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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of the Commissioner of Income Tax (Appeals)]-3, Mumbai, [in short CIT(A)], in 1(3)(1)/IT-183/2016-17 dated 23.11.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle- 1(3)(2), Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2014-15 vide order dated 29.12.2016, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is as regards to the disallowance of expense relatable to exempt income made by the AO and deleted by CIT(A) under section 14A of the Act read with Rule 8D of the Rules. For this Revenue has raised he following ground: - “1. Whether on the facts and circumstances of the case and the Ld. CIT(A) was correct in deleting the disallowance under section 14A r.w. Rule 8d by relying upon the decision of CIT Vs. M/s Delite Enterprise in ITAN No. 110 of 2009.”
3. At the outset, the learned Counsel for the assessee as well as the learned Sr. Departmental Representative conceded the position that there is no exempt income earned by assessee. Once, this is a fact that there is no exempt income then the issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered following the judgment of Hon’ble Delhi High Court in the case of Chem invest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held as under: - “On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns
were not the actual income received by the assessee, they could not have been included in the total income.”
As the issue is covered and assessee is not having any exempt income, no disallowance of expenses relatable to exempt income under section 14A of the Act read with rule 8D of the Rules, can be made. The appeal of Revenue is dismissed.
Coming to CO of the assessee, the only issue is against the order of CIT(A) confirming the disallowance of interest amounting to ₹ 5,55,900/- under section 36 of the Act. For this assessee has raised the following ground: - “1. Disallowance u/s 36 of Income Tax Act, 1961 The learned CIT(A)(3) erred in upholding disallowance of ₹ 5,55,900 by invoking the provision of section 36 of the Income Tax Act, 191 ignoring the fact that borrowed money are used on for the purpose of business.”
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the AO has not made any disallowance on account of interest under section 36 of the Act. The CIT(A) made disallowance by observing as under: - “4.4 Decision ground No. 1:
4.4.1 On going through the records I find that the appellant's contention that it did not earn any exempt income during the relevant previous year correct. Therefore, I agree with the appellant that section 14A cannot be invoked in this case. However, it is necessary to examine, whether or not the interest expenses are otherwise allowable u/s 36 of the Act.
4.4.2 In the course of the appeal proceedings the appellant was asked to show cause as under:
"I found that you have borrowed Rs. 5696.60 lakhs through issue of unsecured optionally convertible debenture. Out of that Rs. 5640.01 lakhs was given to Commonwealth Developers Ltd. Prima fade it appears that the remaining fund of As. 55.59 lakhs raised through issue of unsecured optionally convertible debenture was invested for non-business purpose. In this connection you are requested to show cause as to why the disallowance of interest relatable to the sum of As. SS.95 lakhs should not be confirmed.
Your reply should be filed at the time of next hearing which has been fixed on 24.11.2011."
4.4.3. In response the appellant, by its letter dated 24-11-2017, submitted that the said funds (Rs. 55.59 lakhs) was used for payment to Jones Lang LaSalle who have rendered
100% equity in CDL. The appellant submitted that it had treated the brokerage amount as cost of investment and in the return of income the same were not claimed as expenses.
4.4.4 I have considered the appellant's submissions. I find the appellant's claim that the sum of Rs.55.59 lakhs was paid to MIs Jones Lang LaSalle for services rendered by MIs Jones Lang LaSalle for financial advisory services for acquisition of 100% equity in COL unacceptable. The appellant did not disclose the payment in its financial statements. Therefore, the investment in CDL is to be reduced by the sum of Rs.55.59 Iakhs. However, no addition is to be made to the total income for the AY 2014- 15 because, the appellant did not debit the amount in the P&L account for AY 2014-15. However, since the payment to M/s Jones Lang LaSalle has been held to be for non-business purpose, the interest attributable to that sum is to be disallowed. Accordingly, I hold that interest of Rs. 5.559 lakhs (10% of 55.59 lakhs) is not allowable u/s 36 of the Act. Accordingly, I confirm disallowance of Rs. 5.559 lakhs.”
We noted that the facts are that a sum of ₹ 55.59 lakhs was paid to M/s Jones Lang LaSalle for services rendered for financial advisory services for acquisition of 100% equity shares in a Common Wealth