BELLISSIMO HI RISE BUILDERS P.LTD,MUMBAI vs. DCIT CEN CIR 7(3), MUMBAI

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ITA 3442/MUM/2017Status: DisposedITAT Mumbai26 May 2020AY 2011-1215 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the appeal for statistical purposes. The judgment primarily addresses the procedural aspect of the pronouncement of the order, noting that the 90-day period for pronouncement under Rule 34(5) of the Appellate Tribunal Rules, 1962, should exclude the period of lockdown due to the COVID-19 pandemic. The Tribunal relied on pronouncements from the Hon'ble Bombay High Court and the Government of India's notification classifying COVID-19 as a natural calamity. The Tribunal held that the period during which the lockdown was in force should be excluded when computing the limitation for pronouncement. While the core dispute regarding the disallowance of interest under Section 36(1)(iii) is mentioned, the detailed reasoning and decision on the substantive issue are not provided in the excerpt. The operative direction is to allow the appeal for statistical purposes, implying a procedural allowance rather than a decision on the merits of the interest disallowance.

What were the facts?

The assessee, Bellissimo Hi Rise Builders Pvt. Ltd. (formerly Lodha Hi-Rise Builders Pvt. Ltd.), is appealing an order from the Commissioner of Income-Tax (Appeals)-52, Mumbai, for Assessment Year 2011-12. The dispute centers on the disallowance of interest expenses. The assessee, a real estate developer, issued debentures aggregating to Rs. 1618 Crores to its holding company, M/s Cowtown Land Development Private Ltd. (CLDPL). The assessee claimed net interest and finance charges of Rs. 1633.57 Lacs. The Assessing Officer (AO) noted that the assessee had accumulated business losses of Rs. 4372.55 Lacs and had made investments in group concerns out of borrowed funds, suggesting a lack of business expediency for the interest expenditure. The AO also noted that the assessee had suo motu disallowed Rs. 2750.62 Lacs, representing interest on investments made out of borrowed funds.

What were the issues?

1. Whether the CIT(A) erred in confirming the disallowance of interest expenses of Rs.5,01,43,016/- under Section 36(1)(iii) of the Income Tax Act, 1961, on the ground that it was not incurred for business purposes? The assessee contended that the disallowance of interest amounting to Rs.27,50,62,799/- made suo motu by the appellant was not required under the Act and was actually an allowable deduction under Section 36(1)(iii)/37(1). The revenue, through the AO and CIT(A), argued that the interest expenditure was not for business purposes as the assessee had accumulated losses and was investing borrowed funds in group concerns without establishing business expediency. The AO also noted that the interest income earned by the assessee was at the same rate as the interest paid on debentures, and the assessee incurred losses because it could not fully lend the borrowed funds. The revenue's contention was that part of the interest expenditure was funding accumulated losses.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Shri Vijay Mehta & Anuj, Ms. Kavita P. Kaushik & Shri Amit
For Respondent: Ms. Kavita P. Kaushik & Shri Amit
Hearing: 07/02/2020Pronounced: 26/05/2020

O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1.1 Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2011-12 contest the order of Ld. Commissioner of Income-Tax (Appeals)-52, Mumbai, [in short referred to as ‘CIT(A)’],Appeal No. CIT(A)- 2 Bellissimo Hi Rise Builder Pvt. Ltd. Assessment Year-2011-12 52/IT/DCIT-CC-7(3)/296/2016-17 dated 02/03/2017 on following grounds of appeal: -

1. On the facts of the case and in law, the CIT(A) erred in confirming the disallowance of interest expenses of Rs.5,01,43,016/- u/s.36(1)(iii) on the ground that it was not incurred for business purposes.

1.2 The assessee has also raised an additional ground of appeal on 26/09/2018 which reads as under: - The Learned Commissioner of Income-Tax (Appeals) ought to have held that the disallowance of interest amounting to Rs.27,50,62,799/- suo moto made by the appellant is not required in accordance the provisions of the Income tax Act but is actually an allowable deduction under the provisions of Section 36(1)(iii)/37(1) of the Act.” Since the additional ground is inter-connected / legal ground, the same is taken on record as ground no.2. As evident from grounds of appeal, the sole subject matter of dispute before us is interest disallowance u/s 36(1)(iii). 1.3 For ease of understanding, the underlying amounts have been rounded -off toRupees in Lacs except where the figure are fully expanded. 1.4 We have carefully heard the arguments advanced by respective representatives. We have also perused relevant material on record including documents placed in the paper-book. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 2.1 Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in development and construction of real estate properties was assessed for year under consideration u/s 143(3) on 31/03/2014 wherein the income of the assessee was determined

3. Bellissimo Hi Rise Builder Pvt. Ltd. Assessment Year-2011-12 at Rs.20.81 Lacs after interest disallowance of Rs.501.43 Lacs u/s 36(1)(iii) as against returned loss of Rs.480.62 Lacs e-filed by the assessee on 30/09/2011. The assessee is stated to be 100% subsidiary of an entity namely M/s Cowtown Land Development Private Ltd. (CLDPL). During financial year 2007-08, the assessee issued 16180 secured, non-marketable, non-transferable 15.25% optionally convertible debentures of Rs.10 Lacs each aggregating to Rs.1618 Crores to M/s CLDPL. 2.2 The name of the assessee has undergone change from Lodha Hi-Rise Builders Private Limited to M/s Bellissimo Hi-Rise Builders Private Limited w.e.f. 06/01/2016 which is evident from certificate of incorporation pursuant to change of name, issued by The

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