers & Constructions Private Limited (supra) is distinguishable on facts and does not apply to the present case. Therefore, the Ld. CIT(A) erred in deleting the disallowance made by the Ld. AO under section 43B of the Act. Accordingly, we set aside the findings of the Ld. CIT(A) on this issue and restore the order of the Ld. AO. Ground No. 2 & 3 raised by the revenue are allowed.” 11. We have heard the rival submissions and perused the material available on record. We find that the controversy involved in the present appeal is no longer res integra. The Coordinate Bench of the Tribunal, Mumbai, in the case of Satyam Realtors Private Ltd. in ITA No. 6283/Mum/2015, vide order dated 13.03.2026, after considering the status of Punjab & Maharashtra Co-operative Bank as a scheduled co-operative bank and the applicability of the provisions of Section 43B, held that the interest payable to the said bank attracts the provisions of Section 43B of the Act. The Tribunal further held that capitalization of interest to Work-in-Progress (WIP) merely postpones the claim of deduction and does not take the expenditure outside the ambit of Section 43B. Consequently, the order of the Ld. CIT(A) deleting the disallowance was reversed and the order of the Ld. AO was restored. The facts of the present case are materially similar to those considered by the Coordinate Bench in Satyam Realtors Private Ltd. (supra). Respectfully following the said decision, we hold that the Ld. CIT(A) was not justified in deleting the disallowance made by the Ld. AO under Section 43B of the Act. Accordingly, the impugned order of the Ld. CIT(A) on this issue is set aside and the order of the Ld. AO is restored. Thus, the Ground Nos. 2 & 3 raised by the revenue are allowed. 12. In the result, the appeal of the revenue bearing ITA No.6808/Mum/2025 is partly allowed. Order pronounced in the open court on 21st day of July 2026. Sd/- Sd/- (BIJAYANANDA PRUSETH) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 21/07/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI