ACIT 3(1)(2), MUMBAI vs. CHINSHA PROPERTY P. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI BEFORE SHRIBR BASKARAN, AM AND SHRI RAVISH SOOD, JM 31awr 3da Fi. I.T.A. No. 479]/Mum2016 (feru a4_ Assessment Year: 2011-12) ACIT-3(1)(2), Room No. 607 , 6th FloOr, Aaykar Bhawan; Mumbai-400020. Ms Chinsha Property Pvt. Ltd. 41/44, T Shapoorji Pallonji Centre, Minoo Desai Marg; Colaba; Vs. Mumbai 400 005 FN &ur #/ait311311 #_[PANIGIR No. AAACC6982A (3rdlaRff /Appellant)" (HTeff / Respondent)" 39creff &1 31< # Appellant by Tcreif-#t3 Z/Respondent by Shri Purshottam Kumar; Sr: AR Shri Behari Lal 37ars *Trw Date of Hearing_ a4uTr &1 TR& / Date of Pronouncement 04.01.2017 11.01.2017 H8 LORDER PER RAVISH SOOD, J.M: The present appeal is directed against the order passed by the CIT(A)-8, Mumbai, dated 29.04.2016, which in itself arises from the order passed by the A.O. u/s 143(3) of the Income Tax Act 1961 (for short 'Act), dated 06.03.2014. The revenue ITA No. 4791 /Mum /16 A.Y 11-12 [ACIT vs. M/s. Chinsha Property Pvt. Ltd Mum assailing the order of the CIT(A) had raised before uS the following grounds of appeal: - 1. "Whether on the facts and in the circumstances 0f the case and in law, the Ld.CIT(A) was right in allowing interest expenditure of Rsl,38,74,295/- as deduction u/ s.36(1)(iii) of the I.TAct; 1961 without appreciating the fact that the assessee has diverted its interest bearing loan to the business purpose of the other entity and without any commercial expediency and the same cannot be allowed aS deduction u/ s.36(1)(iii): 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was right in holding that section 14A of the IT: Act; 1961 is not applicable in the case of the assessee without appreciating the fact that any return by way Of profit of the company is only by way of dividend which is exempted 3. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored: 4. The appellant craves leave to amend or alter any ground Or add a new ground which may necessary: 2 The brief facts of the case are that the assessee' company which is engaged in the business of investment in immovable properties had filed its return of income on 27.09.2011, declaring ITA No.4791/Mum/16 A.Y. 11-12 [ACIT vs. M/s. Chinsha Property Pvt: Ltd Mum net loss at Rs.1,28,72,587 / - The case of the assesse company was taken up for scrutiny proceedings under section 14302) of the 'Act: The assessee company had borrowed funds to the tune of Rs.16,17,95,000/- from its holding company M/s. Shapoorji Pallonji & Co_ Ltd; on which interest of Rs.1,56,84,461/- was paid. The assessee company had out of the aforesaid interest capitalized an amount of Rs.18,10,166/- by treating the same as having been paid for acquiring the debts of M/s Swadeshi Mills Ltd, while for the balance amount of Rs.1,38,74,295/- was claimed as an expenditure and debited in the P & loss a/c' of the assessee company. The A.O_ during the course of the assessment proceedings observing that an amount of Rs.11,25,00,000/- had been advanced by the assesse company as an interest free loan to M/s Joyous Housing Ltd, therein called upon the assessee to show cause as to why the corresponding interest pertaining to the aforesaid interest free advance may not be disallowed u/s 36(1)(iii) of the 'Act: The assessee submitted before the A.O. that as it was a shareholder with M/s Joyous Housing Ltd , and as such was entitled to profit which would be earned by the said company from the proposed project being carried out by it, therefore no disallowance of the interest corresponding to the amount advanced free of interest as per the Memorandum of understanding' executed with the said company on 15.04.2004, was thus liable to be made. The A.O. however not finding favor with the aforesaid explanation of the assessee and being of the view that making of investments in the business of other companies was not the business of the assessee company, as well ITA No.4791 /Mum/16 A.Y 11-12 (ACIT vs_ M/s. Chinsha Property Pvt. Ltd. Mum as holding a conviction that the same was an afterthought to give the transaction a color of legitimacy, therein held that as the assesse had diverted its interest bearing funds by way of an interest free advance to M/s Joyous Housing Ltd, which was neither for any business purpose, nor backed by any commercial expediency, therefore carried out a disallowance of interest of Rs.1,38,74,295/- u/s 36(1)(iii) of the 'Act' in the hands of the assessee_ Alternatively, the A.0 observing that even otherwise as the aforesaid interest paid by the assessee was for earning of dividend income which was exempt from tax, therefore the same on the said count too could not be allowed as a deduction u/s 14A of *Act' , and thus on the aforesaid premises too supported the disallowance of Rs.1,38,75,295/-(supra) in the hands of the assessee company and assessed the latters income at Rs.10,01,710. 3. The assesse company assailed the assessment order before the CIT(A), who observing that the issue before him had already been in the backdrop of the similar facts involved in the case f the assessee company for the immediately preceding year, i.e AY. 2010-11, adjudicated upon by his predecessor; thus not finding any reason to differ from the view adopted by his predecessor, therein proceeded with and deleted the disallowance of Rs: 1,38,74,295/-(supra), to the extent the same was made by the A.O u/s 36(1)(iii) of the 'Act'. 4_ The revenue assailing the order of the CIT(A) had filed the present appeal before us. That at the very outset of the hearing of ITA No.4791 /Mum/16 A.Y 11-12 [ACIT vs. M/s. Chinsha Property Pvt. Ltd_ Mum the appeal it was submitted by the Ld. Authorized Representative for the assessee (for short 'A.R) that the CIT(A) while allowing the appeal had followed the order passed by his predecessor in the case of the assesse company for AY 2010-11 in Appeal no. CIT(A) 6/IT 87/RG.3(1)/ 12/13, dated 18.10.2013, which thereafter had been confirmed by the Tribunal vide its order dated 14.08.2015 in ITA No. 274/mum/2014 (copy placed on record). That the Ld. Departmental Representative (for short DR) duly conceded to the aforesaid factual position: 5. We have heard the Ld. Representatives for both the parties, perused the material available on record and are of the considered view that the issue pertaining to the disallowance carried out by the A.0 u/s 36(1)(iii) of the 'Act', to the extent the same had been assailed by the revenue before uS by way of 'Ground of appeal no.l', is squarely covered by the order of the Tribunal passed in the case of the assesse for the immediately preceding year , i.e AY-2010-11, marked as DCIT VS , M/s Chinsha Property Pvt Ltd, (ITA no.274/Mum/2014). The Tribunal while adjudicating upon the issue as regards the disallowance u/s 36(1) (iii) in the hands of the assessee company, therein disposing of the aforesaid appeal involving the same facts as are there before US in the present appeal, had therein held as under:- "After hearing both the parties and on perusal of the material on record; we find that it is an undisputed fact that the assessee alongwith 2 other companies has invested in a joint venture company M/s Joyous Holding Ltd_, which had ITA No.4791 Mum/ 16 A.Y. 11-12 [ACIT vs. M/s. Chinsha Property Pvt_ Ltd. Mum undertaken a project 0f slum redevelopment at Tulsiwadi; Tardeo under the DCR of Greater Mumbai; 1991. As per the Tripartite agreement and the MOU, for the development of this project; huge funds were required, which were to be contributed by the company in the form of participation of equity shares: Apart from that further amount of Rs.11.25 crores was funded which was over and above the subscription and acquiring of shares which was in the form of interest free: The business of the Joyous Holding Ltd. has already been set-up and commenced. Such a fund deployed out of the interest bearing loan was wholly for the purpose of business, of Joint Venture which was to develop project because the assessee was in the business of real estate and earning income therefrom. Further, the assessee were entitled for profit of Rs. 42 crores from the said business, which was stated in the MOU itself: All these aspects have been dealt by the CIT(A) and finding of fact has been given that the said funds were utilized wholly for the business purpose and for the" commercial expediency and therefore, any interest paid on such fund has to be allowed as "business expenditure" u/ s 36(1)(iii): Finding recorded by the Ld CIT(A) is thus affirmed accordingly, we do not find any merits in the grounds raised by the revenue and the same are dismissed" We are of the considered view that as the issue to the extent pertaining to disallowance of interest u/s 36(1)(iii) in the present case before us is squarely covered by the order passed by the 11-12 [ACIT vs. M/s. Chinsha Property Pvt Ltd Mum ITA No.4791/Mum/ 16 A.Y. Tribunal in the case of the assessee company for the immediately preceding year, ie AY. 2010-11 (TA No. 274/Mum/2014), which had been followed by the CIT(A) while disposing of the aforesaid assailed by the assessee before him, therefore issue as was finding no reason to hold a different view, we therefore uphold the order of the CIT(A) therein deleting the disallowance made by the A.0 u/s 36(1)iii) of the 'Act': Thus the 'Ground of appeal No 1 SO raised by the revenue before us is dismissed in light of our aforesaid observations 6. We are of the considered view that the 'Ground of appeal no. 2' s0 raised by the revenue before Us, therein seeking sustaining the disallowance of Rs. 1,38,74,295/-(supra) which of was by the A.O u/s 14A of the 'Act' while alternatively supported framing the assessment, does not arises from the impugned order of the CIT(A) before US, therefore there arises no occasion for us adjudicate upon the same. Thus in light of our aforesaid to observations, the aforesaid 'Ground of appeal no. 2' sO raised by the revenue before us is rendered as infructuous and is thus dismissed. In the result; the appeal filed by the revenue is dismissed in light of our aforesaid observations Order pronounced in the open court on 1lth January, 2017. (BR Baskaran) (Ravish Sood) ~&Hc Accountant Member 74fyd HZ Judicial Member 7a; Mumbai; f4ol4 Dated 11.01.2017 ITA No.4791 /Mum/16 A.Y_ 11-12 [ACIT vs_ M/8. Chinsha Property Pvt. Ltd. Mum PS Rohit at w@f MN LlCopyoftheOrder forarded 1. to 31dchreff The Appellant 2. 4cyeff The Respondent 3. 3Ta 31ra(3dal) The CIT(A) 4. 3Ta 31a CIT concerned 5. @upit4@ffet,31N47 3riain 34370, 6. 7a} / DR, ITAT; Mumbai JIs +13-t Guard File HR3HR/ BY ORDER 34R6T44 HofaR (Dy_JAsstt Registrar) 3114Ar 3dicily Hf cror, 4as / ITAT; Mumbai