M/S. CONWOOD CONSTRUCTION & DEVELOPERS PVT.LTDconstruction , MUMBAI V. DCIT CENTRAL CIR-6, MUMBAI

ITA 1506/MUM/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0147 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 31-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CHHAYA JAIN
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) I.T.A. No. 1506/Mum/2022 (A.Y. 2003-04) I.T.A. No. 1507/Mum/2022 (A.Y. 2004-05) M/s. Conwood Construction & Developers Pvt. Ltd. CTS 156, D.B. House Yashodham, Goregaon-E Mumbai-400 063. AAACA0981F Vs. DCIT, Central Circle-6 11 th Floor, Old CGO Building M.K. Road Mumbai-400 020. (Appellant) (Respondent) Assessee by Ms. Chhaya Jain Department by Shri Senthil Kumaran Date of Hearing 05.09.2022 Date of Pronouncement 05.09.2022 O R D E R Per B.R.Baskaran (AM) :- Both appeals filed by the assessee are directed against the orders passed by learned CIT(A)-47, Mumbai and they relate to A.Y. 2003-04 and 2004-05. Both the appeals were heard together and are being disposed of by this common order, for the sake of convenince. 2. In both the appeals, the assessee is aggrieved by the decision of learned CIT(A) in confirming the disallowance of part of interest expenditure. 3. The assessee is engaged in the business of development and construction of the properties. The Assessing Officer completed the assessment of both the years by disallowing part of interest expenditure, for the reason that the assessee has advanced interest free loans to its sister concerns. We notice that the Assessing Officer has mentioned that the disallowance is being made under section 14A read with rule 8D in respect of interest free loans given by the assessee to the sister concerns. M/s. Conwood Construction & Developers Pvt. Ltd. 2 4. In A.Y. 2003-04 the Assessing Officer computed proportionate amount of interest expenditure at Rs. 33,01,216/- attributable to interest free loans given to sister concerns and reduced the same from “Work in progress” relating to “Shagun Project”. In the similar manner, the Assessing Officer computed the amount of interest expenditure attributable to interest free loans given to sister concerns at Rs. 23,57,733/- in AY 2004-05 and reduced the same from “Work in progress” relating to “Shagun Project”. 5. The Learned CIT(A) confirmed the addition made by the Assessing Officer in both the years by way of reducing the “Work in Progress” and hence the assessee has filed these appeals before the Tribunal. 6. We have heard the parties and perused the record. We noticed that there appears to be lack of clarity in the mind of Assessing Officer in mentioning the section under which the impugned disallowance is made. The case of the Assessing Officer is that the assessee has given interest free loans to sister concerns and hence proportionate interest expenditure attributable to such loans should be disallowed. However, the AO has mentioned that the provisions of section 14A read with rule 8D are applicable. However, the said provisions are applicable only if the assessee has earned any exempt income. The Learned AR submitted that the assessee has not earned any exempt income and hence the question of invoking the provisions of section 14A will arise in the both the years under consideration. 7. Under the above set of facts, it has to be taken that that the Assessing Officer has made impugned disallowance in both the years under section 36(1)(iii) of the Act, since according to the Assessing Officer the assessee has given interest free advances to its sister concerns out of interest bearing funds. The Learned AR submitted that the assessee has also borrowed interest free loans. The amount of interest free loans taken by the assessee together with its own funds would exceed the amount of interest free loans M/s. Conwood Construction & Developers Pvt. Ltd. 3 given to the sister concerns. The Ld A.R submitted that the presumption in that case is that the assessee has used the said “own funds and interest free loans” for giving interest free advances to the sister concerns. Accordingly, the learned AR submitted that no disallowance out of interest expenditure is called for as per decision rendered by Hon'ble Bombay High Court in the case of Reliance Utility and Powers Ltd. (313 ITR 340). 8. We find merit in the above said contentions of Ld A.R, as the same is in accordance with the decision rendered by Hon'ble Bombay High Court referred supra, i.e., if the amount of interest free loans given to sister concerns is less than the amount of aggregate of own funds and interest free loans taken by the assessee, then no disallowance under section 36(1)(iii) of the Act is called for. However, we notice that the factual aspects relating to quantum of own funds and interest free funds available with the assessee in both the years vis-à-vis interest free advances given to sister concerns require verification at the end of the Assessing Officer. Accordingly, we set aside the order passed by learned CIT(A) in both the years and restore this issue to the file of AO for the limited purpose of verifying the factual aspects discussed above. If the aggregate amount of own funds and interest free funds available with the assessee exceeds the amount of interest free advances given to the sister concerns, then no disallowance under section 36(1)(iii) of the Act is called for as per the decision rendered by Hon’ble Bombay High Court in the case of Reliance Utilities and Power (supra). With these directions, we restore this issue in both the years to the file of the Assessing Officer. M/s. Conwood Construction & Developers Pvt. Ltd. 4 9. In the result, both the appeals filed by the assessee are treated as allowed for statistical purposes. Order pronounced in the open court on 05.09.2022. Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 05/09/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai