DY.CITI CC-7(3), MUMBAI vs. M/S. MACROTECH DEVELOPERS LTD (SUCESSOR TO M/S. LODHA ESTATE PVT. LTD, MUMBAI

This is an appeal preferred by the revenue against the order of the Ld. CIT(A)-49, Mumbai dated 25.02.2022 dated 07.09.2018 for AY.2016-17.

The sole ground of the appeal of the revenue is against the action of the Ld. CIT(A) deleting the disallowance u/s 36(1)(iii) of the Income Tax Act, 1961 (hereinafter “the Act”) amounting to Rs.3,67,86,750/- on the plea that there is absence of direct nexus between assessee’s own funds and the investment made by it. 3. Brief facts as noted by the AO is that the assessee has taken loan from Lodha Developers Pvt. Ltd. on which it has paid interest @ M/s. Macrotech Developers Ltd. 13.55% amounting to Rs.34,69,95,664/-. Further, the AO noted that the assessee has made investments in optionally convertible debentures (OPCD) of M/s. Sarvavasa Buildtech & Farms Pvt. Ltd, and M/s. Kundam Realtors @ 0.1%. On being confronted, the assessee submitted that even though the coupon rate is at 0.1%, the debentures are redeemable at an aggregate return of 12% p.a. on the total amount invested. The assessee therefore submitted that the annualized return is much more than the coupon rate of 0.1% after considering the redemption terms. The assessee also submitted the working for average borrowing rate of the assessee for the year under consideration. However, the AO did not agree. According to him, since the borrowed money has been utilized for these investments, the proportionate interest has to be disallowed. Therefore, he worked out the disallowance to Rs.3,67,86,750/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved the revenue is before us. 4. We have heard both the parties and perused the records. At the outset, the Ld. AR of the assessee submitted that the assessee’s cases covered in assessee’s own case for AY. 2015-16 wherein similar grounds of appeal of revenue was dismissed. According to the assessee, the assessee had own funds which was more than the investment made in the OPCD. Therefore, according to the Ld. AR, when the assessee is possessed with mixed funds which includes its own funds in sufficient quantity, presumption is raised that its own M/s. Macrotech Developers Ltd. fund was utilized for the [interest free] advances can be drawn and for that proportion referred to the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities 313 ITR 304 (Bom). And further drew our attention to the facts in the present case wherein we note that the interest free funds available to the assessee as on 31.03.2016 was to the tune of Rs.63.75 Lakhs whereas the investment in OPCD was only to the tune of Rs.50.05 Lakhs. Therefore, we note that the Ld. CIT(A) has rightly decided that no disallowance of interest was warranted on the strength of the ratio of the Hon’ble Bombay High Court decision in the case of CIT Vs. Reliance Utilities (supra), therefore, the appeal of the revenue stands dismissed.

In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 29/07/2022.