ITO6(1)(3), MUMBAI vs. BEBANCO DEVELOPERS LIMITED, MUMBAI

We have carefully heard the rival submissions and perused relevant material on record including the orders of lower authorities. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 4.1 The impugned interest disallowance stems from the fact that during assessment proceeding, it transpired that the assessee entered into an agreement on 30/03/2013 with its holding company namely B.E.Billimoria & Co. Ltd. (BEBL) wherein Lohegaon Project situated at Pune being developed by M/s BEBL was assigned to the assessee. As per terms of the agreement, the assets in the shape of Advances for purchase of Land for Rs.70.04 Crores, Loans to Gammon & Billimoria Ltd. (GBL) for Rs.46.33 Crores as well as Land development cost of Rs.26.51 Crores was transferred to the assessee. Similarly, the liabilities in the shape of Advances received for Rs.62.32 Crores was also transferred to the assessee whereas the balance amount of Rs.80.56 Crores payable by the assessee was to be treated as loan payable by the assessee to M/s BEBL along with interest. M/s. Bebanco Developers Ltd. Assessment Years: 2014-15 & 2015-16 4.2 During the year, the assessee earned interest income of Rs.423.17 Lacs on advances given to M/s GBL and paid interest of Rs.398.52 Lacs to its holding company M/s BEBL. The net interest income was offered to tax. However, Ld. AO opined that advances given to M/s GBL by M/s BEBL had no connection with Lohegaon project which had not even started. Therefore, the interest earned by the assessee would be assessable as income from other sources and the netting off of the interest cost could not be allowed. Finally, the interest expenditure as claimed by the assessee was disallowed.