LEH HOLDINGS P. LTD,AHEMEDABAD vs. ITO 3(2)(1), MUMBAI

to 3658/Mum/2009 2 2. In these appeals issues involved are common, that is to say, both the assessee are challenging disallowance of interest expenses and allowance expenses under section 14A of the Income Tax Act, 1961 in both the assessment years.

With the assistance of the ld.representatives, we have gone through the record carefully. The ld.counsel for the assessee has compiled details showing the assessed income and expenditure claimed by the assessee in these two years. Before adverting to the specific grievance of the assessee in these appeals, we would like to note all the details. They read as under:

First grievance of both the assessees is that ld.AO has disallowed expenditure viz. Rs.2,81,137/- and Rs.4,12,796/- in the case of Leh Holdings P.Ltd., for the Asstt.Years 2004-05 and 2005-06 respectively. Similarly, in the case of Kargil Holdings P.Ltd. such expenses have been disallowed at Rs.8,21,064/- and Rs.3,79,808/-. These expenditure have been disallowed on the ground that the assessee did not carry out any business activity. It has interest income, dividend income and agriculture income. According to the ld.AO interest income deserves to be assessed as income from other sources and expenditure are not be allowed to the assessee and the expenditure in the nature of administrative are not allowable to the assessee. The stand of the assessee is that both the authorities have failed to appreciate true nature of assessee’s business. The ld.counsel for the assessee drew our attention towards copy of registration certificate granted by the RBI. The assessee has been granted a certificate for carrying on business of non-banking financial institution. Such certificates have been placed on page no.50 and 87 of the paper book. According to the ld.ccounsel for the assessee, if it is carrying on the business of non-banking financial institution, then interest income is to be assessed as business income. The ld.DR was unable to controvert this contention.

On due consideration of the above facts, we are of the view that being non-financial institution, its interest income is to be assessed as business income. If interest income is to be assessed as business income, then all administrative expenses, salary expenditure are to be allowed to the assessee. Therefore, we allow first fold of grievance of both the assessees and delete disallowance of Rs.2,81,137/- and Rs.4,12,796/- in the case of Leh Holdings to 3658/Mum/2009 8 Pvt.Ltd., and Rs.8,21,064/- and Rs.3,79,808/- in the case of Kargil Holdings P.Ltd. in the Asstt.Year 2004-05 and 2005-06 respectively.

In the next fold of grievance, the assessee has pleaded that the ld.CIT(A) has erred in confirming disallowance under section 14A of the Income Tax Act, at Rs.2,00,639/- and Rs.2,15, 622/- in the case of Kargil Holdings P.Ltd. and Rs.2,97,375/- and Rs.2,75,265/- in the case of Leh Holdings P.Ltd. in the Asstt.Year 2004-05 and 2005-06 respectively. We find that the assessee has substantial dividend income, thus expenditure attributable to earning of tax free income deserves to be disallowed to the assessee. The disallowance has been made at half percent of the average investment. It does not include interest expenditure. Since, the assessee has its independent source of investment therefore, the authorities below have not worked out interest expenditure. They have confined themselves to the administrative expenses relatable to earning of tax free income. After considering the facts and circumstances, we do not find any error in the orders of the Revenue authorities. This fold of grievance is rejected. Disallowances made by the AO in the case of both the assessees in both the years are confirmed.

In the result appeals of the assessees are partly allowed. Order pronounced in the Court on 1st November, 2018 at Ahmedabad.