DEPUTY COMMISSIONER OF INCOME TAX 1(3)(2), MUMBAI vs. VIRTUOUS SHOPPING CENTERS LIMITED, MUMBAI

आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

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.”

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.”