FINE ESTATES P.LTD, MUMBAI V. DCIT CIR 2(1)(2), MUMBAI

ITA 1627/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6996 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 13-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Earning of tax free income; Commercial expediency; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI. G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.1627/MUM./2018 (ASSESSMENT YEAR: 2013-14) M/S FINE ESTATE PRIVATE LIMITED 4 TH FLOOR, MANECKJIWADIABLDG, 127 M.G. ROAD, MUMBAI PAN-AAACF2738F . APPELLANT V/S DCIT, CIRCLE 2(1)(2), MUMBAI ITA NO.1979/MUM./2018 (ASSESSMENT YEAR: 2013-14) . RESPONDENT A CIT, CIRCLE 2(1)(2), MUMBAI . APPELLANT V/S M/S FINE ESTATE PRIVATE LIMITED 4 TH FLOOR, MANECKJIWADIABLDG, 127 M.G. ROAD, MUMBAI PAN-AAACF2738F . RESPONDENT ASSESSEEBY : SH. RAKESH MOHAN, AR REVENUE BY :SH. RAJEEV GUBGOTRA, DR DATE OF HEARING 04.07.2019 DATE OF ORDER - 31.07. 2019 2 O R D E R PER: MANJUNATHA G. THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. C IT(A)-4, MUMBAI, DATED 31.02.2018 FOR THE ASSESSMENT YEAR 2013-14. S INCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE O F CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE, IN ITS MEMORANDUM OF APPEAL HAS FI LED THE FOLLOWING GROUNDS OF APPEAL:- GROUND NO. 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF A.O. IN CONCLUDING THAT AD DITIONAL DISALLOWANCE U/S 14A R.W.R. 8D IS ATTRACTED FOR EARNING EXEMPT INCOME. THE APPE LLANT PRAYS THAT THE SAID ACTION OF THE LEARNED AO MAY KINDLY BE DELETED. GROUND NO.2: WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED A.O. IN HOLDING THAT THE INTEREST OF RS. 6,57,609 WAS NOT A LLOWABLE AS DEDUCTION U/S 36(L)(III) OF THE INCOME TAX ACT. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 6,57,609 MAY KINDLY BE DELETED. GROUND NO. 3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN DISREGARDING THE APPELLANT'S CLAIM THAT THE PROPERTIES WERE BEING USED BY THE APPELLANT FOR COMMERCIAL PURPOSES AND IN COMPUTING NOTIONAL RENT OF RS 2,50,205 BY HOLDING THEM TO BE DEEMED TO BE LET OUT PROPERTIES. THE APPELLANT PRAYS THAT THE ADDITION O F RS. 2,50,205 MAY KINDLY BE DELETED. GROUND NO. 4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT ACCEPTING THE APPELLANTS CLAIM OF BENEFIT OF VACANCY ALLOWANCE U/S 23(L)(C) OF THE ACT.THE APPELLANT PRA YS THAT THE SAID ACTION OF THE LEARNED AO MAY KINDLY BE DELETED. 3 GROUND NO. 5: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN ASSESSING THE ALV OF THE PROPERTY A S PER THE MARKET VALUES, DISREGARDING THE MUNICIPAL RATEABLE VALUATION REPOR T OF THE SAID PROPERTY. THE APPELLANT PRAYS THAT THE SAID ACTION OF THE LEARNED AO MAY KINDLY BE DELETED. GROUND NO. 6: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN DISALLOWING SOCIETY EXPENSES OF RS 54,430 BY HOLDING THE PROPERTIES TO BE DEEMED TO BE LET OUT PROPERTIES. T