Deputy Commissioner of Income tax, Bangalore V. M/s Gopalan Enterprises India Pvt Ltd, Bangalore

ITA 1098/BANG/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3246 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 25-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR AJEET BENGALURU
• Assessee Lawyers: K R PRADEEP
• Keywords: Business income; Earning of tax free income; Revised return; Rule 8D
• Section: 14A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER IT A NO S . 1098 /BANG/201 4 ASSESSMENT YEAR: 201 2 - 1 3 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 11(3), BANGALORE. VS. M/S GOPALAN ENTERPRISES INDIA PVT. LTD., NO.5, RICHMOND ROAD, BANGALORE 561 203. PAN: AABCG 3197L APPELLANT RESPONDENT APPELLANT BY : SHRI KUMAR AJEET, CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI K.R. PRADEEP , A DVOCATE DATE OF HEARING : 02.03 .2020 DATE OF PRONOUNCEMENT : 06 .03 .2020 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 20.5.2014 OF CIT(APPEALS)-1, BANGALORE, RELATING TO ASSESSMEN T YEAR 2012-13. 2. GROUNDS NO.1, 9 & 10 RAISED BY THE REVENUE ARE G ENERAL IN NATURE AND CALLS FOR NO SPECIFIC ADJUDICATION. GROUNDS NO .2 TO 6 ARE WITH REGARD TO THE GRIEVANCE OF THE REVENUE AGAINST THE ORDER OF T HE CIT(A) WHEREBY THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCT ION U/S.80IAB(4)(III) OF THE INCOME TAX ACT, 1961 (ACT). THESE GROUNDS READ AS FOLLOWS:- ITA NO. 1098/BANG/2014 PAGE 2 OF 11 2. THE CIT (A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80IA(4)(III) BY FOLLOWING HIS ORD ERS IN ITA NO.182/DC-11(3)/A-I/2009-10 DATED 23/3/2013 FOR A.Y .2004-05, ITA NO.283/DC-11(3)/A-I/13-14 DATED 30-4-2014 FOR A .Y.2005- 06, ITA NO.191/DC-11(3)/A-I/12-13 DATED 30-08-2013 FOR A.Y.2007-08, ITA NO.284/DC-11(3)/A-I/13-14 DATED 30 -04- 2014 FOR A.Y.,2011-12 IN THE ASSESSEE'S OWN CASE WI THOUT APPRECIATING THAT THE RELIED UPON ORDERS HAVE NOT B EEN ACCEPTED AND APPEALS US/.253 HAVE BEEN PREFERRED AND THE ASS ESSEE HAD NOT FULFILLED THE CONDITIONS FOR THE APPROVAL GRANTED B Y THE MINISTRY OF COMMERCE AND INDUSTRY. 3. THE CIT(A) ERRED IN NOT APPRECIATING THAT THERE WERE THREE TENANTS. IN THE INDUSTRIAL PARK AS AGAINST THE FIRS T CONDITION THAT 4 UNITS SHOULD BE LOCATED IN THE INDUSTRIAL PARK AND A SUPER BUILT UP AREA OF 1,38,000 SQ. FT. WAS LEASED TO M/S. I-FLEX SOLUTIONS LTD., WHICH IS MORE THAN 60% OF THE TOTAL ALLOCABLE AREA. 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT OUT OF THE THREE COMPANIES FOUND TO BE AVAILABLE, M/S. TRA NSWORKS INFORMATION SERVICES LTD. AND M/S. TRANSWORKS IT SE RVICES WERE ACTUALLY ONE AND THE SAME COMPANY AMALGAMATED BY AN ORDER OF HON'BLE HIGH COURT OF MUMBAI. 5. THE CIT(A) ERRED IN ALLOWING RELIEF WITHOUT APP RECIATING THAT IN THE RELIED UPON ORDER FOR THE ASSESSMENT YE AR 2004-05 THE CIT HIMSELF HAS MADE AN OBSERVATION THAT THE ASSESS EE STARTED WITH ONLY ONE TENANT IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2004-05. 6. THE CIT(A) ERRED IN DIRECTING TO GRANT DEDUCTIO N 80IA(4)(III) OF THE I.T. ACT FOLLOWING THE ORDERS F OR THE EARLIER YEARS IN VIEW OF THE DECISION OF THE JURISDICTION B ENCH OF THE ITAT IN THE CASE OF PRIMAL PROJECTS PVT. LTD.(139-T TJ-233) WITHOUT APPRECIATING THAT THE SAID DECISION HAS NOT YET REACHED A FINALITY. 3. AS FAR AS THE AFORESAID GROUNDS OF APPEAL ARE CO NCERNED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN PROPE RTY DEVELOPMENT INCLUDING INFORMATION TECHNOLOGY PARK (IT PARK) AND SPECIAL ECONOMIC ZONE (SEZ). THE ASSESSEE FILED RETURN OF INCOME FO R AY 2012-13 DECLARING ITA NO. 1098/BANG/2014 PAGE 3 OF 11 NIL INCOME ON 30.9.2012. SUBSEQUENTLY, THE ASSESSE E FILED REVISED RETURN ON 8.11.2013 AND 5.3.2013 DECLARING NIL INCOME AFTE R CLAIMING DEDUCTION U/S.80IAB AMOUNTING TO RS.1,57,57,266/-. THE ASSES SEE WAS CARRYING OUT PROJECTS WHICH WERE ELIGIBLE FOR DEDUCTION U/S.80IA B(4)(III) OF THE ACT I.E. INCOME FROM DEVELOPING, OPERATING AND MAINTAINING S EZ PARK, AS WELL AS PROJECTS WHICH WERE ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT. IN SO FAR AS THE DEDUCTION U/S.80IAB(4)(III) OF THE ACT IS CONCE RNED, IN THE PAST THE ASSESSEE CLAIMED DEDUCTION UNDER THE SAID PROVISION IN RESPECT OF INCOME DERIVED FROM A SEZ PROJECT KNOWN AS MILLENNIUM TOWE RS. IN AY 2012-13 THE ASSESSEE DID NOT CLAIM DEDUCTION U/S.80IAB(4)(I II) OF THE ACT IN RESPECT OF INCOME DERIVED FROM THE SAID PROJECT BUT DECLARE D INCOME FROM MILLENNIUM TOWERS PROJECT UNDER THE HEAD INCOME FR OM HOUSE PROPERTY AND COMPUTED A LOSS OF RS.17,32,732/-. THE SAID CO MPUTATION IS AS FOLLOWS: INCOME RENTAL INCOME 4,08 ,22,924 MAINTENANCE RECEIPT 74.84,364 MISCELLANEOUS INCOME 1,38,036 SUB-TOTAL 4,84,45,324 EXPENSES MILLENNIUM TOWER EXPENSES 22,20,678 ELECTRICITY CHARGES 6,19,156 MAINTENANCE EXPENSES 10,81,614 SECURITY EXPENSES 4,24,670 BANK INTEREST/CHARGES 3,31,15,939 OFFICE ADMN & SELLING EXPENSES 1,06,30,969 RATES & TAXES 20,85,030 SUB-TOTAL 5,01,78,056 NET PROFIT/LOSS - 17,32,732 4. THE AO TREATED INCOME RECEIVED FROM THE PROJECT MILLENNIUM TOWERS OF RS.4,08,22,924 AS INCOME FROM BUSINESS DECLARED AS ABOVE AS INCOME FROM BUSINESS AND HELD THAT THE INTEREST EXPENDITUR E OF RS.2,90,87,733 ITA NO. 1098/BANG/2014 PAGE 4 OF 11 WOULD BE ALLOWED AS DEDUCTION FROM THE SAID INCOME AND THE REMAINING SUM OF RS.1,17,35,191 WOULD BE TREATED AS TAXABLE I NCOME FROM BUSINESS. IN THIS REGARD AO OBSERVED IN HIS ORDER AT PARAGRA PH-6.2 THAT IF THE ASSESSEE TAKES A VIEW BEFORE THE APPELLATE AUTHORIT IES THAT ALTERNATIVELY IT IS ELIGIBLE TO CLAIM DEDUCTION U/S.80IAB(4)(III) OF THE ACT, SUCH DEDUCTION SHOULD NOT BE ALLOWED FOR THE REASONS WHICH HE HAD GIVEN IN HIS ORDER OF ASSESSMENT FOR AY 2011-12. IN THE GROUNDS OF APPEA L BEFORE THE CIT(A) IN GROUND NO.3 THE ASSESSEE HAS RAISED A GROUND CHALLE NGING THE ACTION OF THE AO IN DENYING DEDUCTION U/S.80IAB(4)(III) OF TH E ACT BUT THAT GROUND OF APPEAL MENTIONS THE SUM OF RS.3,29,18,939/- WHICH S UM IS THE SUM CLAIMED AS DEDUCTION IN AY 2011-12. IT SHOULD BE RE AD AS RS.1,17,35,191/- WHICH WAS THE SUM TREATED BY THE AO AS INCOME FROM MILLENNIUM PROJECT. 5. THE CIT(A) IN PARAGRAPH 4.3 OF HIS ORDER HELD TH AT IF THE AO CONSIDERS INCOME FROM MILLENNIUM PROJECT AS BUSINES S INCOME THEN HE SHOULD ALLOW ALL THE EXPENSES CLAIMED BY THE ASSESS EE AND THEREFORE THE INCOME FROM MILLENNIUM PROJECT ARRIVED AT BY THE AO AT RS.1,17,35,191 WAS NOT PROPER. BY REASON OF THIS CONCLUSION, THERE WO ULD BE ONLY LOSS FROM THE PROJECT MILLENNIUM AND THEREFORE THERE IS NO OCCASI ON TO ALLOW DEDUCTION U/S.80IAB(4)(III) OF THE ACT. HOWEVER THERE WAS AL SO A DISALLOWANCE OF EXPENDITURE U/S.14A OF THE ACT. THE DISALLOWANCE U /S.14A OF THE ACT WAS SUSTAINED BY THE CIT(A) AT A SUM OF RS.65,65,245/-. THE CIT(A) IN PARA 6.10 OF HIS ORDER OBSERVED THAT IF THE PROFIT OF TH E ASSESSEE INCREASES AFTER THE DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT, TH E ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION U/S.80IAB(4)(III) OF THE ACT /80IA OF THE ACT ON SUCH ENHANCED PROFIT. THERE IS NO BIFURCATION OF THE SU M OF RS.65,65,245 BETWEEN THE MILLENNIUM TOWERS PROJECT ELIGIBLE FOR DEDUCTION U/S.80IAB(4)(III) OF THE ACT AND THE OTHER PROJECT ON WHICH THE ASSESSEE CLAIMED DEDUCTION U/S.80IA OF THE ACT. THE CIT(A) HOWEVER IN PARAGRAPH-7 OF HIS ORDER OBSERVED THAT THE ASSESSEE HAS NEGATIV E INCOME AFTER SETTING ITA NO. 1098/BANG/2014 PAGE 5 OF 11 OFF LOSS OF EARLIER YEARS BUSINESS LOSS AND HENCE H E DID NOT ALLOW ANY DEDUCTION U/S.80IAB(4)(III) OF THE ACT. THEREFORE THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE WITHOUT ANY BASIS AND DO ES NOT ARISE OUT OF THE ORDER OF THE CIT(A). IN ANY EVENT, WE HOLD THAT TH E ORDER OF THE ITAT FOR AY 2011-12 RENDERED ON IDENTICAL FACTS WILL HOLD GOOD AND ARE APPLICABLE FOR AY 2012-13 ALSO. CONSEQUENTLY, GRDS.2 TO 6 RAISED BY THE REVENUE ARE DISMISSED. 6. THE NEXT ISSUE RAISED BY THE REVENUE IN ITS GROU NDS OF APPEAL IS WITH REGARD TO DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT. THE AO COMPUTED DISALLOWANCE U/S.14A OF THE ACT AS FOLLOWS :- 7.4 IT IS SEEN THAT THE ASSESSEE COMPANY HAS CLA IMED A FINANCE CHARGES AMOUNTING TO RS.15,48,91,549/-, OUT OF WHIC H, THE INDIRECT EXPENDITURE IS CALCULATED AT RS.14,79,79,0 10/-. 7.5. THE INVESTMENT PORTFOLIO GIVEN BY THE ASSESS EE IS AS UNDER:- AS AT M ARCH 31, 2012 AS AT MARCH 31, 2011 A CAPITAL IN GOPALAN HOMES 37,07,97,773 35,49,98,955 B INVESTMENT IN GOPALAN ENTERPRISES 107,20,05,206 8 2,82,33,610 TOTAL 144,28,02,979 118,32,32,565 7.6. THE DISALLOWANCE ATTRACTED U/S 14A R.W. RULE 8 D IS WORKED OUT AS UNDER: - ITA NO. 1098/BANG/2014 PAGE 6 OF 11 DISALLOWANCE ATTRACTED U/S 14A READ WITH RULE 8D A TOTAL AMOUNT OF DIRECT INTEREST/OTHER EXPENSES PERTAINING TO TAX-EXEMPT INVESTMENTS NIL B TOTAL AMOUNT OF INDIRECT INTEREST PERTAINING TO TAX EXEMPT INVESTMENTS RS. 14,79,79,010/- A.Y.2012-13A.Y. 2011-10 AVERAGE C AVERAGE AMOUNT OF TAX EXEMPT INVESTMENTS 144,28,34,179 118,32,63,765 131,30,48,968 D AVERAGE AMOUNT OF TOTAL ASSETS 627,36,26,645 543,67,72,896 585,51,99,771 E PROPORTIONATE INDIRECT INTEREST TO BE DISALLOWED B X C D 14,79,79,010 X 131,30,48,968 585,51,99,771 = 3,31,84,809 F 0.5% OF AVERAGE AMOUNT OF TAX EXEMPT INVESTMENT 65,65,245 G TOTAL DISALL OWANCE ATTRACTED U/S. 14A READ WITH RULE 8D 3,97,50,054 7.6. ACCORDINGLY AN AMOUNT OF RS.397,50,064/- IS D ISALLOWED AND ADDED BACK TO THE TOTAL INCOME U/S. 14A R.W. RU LE 8D OF THE INCOME-TAX ACT. 7. ON APPEAL BY THE ASSESSEE, THE CIT(A) REDUCED TH E DISALLOWANCE MADE BY THE AO TO RS.65,65,245 WHICH IS THE DISALLO WANCE UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 (RULES) WH ICH IS OTHER EXPENSES OTHER THAN DIRECT EXPENSES AND INTEREST EXPENSES AT TRIBUTABLE TO EARNING EXEMPT INCOME. AS FAR AS DISALLOWANCE UNDER RULE 8 D(2)(II) OF THE RULES REGARDING INTEREST EXPENSES IS CONCERNED, THE CIT(A ) DELETED THE DISALLOWANCE OF INTEREST EXPENSES ON THE REASONING THAT THE INTEREST EXPENSE CLAIMED AS DEDUCTION WERE ALL RELATED TO BO RROWINGS WHICH WERE USED FOR THE PURPOSE OF BUSINESS AND THEREFORE NONE OF THE BORROWINGS ON WHICH INTEREST WAS PAID WERE USED FOR MAKING INVEST MENT IN SHARES WHICH ITA NO. 1098/BANG/2014 PAGE 7 OF 11 WOULD YIELD TAX FREE INCOME. THE FOLLOWING WERE TH E RELEVANT FINDINGS OF THE CIT(A):- 6.5 THUS, IF ANY INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR SOURCE OF INCOME OR THE RECEIPT OF I NCOME, THEN THE SAME HAS TO BE CONSIDERED FOR DISALLOWANCE UNDER TH E AFORESAID RULE. IN THE INSTANT CASE, THE APPELLANT INCURRED T HE FOLLOWING INDIRECT INTEREST PAYMENT AS PER SCHEDULE 24 OF THE PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDING 31/3/2012: FINANCE CHARGES BANK CHARGES & PROCESSING CHARGES RS. 68,53,369 FOREX GAIN/LOSS ACCOUNT RS. 12,770 INTEREST ON TERM LOANS RS. 11,88,91,273 INTEREST PAID ON LOAN RS. 2,90,87,737 INTEREST ON OD RS. 38,936 INTEREST PAID TO OTHERS RS. 7,464 TOTAL RS. 15,48,91,549 6.6 IT MAY BE SEEN FROM THE ABOVE THAT THE MAJOR AMOUNT OF INTEREST PAYMENT IS TOWARDS TERM LOANS I.E WORKING CAPITAL LOAN. SIMILARLY, THE APPELLANT ALSO PAID INTEREST ON OTHE R LOANS AND INTEREST ON OD APART FROM BANK CHARGES AND LOAN PRO CESSING CHARGES. A PERUSAL OF THE DETAILS OF THE SAID FINAN CIAL CHARGES CLEARLY INDICATES THAT THE ABOVE INTEREST PAYMENTS ARE DIRECTLY ATTRIBUTABLE TO THE EARNING OF BUSINESS INCOME OF T HE APPELLANT COMPANY. THEREFORE, NONE OF THE INTEREST PAYMENTS C AN BE CONSIDERED UNDER RULE 8D(2)(II) OF THE I.T. ACT. IN THIS CONTEXT, THE DECISION OF THE HON'BLE TRIBUNAL OF KOLKATA BEN CH IN THE CASE OF CHAMPION COMMERCIAL LTD. [139 ITD 108(KOL)] SUPP ORTS THE ABOVE VIEW. THE RELEVANT PORTION OF THE SAID DECISI ON IS EXTRACTED BELOW: 'WE MAKE IT CLEAR THAT COMMON INTEREST EXPENSES WHI CH ARE TO BE ALLOCATED IN TERMS OF THE FORMULA UNDER R ULE 8D (2) (I ) WILL BE ONLY SUCH INTEREST EXPENSES AS ARE NEITHER DIRECTLY ATTRIBUTABLE BORROWINGS SPECIFICALLY USED FOR TAX- ITA NO. 1098/BANG/2014 PAGE 8 OF 11 EXEMPT INCOMES OR RECEIPTS NOR ARE DIRECTLY ATTRIBU TABLE TO BORROWING SPECIFICALLY USED TAXABLE INCOMES OR RECE IPTS.' 6.7 THUS THE SAID PAYMENT CANNOT BE ATTRIBUTED TO BORROWING SPECIFICALLY USED FOR TAX EXEMPT INCOME. THERE IS N O MATERIAL / EVIDENCE ON RECORD TO SHOW THE NEXUS BETWEEN THE BO RROWALS AND TAX-FREE INVESTMENTS. FURTHER, EVEN THOUGH THE APP ELLANT HAS MADE TAX FREE INVESTMENTS DURING THE YEAR UNDER CON SIDERATION, BUT IT IS ALSO NOTED THAT THE APPELLANT HAVING SUFF ICIENT NON- INTEREST BEARING FUND DURING THE YEAR. 6.8 IN VIEW OF THE ABOVE DECISION, NONE OF THE IN TEREST PAYMENTS CLAIMED BY THE APPELLANT CAN BE TAKEN FOR THE PURPOSE OF RULE 8D(2)(II) OF I.T. RULES. THEREFORE, THE DIS ALLOWANCE OF RS.3,31,84,809/- IS HEREBY DELETED. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS RAISED GRDS.NO.7 & 8 BEFORE THE TRIBUNAL WHICH READS AS FO LLOWS:- 7. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.3,31,84,809/- BY HOLDING THAT NONE OF THE INTERE ST PAYMENTS CAN BE TAKEN FOR THE PURPOSES OF RULE 8D(2)(II) WIT HOUT APPRECIATING THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D IN ITS TRUE SENSE AND RIGHT SPIRIT AND THE FACT THAT W HEN THE INTEREST EXPENSE INCURRED CANNOT BE DIRECTLY ATTRIBUTED TO A NY PARTICULAR INCOME OR RECEIPT, PROVISIONS OF RULE 8D(2)(II) ARE AUTOMATICALLY APPLICABLE. 8. THE CIT (A) ERRED IN HOLDING THAT THE PAYMENTS CANNOT BE ATTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TA X EXEMPT INCOME AND HOLDING THAT THERE IS NO MATERIAL/EVIDEN CE ON RECORD TO SHOW THE NEXUS BETWEEN THE BORROWERS AND TAX FRE E INVESTMENTS BY RELYING ON THE DECISION OF HON'BLE T RIBUNAL OF KOLKATA BENCH IN THE CASE OF CHAMPION COMMERCIAL LT D., [139 ITD 108 (KOL)] WITHOUT APPRECIATING THE FACT THAT I NVESTMENTS ARE MADE FROM A COMMON POOL OF FUNDS ,I.E., WORKING CAP ITAL AND / OR CASH CREDIT OR OVERDRAFT ACCOUNTS AND THE PROVISION S OF RULE 8D(2)(II) ARE AUTOMATICALLY APPLICABLE AS HELD IN T HE CASE OF CHAMPION COMMERCIAL LTD 139 ITD) 108 (KOL) WHICH CLARIFIED THAT COMMON INTEREST EXPENSES WHICH ARE TO BE ALLOC ATED IN TERMS OF THE FORMULA UNDER RULE 81)(2)(10 WILL BE ONLY SU CH INTEREST ITA NO. 1098/BANG/2014 PAGE 9 OF 11 EXPENSES AS ARE NEITHER DIRECTLY ATTRIBUTABLE TO BO RROWINGS SPECIFICALLY USED FOR TAX EXEMPT INCOMES OR RECEIP TS NOR ARE DIRECTLY ATTRIBUTABLE TO BORROWING SPECIFICALLY USE D FOR TAXABLE INCOMES OR RECEIPTS. 9. WE HAVE HEARD THE SUBMISSION OF THE LEARNED DR W HO REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL REFERRED TO ABOVE. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVE R SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS WHICH WERE MUCH M ORE THAN THE INVESTMENT THAT ARE LIKELY TO YIELD TAX FREE INCOME AND THEREFORE THE ORDER OF CIT(A) SHOULD BE SUSTAINED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THE GROUNDS OF APPEAL THE PLEA OF THE REVENUE IS PRIMARILY BASE D ON THE THEORY THAT THE OWN FUNDS AND BORROWED FUNDS WERE IN A COMMON HOTCH POTCH AND THEREFORE RULE 8D(2)(II) OF THE RULES WERE APPLICAB LE I.E., WHERE INTEREST EXPENSES ARE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTI CULAR INCOME OR RECEIPT. THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE C IT(A) WITH REGARD TO AVAILABILITY OF OWN FUNDS WHICH IS MUCH MORE THAN T HE INVESTMENTS THAT ARE LIKELY TO YIELD TAX FREE INCOME IN THE LAST SENTENC E OF PARAGRAPH 6.7 OF ITS ORDER. IN THIS REGARD WE HAVE PERUSED THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2012 AND WE FIND THAT THE INVESTMENTS BY THE ASSESSEE ARE TO THE TUNE OF RS.144,28,34,179 WHEREAS THE AVAILABILI TY OF OWN FUNDS AS ON THAT DATE WERE IN THE FORM OF SHARE CAPITAL AND RES ERVES AND SURPLUS OF RS.36,40,000/- AND RS.185,38,73,455 RESPECTIVELY B ESIDES AVAILABILITY OF RENTAL DEPOSITS WHICH ARE INTEREST FREE OF RS.230,4 7,70,914/-. THERE CAN BE NO DISPUTE ON THE AVAILABILITY OF OWN FUNDS MORE TH AN THE INVESTMENTS THAT ARE LIKELY TO YIELD TAX FREE INCOME. THIS FINDING OF THE CIT(A) HAS NOT BEEN SHOWN TO BE ERRONEOUS EXCEPT A SUBMISSION THAT OWN FUNDS AND BORROWED FUNDS COME FROM A COMMON POOL OF FUNDS. THE LAW B Y NOW IS WELL-SETTLED ITA NO. 1098/BANG/2014 PAGE 10 OF 11 THAT IF AVAILABLE INTEREST-FREE FUNDS ARE MUCH MORE THAN INVESTMENTS IN DIVIDEND YIELDING SHARES, THEN THERE CAN BE NO DISA LLOWANCE UNDER RULE 8D(2)(II) OF THE ACT. IN THE CASE OF CIT VS. HDFC B ANK LTD. [2014] 49 TAXMANN.COM 335 (BOMBAY) IT WAS HELD WHERE ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES, NO DISALLOWANCE OF PART OF INT EREST PAYMENTS UNDER SECTION 14A OF THE ACT CAN BE MADE. IN LIGHT OF THE ABOVE FACTUAL AND LEGAL POSITION, WE ARE OF THE VIEW THAT DISALLOWANC E OF INTEREST UNDER RULE 8D(2)(II) CANNOT BE SUSTAINED AND WAS RIGHTLY DELET ED BY THE CIT(A). BESIDES THE ABOVE THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AS DEDUCTION WERE ALL IN RESPECT OF BORROWINGS WHICH B Y ITS VERY NATURE WAS NOT CAPABLE OF BEING USED BY THE ASSESSEE FOR THE PURPO SE OTHER THAN BUSINESS PURPOSE OF THE ASSESSEE AND NOT FOR MAKING INVESTME NT. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A) A ND DISMISS THE RELEVANT GROUNDS OF APPEAL OF THE REVENUE. 11. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF MARCH, 2020. SD/- ( P RAD I P K UMAR K EDIA ) SD/- ( N V VASUDEVAN ) A CCOUNTANT M EMBER VICE PRESIDENT BANGALORE, DATED, THE 6 TH MARCH, 2020. / DESAI S MURTHY / ITA NO. 1098/BANG/2014 PAGE 11 OF 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE