DCIT CIR. 3(3)(2), MUMBAI vs. SUNDIAL INVESTMENTS PVT. LTD., MUMBAI

This appeal by the Revenue is arising out of the order of CIT(A)-8, Mumbai, in appeal No. CIT(A)-8/IT-14/14-15 dated 22-01-2015. The Assessment was framed by DCIT Circle-3(3), Mumbai for the A.Y. 2011-12 vide order dated 05-03-2014 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in allowing interest payment of Rs 40,77,009/- towards interest on borrowed capital claimed by assessee u/s 24(b) of the Act though

Sundial Investments Pvt. Ltd. AY:11-12 the submissions relied upon by the assessee were not filed before the AO during the year under consideration and n interest certificate from the person giving loan was filed by the assessee"

2. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in allowing interest payment of Rs 40,77,009/- towards interest on borrowed capital claimed by assessee u/s 24(b) of the Act without appreciating the fact that the revised claimed of interest was not made by filing any revised return of income but during the assessment proceeding which is in contravention to the decision of the Hon'ble Supreme Court in the case of Goetz India Ltd (2841TR 323)”

Description of property Date of Agreement Amount (Rs.) 3C1 Gundecha, 20.11.2006 1,13,70,345/- Andheri (East) Mumabi 1C1Gundecha, 01-02-2008 1,13,70,345/- Andheri(East) Mumbai Hyde Park at 30-07-2009 3,21,73,395/- Andheri (East) Mumbai The assessee claim interest expenditure of Rs.25,03,500/- to acquire the above mentioned properties by filing a revised computation of total income and the same was further revised by claiming total expenditure of interest at Rs. 40,77,009/- by filing a letter dated 28-02-2014. The assessee before AO claimed that in financial year 2008-09 relevant to AY 2009-10 the total interest relates to the aforesaid period at Rs. 26,08,778/- and for financial year 2009-10 relevant to AY 2010-11 the interest comes to Rs. 43,82,895/-. The assessee before AO explained that the total borrowings for the aforesaid three properties outstanding Page 2 of 9

Sundial Investments Pvt. Ltd. AY:11-12 as on 31-03-2010 was Rs. 4,98,66,112/-. Accordingly, the total amount of interest for FY 2010-11 relevant to AY 2011-12, the year under consideration, was at Rs. 40,77,009/-. The AO did not allow the claim of the assessee for the AY 2010-11 for the reason that the same was not claimed before the AO by filing revised return of income. The AO relying on the decision of the Hon'ble Supreme Court in the case of Goetz India Ltd. 283 ITR 223 (SC), disallowed the claim of the assessee. The assessee even during AY 2012-13 made a claim of interest of Rs. 52,62,170/- against the income from house property and the same was allowed under section 143(3) of the Act. As the AO disallowed the claim of interest for AY 2011-12 amounting to Rs. 40,77,009/- for the reason that the assessee has not made claim before the AO by filing the revised return of income. Aggrieved assessee preferred the appeal before CIT(A), who allowed the claim of the assessee by observing as under: -

“5.1.5 It is seen from the documents submitted before the Assessing Officer that the impugned 3 properties were purchased substantially out of bank loans as is supported by copies of bank statements. The Assessing Officer has rejected this evidence without rejecting the books of accounts and without mentioning why copies of bank statements pertaining to loan were not found "authentic". He has also not shown any reason why he is not accepting the computation of Rs. 37,136/-made by the appellant towards indirect expenditure of an accountant in relation to earning of exempt income.

5.1.6 Section 24 (b) of the Income Tax Act, 1961 clearly states where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as deduction. Thus, the provision of the Act clearly applies in the instant case and the interest payment of Rs. 40,77,009/- is allowable

Sundial Investments Pvt. Ltd. AY:11-12 expenditure. This issue was subject matter of ground of appeal No. 1, which is allowed.”

Aggrieved, now Revenue is in appeal before us.

“7. We have considered the rival contentions and perused the materials placed before us including the orders of authorities below and case law relied upon by the ld.AR. We find that the assessee has made special ground before the ld.CIT(A) to allow the interest on borrowed funds used for acquisition of property from the income of house property. However, the claim of the assessee was rejected by the ld.CIT(A) by upholding the action of the AO for the reason that new claim cannot be admitted except through revised return by relying on the decision in the case of Goetze India Ltd(supra). We find merits in the submission of the ld.AR that the ratio laid down in the case of Goetze India Ltd(supra) is not applicable to the appellate authority and appellate authority can entertain the legitimate claim of the assessee. The appellate authority has power and discretion to permit such additional claim to be raised and have jurisdiction to deal with not only additional grounds which were filed on account of change of circumstances of law but also additional grounds which were available in the return so filed. The Hon’ble jurisdictional High Court in the case of Pruthivi Brokers and Shareholders Pvt.Ltd.(supra), the appellant sought to raise following question of law:

Sundial Investments Pvt. Ltd. AY:11-12

“ The appellant seeks to raise the following questions of law :

(A) Whether, an assessee can amend a return filed by him for making additional claim for deduction other than filing a Revised Return?

(B) Whether, on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, in law, was right in holding that a claim of deduction not made in the original return and not supported by a revised return, is admissible?

(C) Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal, in law, was right in not appreciating the fact that the AO has no power to entertain a claim made by an assessee after filing a original return otherwise than by filing a revised return”

The question that arose in the above appeal before the Hon’ble High Court is CIT(A) and ITAT had jurisdiction to consider under the additional claim /deduction subsequently raised before AO which through inadvertence was not claimed in the original return of income filed by the assessee. The question is answered affirmative in several judgment. The Courts further held that even assuming that the AO is not entitled to the give deduction on the basis of letter requesting the amendment to the return filed, the appellate authority are entitled to consider the claim by adjudicating the same. In view of the ratio laid down in the above said judgment, we set aside the finding of the ld. CIT(A) on this issue and direct the AO to allow the claim of the assessee on account of interest of Rs.43,82,895/- from the income of house property. Accordingly, ground no.1 is allowed.” Page 5 of 9

Sundial Investments Pvt. Ltd. AY:11-12

“3. On the facts and circumstances of the case and in law, LD CIT(A) has erred in deleting the disallowance u/s 14A made by the AO in the normal computation and u/s 115JB of the I.T. Act without considering the fact that the amount of disallance u/s 14A has to be computed as per rule 8D when the computation of the assessee was not found to be correct and as held in the order of the Hon’ble High Cour tin the case of M/s Godrej & Boyce Mfg. Co. Ltd and Hon’ble ITAT Chennai in the case of K.H. Arind Pvt. Ltd. (64 Taxmann.com 409).

4. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in not considering the fact that the disallowance u/s 14A as per rule 8D made in AY 2010-11 were upheld by the Ld. CIT(A) and the grounds and reasons for differing from the decision of earlier years are not discussed by the ld. CIT(A) while deciding the issue.”

Sundial Investments Pvt. Ltd. AY:11-12 10(38) of the Act. The assessee suo moto has disallowed a sum of Rs. 37,136/- being expenses relatable to exempted income under section 14A of the Act and also disallowed an amount of Rs. 22,03,500/- from business income being interest expenditure related to acquisition of immovable properties. The assessee was asked to submit the working of disallowance under section 14A of the Act read with rule 8D of the Rules, wherein, he workout the disallowance at Rs. 7,89,549/- after considering the interest expenses of Rs. 14,43,379/-. The AO worked out disallowance in view of the formula provided in Rule 8D of the Rules at Rs. 47,61,348/- as against the suo moto disallowance made by AO at Rs. 37,136/-. The AO also added the expenses of Rs.47,61,348/- under section 14A of the Act to the book profit computed under section 115JB of the Act. Aggrieved assessee preferred the appeal before CIT(A), who after considering the availability of interest funds of Rs. 7.72 crores by way of capital and reserves as against investment made by assessee of Rs. 6.96 crores, deleted the disallowance by observing Para 5.1.12 as under “5.1.12 In the instant case, I find that the Assessing Officer has not given any justification for rejecting the claim of the appellant that no expenditure was incurred in earning of dividend income nor has he given any specific reasons for rejecting the computation of indirect expenses as submitted by the appellant. He has also not taken into consideration the fact that the appellant's own funds by way of capital and reserves were more than the investments made. He has erroneously included interest directly relatable to acquisition of property in his computation of interest for the purpose of disallowance under section 14A. Therefore, in view of the facts and circumstances of the case and the ratio of various judicial pronouncements as mentioned above the Assessing Officer is directed to accept suo moto disallowance of Rs. 37,136/- made by the appellant under section 14A and the Sundial Investments Pvt. Ltd. AY:11-12 balance disallowance is deleted. These grounds of appeal are therefore allowed.”

Aggrieved, now assessee is in second appeal before Tribunal.

“14. We have carefully considered the submissions of both parties, perused the material placed before us including the orders of authorities below and case law relied upon by the ld.AR. We find that the assessee’s own funds were more than the investments and therefore there is merit in the submissions of the ld. AR of the assessee that the assessee’s own funds was invested in the tax free income yielding investments and consequently, the disallowance as made by the AO was wrong and against the provisions of the Act. Further the case of the assessee find strong support from the decision in the case of CIT vs. Reliance Utilities (Bombay High Court). We are in agreement that if both the interest free funds and interest bearing funds are available then it should be presumed that the assessee has made investment out of interest free funds. We, therefore, following the ratio laid down by the Hon’ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities (Bombay High Court) (supra) set aside the order of ld.CIT(A) and restore back the issue to the file of the AO for fresh decision after providing necessary and reasonable opportunity of being heard to the assessee.

Sundial Investments Pvt. Ltd. AY:11-12