DCIT CENTRAL CIRCLE-5(4), MUMBAI vs. AWAS DEVELOPERES & CONSTRUCTION PRIVATE LIMITED, MUMBAI

This appeal is filed by the Revenue against the order of the Commissioner of Income Tax(Appeals) [“Ld.CIT(A)”] 53, Mumbai in DIN & Order No.ITBA/APL/S/250/2024-25/1069031172(1) dated 24.09.2024. 2 Awas Developers & Constructions Private Limited

In the above cited Revenue appeal, two grounds were raised, i.e., the first one being deleting the disallowance made by the AO u/s 14A r.w.r.8D(2) of Income Tax Rules and the second one being, deleting the disallowance made by the AO u/s 43B of the Income Tax Act, 1961 (“the Act”). Aggrieved by the deletions made on the above two grounds, the department came in appeal before the ITAT.

As far as first ground is concerned, the department is of the view that section 14A r.w.r.8D(2) should be applied even in a case when exempt income is not accrued or arisen or exempt income has not been received during the previous year. In the year under consideration, there is no dispute that the appellant company has not received any exempt income like dividend or tax free capital gains etc. In this regard, the Special Bench of ITAT has already adjudicated the matter in the case of Vireet Investments Pvt.Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB), where it was held that for computing disallowance under Rule 8D(2), only those investments which have yielded exempt income should be considered. The AO is directed to follow the ratio laid down in this Special Bench decision.

The second ground relates to disallowance of expenditure claimed by the assessee u/s 43B of the Act. The assessee has claimed certain interest payable to the bank as expenditure. The AO found that the 3 Awas Developers & Constructions Private Limited interest claimed was not paid to the bank during the financial year and hence, disallowed the same u/s 43B of the Act. The Ld.CIT(A) deleted the addition stating that the provisions of section 43B are not applicable to the assessee. Aggrieved by this deletion of disallowance, the Revenue filed appeal before the ITAT.

During the appeal proceedings before ITAT, the Ld.AR of the appellant has stated that its case is already covered by the decision of coordinate Bench of ITAT in for the A.Y.2016- 17 dated 20.07.2022. In this decision of coordinate bench, the decision was rendered in favour of the assessee company and the operative portion is reproduced below :

Per contra, the Ld.DR relied on the decision of CIT-2 Vs. Upendra of 2011 dated 30.10.2012 rendered by Hon’ble Bombay High Court, where, it was held that section 43B is applicable only in respect of any amount paid as interest to a scheduled bank and the scheduled bank was defined in Explanation 4 to section 43B of the Act. Therefore, one has to look at the Explanation 2 to section 11(5)(iii) to determine whether cooperative bank is included within the meaning of scheduled bank. In this regard, the Ld.DR filed very detailed written submissions, which is reproduced below:

Heard both sides. From the detailed written submissions of the Ld.DR along with a copy of Gazette of India, it is observed that these evidences were filed before ITAT for the first time and hence the Bench decided the issue should be remitted to the file of the Ld.AO to look into this matter. The AO is directed to go through the decision rendered by the Hon’ble Bombay High Court, written submissions filed by the Ld.DR along with copy of Gazette of India filed by the Ld.DR and take appropriate decision after giving an opportunity to the appellant company.

In the result, appeal of the Revenue is allowed for statistical purpose.