ASSISTANT COMMISSIONER OF INCOME-TAX, BANGALORE vs. M/S.GMR PROJECTS PVT. LTD.,, BANGALORE

O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : These are three appeals filed by the Revenue against the orders of CIT (A) -11, Bengaluru, dt.29.04,.2015, for the assessment years 2008-09, 2010-11 and 2011-12 on the ground that the CIT (A) was not right in directing the AO to consider the disallowance of indirect expenses as per Rule 8D.

ITA.2213 to 2215/Bang/2016 Page - 2 ITA.2213/Bang/2016 – AY 2008-09 : 02. The facts of the case are that the assessee has taken loan from ICICI Bank for business purposes. But however the same was utilised by making fixed deposits and the assessee earned interest therefrom. As the loans were not utilised for business purposes despite that the assessee has added back the interest paid while computing the business income and simultaneously the assessee has claimed the interest paid as deduction while computing the income from other sources. Considering the above said facts the AO has restricted the interest expenditure to the amount of interest earned by the assessee and accordingly the amount of Rs.7,11,74,770/- was added back to the income of the assessee. Feeling aggrieved by the addition, the assessee filed appeal before the CIT (A).

6.3.2 I have gone through the observation of the Assessing Officer as well as the facts and circumstances of the present case and various decisions relied upon by the appellant in support of its claim as well as the decision of CIT(Appeals) given in the appellant's own case for AY 2009-10 that the entire amount of interest expenses incurred and laid out for earning of interest income under the head income from other sources is to be allowed except the amount of interest attributable to interest free loans and advances. Thus, the appellant argued that the action of the assessing Officer in restricting the claim of interest deduction to the extent of interest income earned is not correct and is contrary to the decisions relied upon by the appellant including the decision of jurisdictional ITAT and the CIT(Appeals) in its own case wherein it has been held that the claim of interest expenses pertaining to ITA.2213 to 2215/Bang/2016 Page - 3 the interest income chargeable under section 57(iii) needs to be allowed as deduction under section 57(iii). Further, it was argued that the CIT(Appeals)- I, Bangalore has dealt with this issue on identical facts in appeal order dt. 17.10.2013 for the AY 2009-10 and wherein having regard to the facts and circumstance of that year he has directed for allowing the amount of interest which has been treated as deductible by him in the appellate under section 36(1)(iii) of the Income-tax Act, 1961 by holding in Para 5.2 to 5.4 that the amount of interest corresponding to interest free loans is to be considered for disallowance. 6.3.3 Further, it was submitted by the appellant that in the case of the Appellant for the AY 2009-10, the CIT(A) in the order passed has allowed the claim of interest expenses incurred under section 36(1)(iii)/ 57(iii) and has restricted the disallowance of interest expenses to the extent of interest attributable to interest free advances given out of the borrowed funds. The CIT(A) in Para 5.2, 5.3 and 5.4 of the order for AY 2009-10 has held as under:

5.2Thus, the interest to the extent of Ps. 51,07,85,271 (Rs. 102,32,841-Ps. 51,24,40,570) was disallowed by the AO on the reason that interest was not incurred wholly and exclusively in relation to the activity of earning interest. However, the observation of the AO is general in nature and not pointed out why so much of interest was not incurred for earning of interest for the purposes of business. 5.3 As discussed above, there was no interest free fund and as such the appellant applied interest bearing funds towards working capital, fixed asset, investment, PD'S and also loan and advance. It is observed that the appellant had made advance of Rs. 142,32,76,570/- L. Y. 216,76,409) and interest offered only Rs. 41,73,437/- 5.4 Since these were interest free or nominal rate whereas interest charged at the rate of 13.86%. If at all, interest to the extent of Rs.

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199,72,66,124/- is disallowable not pertaining appellant's business. In revised computation of income Rs. 2,70174,9281- disallowed being interest on amount utilized for interest free loan, but it was considered on the part of the loans and advances. In fact, loans and advances outstanding ads on 31.03.2009 at Rs. 142,32,76,570. The mere contention that the borrowed funds business, cannot be taken as reasonable ground to accept the plea of the appellant. Considering the fact that consistently loan and advance given to the others without corresponding return thereof and with no better performance in the business of the appellant in the circumstances, the arguments placed by the appellant devoid merit and hence rejected. In view of this fact, therefore, disallowance to the extent of Rs. 19,72,66,124/- is confirmed. The appellant thus gets relief for Rs. 31,35,19,147/- In view of the order of CIT(A) as above, it was argued that the amount of interest corresponding to the amount attributable to interest free advances needs to be disallowed since no return on such amount is earned by the appellant.

Feeling aggrieved by the above said order of the CIT (A), Revenue is in appeal before this Tribunal.

outcome of the disallowance made under section 57(ii) and 36(1)(iii) of the Act. The CIT (Appeals) has restricted the disallowance by considering the disallowance made by the Assessing Officer under section 57(iii) of the Act. Accordingly, when the other issues are set aside to the record of the Assessing Officer then the issue of disallowance under section 14A is also set aside to the record of the Assessing Officer for deciding the same afresh as per the outcome of the verification and examination of the other connected issues of availability of fund, etc.

It was submitted that the issue before us is similar to the issue in the subsequent year and therefore the issue is required to be decided in accordance with the finding given by the Tribunal for AY 2009-10.