HE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS 54,430 MAY KINDLY BE DELETED. GROUND NO. 7: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE CIT(A) ERRED IN INITIATING PENALTY U/S. 271(L)(C) O F THE ACT. 3. THE REVENUE,IN ITS APPEAL HAS TAKEN THE FOLLOWIN G GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO RE-COMPUTE THE DISALLO WANCE UNDER CLAUSE (II) OF RULE 8D(2) BY ONLY CONSIDERING NET INTEREST EXPENDI TURE, WHEN NO SUCH NETTING OF INTEREST IS PERMISSIBLE AS PER PROVISIONS OF SEC TION 14A'. 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NO DISALLOWANCE U/S. 14A CAN BE ADJUSTED TO BOOK PROFITS COMPUTED U/S. 115JB BY FOLLOWING THE DECISION OF TH E ITAT SPECIAL BENCH, DELHI IN THE CASE OF PR.CIT US. VIREET INVESTMENTS. ' 3. 'FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED.' 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS PRIMARILY ENGAGED IN THE BUSINESS OF RENTING OF PREMISES AND PROVIDING PROFESSIONAL SERVICES TOWARDS COORDINATION AND BUIL DING OF PROJECTS FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 29.9 .2013 DECLARING TOTAL INCOME OF RS. 59,23,953/- UNDER NORMAL PROVIS IONS OF INCOME TAX ACT, 1961 AND DECLARED BOOK PROFIT OF RS. 19,22 ,650/- UNDER 4 PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961. THE ASSESSMENT HAS BEEN COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ON 22.3.2016, DETERMINING THE TOTAL I NCOME AT RS. 1,42,94,790/- UNDER NORMAL PROVISIONS OF THE ACT, A ND BOOK PROFIT OF RS. 99,88,854/- UNDER SECTION 115JB OF THE INCOME T AX ACT, 1961, WHERE THE AO HAS MADE ADDITIONS TOWARDS DISALLOWANC E OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U NDER SECTION 14A READ WITH RULE 8D(2) OF INCOME TAX RULES, 1962, DETERMINATION OF NOTIONAL RENT OF TWO HOUSE PROPERTIES, CLAIMS TO HAVE BEEN USED FOR OWN BUSINESS PURPOSE BY THE ASSESSEE AND ALSO A DDITIONS TOWARDS DISALLOWANCE OF SOCIETY CHARGES. THE AO HAS ALSO MADE ADJUSTMENT TO BOOK PROFIT COMPUTED UNDER SECTION 11 5JB OF THE INCOME TAX ACT, 1961 TOWARDS DISALLOWANCE OF EXPENS ES UNDER SECTION 14A OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEEHAD FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSUES WHICH H AS BEEN REPRODUCED AT PARA 6.2 ON PAGES 5 TO 14 OF LEARNED CIT(A) ORDER. THE ASSESSEE HAD ALSO FILED WRITTEN SUBMISSIONS ON THE ISSUE OF RE- COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF T HE INCOME TAX ACT, 1961 WHICH HAS BEEN REPRODUCED AT PARA 7.2 ON PAGES 17 TO 20 OF LD. CIT(A) ORDER.SIMILARLY, THE ASSESSEE HAS FIL ED WRITTEN 5 SUBMISSIONS ON THE ISSUE OF DISALLOWANCE OF INTERES T EXPENSES UNDER SECTION 36 (1)(III) AND ESTIMATION OF NOTIONAL RENT AL INCOMEOF TWO PROPERTIES WHICH HAS BEEN CONSIDERED AND REPRODUCED BY THE LD. CIT(A) IN HIS ORDER. THE LD. CIT(A) AFTER CONSIDERI NG RELEVANT SUBMISSIONS OF THE ASSESSEEAND ALSO TAKEN NOTE OF V ARIOUS JUDICIAL PRECEDENTS, REJECTED LEGAL ARGUMENT TAKEN BY THE AS SESSEEIN RESPECT OF STRATEGIC INVESTMENT AS WELL AS SATISFAC TION AS REQUIRED UNDER SECTION 14A(2), OF THE INCOME TAX ACT, 1961, HOWEVER, ALLOWED PARTIAL RELIEF TO THE ASSESSEE IN RESPECT O F DISALLOWANCE OF INTEREST EXPENDITURE BY ADOPTING NET INTEREST EXPEN SES AS AGAINST TOTAL INTEREST EXPENSES CONSIDERED BY THE AO TO REW ORK DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE INCOME TAX ACT, 1962. AS REGARDS RE-COMPUTATION OF BOOK PROFITS, THE LD. CIT (A) BY FOLLOWING THE DECISION OF ITAT, DELHI SPECIAL BENCHIN THE CAS E OF ACIT VS. VIREET INVESTMENTS PVT. LTD., (SUPRA) DIRECTED THE AO TO DELETE ADJUSTMENT TO BOOK PROFIT IN RESPECT OF DISALLOWANC E OF EXPENSES UNDER SECTION 14A OF THE ACT. SIMILARLY,THE LD. CIT (A) HAS CONFIRMED ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF IN TEREST EXPENSES UNDER SECTION 36(1)(III) OF THE ACT,ON THE GROUND T HAT ALTHOUGH ASSESSEE CLAIMS TO HAVE ADVANCED LOANS TO SUBSIDIAR IES TO BUSINESS PURPOSE BUT, FAILED TO ESTABLISH NEXUS BETWEEN LOAN S AND ADVANCES AND BUSINESS CONNECTION. LIKEWISE, THE LD. CIT(A) C ONFIRMED THE 6 ADDITIONS MADE BY THE AO TOWARDS ESTIMATION OF NOTI ONAL RENTAL INCOME ON TWO PROPERTIES AND DISALLOWANCE OF SOCIET Y CHARGES. AGGRIEVED BY THE LD. CIT(A) ORDER, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR CONSIDERATION B EFORE US FROM THE ASSESSEE AS WELL AS THE REVENUE APPEAL IS DISAL LOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A READ WITH RU LE 8(2)(D)(II) OF THE INCOME TAX RULES, 1962. THE FACTS WITH REGARD T O IMPUGNED DISPUTE ARE THAT THE ASSESSEE HAS EARNED DIVIDEND I NCOME AND CLAIMED EXEMPT UNDER SECTION 10(34) OF THE INCOME T AX ACT, 1961. THE ASSESSEE HAS ALSO MADE SUO MOTO DISALLOWANCE OF EXPENSES IN RELATION TO EXEMPT INCOME OF RS. 18,57,056/-, HOWEV ER IT HAS DISALLOWED DIRECT EXPENSES IN RELATION TO EXEMPT IN COME UNDER RULE 8D(2)(I), BUT DID NOT WORKED OUT INTEREST DISALLOWA NCES UNDER RULE 8D(2)(III) OF INCOME TAX RULES, 1962. THE AO HAS DI SALLOWED INTEREST EXPENSES ON THE GROUND THAT THE ASSESSEE H AS BORROWED FUNDS AND THE SAME HAS BEEN USED FOR INVESTMENTS IN SHARES AND SECURITIES WHICH YIELDED EXEMPT INCOME. THEREFORE, INTEREST INCOME NEEDS TO BE DISALLOWED AND ACCORDINGLY, DETERMINED INTEREST DISALLOWANCE OF RS. 80,66,204/-. ON APPEAL, THE LD. CIT(A) REJECTED ALL ARGUMENTS ADVANCED BY THE ASSESSEEAND ALLOWED P ARTIAL RELIEF IN 7 RESPECT OF DISALLOWANCES BY TAKING NET INTEREST EXP ENSES ONLY FOR THE PURPOSE OF DETERMINATION OF DISALLOWANCES. 7. THE LD. AR FOR THE ASSESSEE, REFERRING TO THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LIMITED VS. CIT (2018) 91 TAXMANN.COM 154 (SC) SUBMITTED THAT BEFORE INVOKING RULE 8D(2), THE AO IS REQUIRED TO RECORD S ATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE SUO MOTO DISALLOWANCES UNDER SECTION 14A WAS NOT CORRECT, THEREFORE IN ABS ENCE OF ANY SATISFACTION, THE AO CANNOT SIMPLY INVOKE RULE 8D(2 ) TO DETERMINE DISALLOWANCES. THE LD AR FURTHER SUBMITTED THAT THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS. CIT (SUPRA)HAD CONSIDERED IDENTICAL ISSUE AND HELD THAT BEFORE INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D(2), THE AO SHALL RECORD SATISFACTION HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE THAT SUO MOTO DISALLOWANCES WORKED OUT BY THE ASSESSEEIS INCORRECT. IN THIS CAS E, THE AO FAILED TO RECORD SATISFACTION THAT SUOMOTO DISALLOWANCES WORKED OUT BY THE ASSESSEE IS INCORRECT, THEREFORE FURTHER DISALLOWAN CES OF EXPENSES OVER AND ABOVE SU-MOTO DISALLOWANCES DETERMINED BY THE ASSESSEE CANNOT BE MADE. 8 8. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTE D THE ORDERS OF THE CIT(A) IN RESPECT OF SATISFACTION AS REQUIRE D UNDER SECTION 14A(2) AND SUBMITTED THAT ALTHOUGH THE CIT(A)WAS RI GHT IN UPHOLDING THE ACTION OF THE AO IN DISALLOWANCE OF I NTEREST EXPENSES,BUT ERRED IN TAKING NET INTEREST EXPENSES, WHEN NO SUCH NETTING OFFOF INTEREST IS PERMISSIBLE AS PER PROVIS IONS OF SECTION 14A OF THE I.T. ACT, 1961. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO APPLICABI LITY OF PROVISIONS OF SECTION 14A READ WITH RULE 8D(2) OF THE I.T. RUL ES, 1962. INFACT, THE ASSESSEE ITSELF HAS DETERMINED SUO MOTO DISALLOWANCE TO EXPENSES UNDER RULE 8D(2)(I) AND (III) OF I.T. RULE S, 1962. THE ONLY DISPUTE IS WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE, UNDER RULE 8D(2)(II) OF THE I.T. RULES, 1962. ACCORDING T O THE ASSESSEE, PROVISIONS OF RULE 8D(2)(II) IS NOT APPLICABLE,BECA USE NO INTEREST- BEARING FUNDS HAS BEEN USED FOR MAKING INVESTMENTS IN SHARES AND SECURITIES. THE AO HAS DISREGARDED EXPLANATION OFFE RED BY THE ASSESSEEAND INVOKED RULE 8D(2)(II) AND DETERMINE IN TEREST DISALLOWANCE OF RS. 80,66,204/-. THE MAIN CONTENTIO N OF THE ASSESSEE IN THE LIGHT OF DECISION OF HONBLE SUPREM E COURT IN THE CASE OF MAXOPP INVESTMENT VS. CIT (SUPRA) THAT IN ABSENCE OF 9 ANY SATISFACTION AS REQUIRED UNDER SECTION 14A(2) T HAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCES UNDER SECTION 14A WAS NOT CORRECT, AND IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN OF INCOME HAS HIMSELF APPORT IONED, BUT THE AO HAS NOT ACCEPTING SUCH APPORTIONMENT, IN THAT EV ENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT, THE AO CANNOT DETERMINE DISALLOWANCE BY APPLYING RULE 8D OF IT, R ULES 1962. IN THIS CASE, THERE IS NO DISPUTE WITH REGARD SUO MOTO DISALLOWANCES WORKED OUT BY THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE AO DID NOT ACCEPTED DISALLOWANCES WORKED OUT BY THE AS SESSEE,BUT WHILE REJECTING SUO MOTO DISALLOWANCES WORKED BY TH E ASSESSEE, THE AO HAS FAILED TO RECORD SATISFACTION AS REQUIRED UN DER SECTION 14A(2), THAT HAVING REGARD TO THE KIND OF THE ASSES SEESUO MOTO DISALLOWANCES UNDER SECTION 14A WAS NOT CORRECT. UN LESS, THE AO RECORDS A CLEAR SATISFACTION AS REQUIRED UNDER SECT ION 14A(2), HE CANNOT PROCEED TO DETERMINATION OF DISALLOWANCE UND ER RULE 8D(2), OF IT RULES, 1962. THIS LEGAL PROPOSITION IS SUPPOR TED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT VS. CIT (SUPRA) WHERE IN PARAGRAPH 41, THE COURT HELD AS UN DER:- 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLE AR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE 10 AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THA T EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT. FUR THER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE AS SESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHAR ES IS TO BE EXAMINED BY THE AO. 10. IN THIS VIEW OF THE MATTE AND RESPECTFULLY FOLLOWIN G THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT VS. CIT (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN INVOKING RULE 8D(2)(II) TO DETE RMINE INTEREST EXPENSES DISALLOWANCES WITHOUT RECORDING SATISFACTI ON AS REQUIRED UNDER SECTION 14A(2) OF THE INCOME TAX ACT, 1961.HE NCE,WE DIRECT THE AO TO DELETE ADDITIONS MADE TOWARDS INTEREST EX PENSES UNDER RULE 8D(2)(II) OF INCOME TAX RULES, 1962. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 2 OF REVENUE APPEAL IS RE-COMPUTATION OF BOOK P ROFIT UNDER SECTION 115JB OF INCOME TAX ACT, 1961 IN RESPECT OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A READ WITH RULE 8D(2) OF THE I.T. RULES, 1962. WE, FIND THAT THE LD. CIT(A) HAS DELETED ADJU STMENT MADE BY THE AO TO BOOK PROFIT BY FOLLOWING THE SPECIAL BENC H DECISION OF ITAT, IN CASE OF ACIT VS.VAREET INVESTMENT PVT. LTD., 2017 82 TAXMANN.COM 415 (DEL) (TRI) (SB), WHERE IT WAS HELD THAT COMPUTATION UNDER CLAUSE (F)OF EXPLANATION 1 TO SEC TION 115JB(2) IS TOBE MADE WITHOUT RESORTING TO THE COMPUTATION AS C ONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D(2) OF INCOME TA X RULES, 1962. 11 THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS OF THE LD. CIT(A) AND HENCE,WE ARE INC LINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) AND REJECT GROUND TA KEN BY THE REVENUE. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM ASSESSEE APPEAL IS DISALLOWANCE OF INTEREST EXPENSE S UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. THE AO HAS DISALLOWED INTEREST EXPENSES OF RS. 6,57,609/- FOR THE REASON THAT THE ASSESSEEHAS BORROWED FUNDS AND THE SAME HAS BEEN US ED FOR GIVING LOANS AND ADVANCES TO GROUP CONCERNS WITHOUT CHARGI NG ANY INTEREST AND ACCORDINGLY, DETERMINED DISALLOWANCE OF RS. 6,5 7,609/-, BUT DID NOT MADE ANY ADDITION TOWARDS INCOME FOR THE REASON THAT INTEREST EXPENDITURE HAS ALREADY BEEN DISALLOWED UNDER SECTI ON 14A OF THE ACT, AND HENCE NO FURTHER DISALLOWANCE IS BEING MAD E. ON APPEAL, LD. CIT(A) CONCURRED WITH FINDINGS OF THE LD. CIT(A ) AND REJECTED ARGUMENTS OF THE ASSESSEE. 13. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) FAILED TO APPRECIATE THE FACTS IN RIGHT PERSPECTIVE IN LIG HT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT(288 ITR 1) WHERE IT WAS CATEGORICALLY HELD THAT IF LOANS AND A DVANCES FOR SUBSIDIARIES ARE FOR BUSINESS PURPOSE OR THERE IS A N ELEMENT OF 12 COMMERCIAL EXPEDIENCY, NO DISALLOWANCE COULD BE MAD E UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. 13A. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPOR TED THE ORDERS OF THE LD. CIT(A). 14. WE HAVE CONSIDERED RIVAL CONTENTIONS OF BOTH PA RTIES AND FIND THAT THE ASSESSEE HAS TAKEN A PLEA IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT(SUPRA) AND ARGUED THAT LOANS AND ADVANCES GIVEN TO SUBSIDIARIE S / GROUP COMPANIES ARE STRATEGIC INVESTMENTS FOR THE PURPOSE S OF BUSINESS OF ASSESSEE AND THERE IS A DIRECT NEXUS BETWEEN LOANS AND ADVANCES AND BUSINESS OF THE ASSESSEE THEREFORE, NO INTEREST EXPENSES COULD BE DISALLOWED UNDER SECTION 36(1)(III) OF THE INCOM E TAX ACT, 1961. WE FURTHER NOTED THAT WHEN THERE IS AN ELEMENT OF C OMMERCIAL EXPEDIENCY IN GIVING LOANS AND ADVANCES TO GROUP CO NCERNS/ SUBSIDIARIES, THE QUESTION OF DISALLOWANCE OF INTER EST EXPENDITURE DOES NOT ARISE, BECAUSE THE ASSESSEE MAY GET DIRECT BENEFIT FROM LOANS AND ADVANCES GIVEN TO SUBSIDIARIES. THEREFORE , WE ARE OF THE CONSIDERED VIEW THAT THE AO AS WELL AS LD. CIT(A) W ERE ERRED IN DISALLOWING INTEREST EXPENSES UNDER SECTION 36(1)(I II) OF THE INCOME TAX ACT, 1961. HENCE,WE DELETE THE ADDITIONS MADE B Y THE AO TOWARDS INTEREST EXPENSES. 13 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROMASSESSEE APPEAL IS ESTIMATION OF NOTIONAL ALV O F THE PROPERTIES OWNED BY THE ASSESSEEAND CONSEQUENT DISALLOWANCE OF SOCIETY MAINTENANCE CHARGES. THE BRIEF FACTS OF THE IMPUGNE D DISPUTE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF RENTING OF PROPERTY. THE ASSESSEE OWNEDVARIOUS PROPERTIES AND OUT OF WHICH T WO PROPERTIES I.E. FLAT AT GUL PALACE AND FLAT AT MEERA ROAD, HAV E NEITHER GIVEN ON RENT NOR ANY NOTIONAL INCOME FROM THE SAME HAVE BEE N OFFERED FOR TAXATION. THE AO DETERMINED ALV OF TWO PROPERTIES O N THE GROUND THAT ALTHOUGH THE ASSESSEE CLAIMS TO HAVE USED BOTH PROPERTIES FOR THE PURPOSE OF ITS OWN BUSINESS,BUT FAILED TO SUBST ANTIATE ITS ARGUMENTS WITH EVIDENCES THEREFORE, HE CAME TO THE CONCLUSION THAT ALV OF TWO PROPERTIES NEEDS TO BE DETERMINED ACCORD INGLY, ESTIMATED ALV OF RS. 2,50,205/- FROM BOTH PROPERTIE S. ON APPEAL, THE LD. CTI(A) CONCURRED WITH FINDINGS OF THE LD. A O AND REJECTED ARGUMENTS OF THE ASSESSEE. 16. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN NOT CONSIDERING FACTS IN RIGHT PERSPECTIVE ALTHOUGH THE ASSESSEE HAS FILED VARIOUS DETAILS TO PROVE THAT TH OSE PROPERTIES WERE USED AS GODOWNS IN ITS BUSINESS. THE LD. AR FU RTHER SUBMITTED THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER PARTI CULAR PLACE IS REQUIRED FOR BUSINESS OR NOT, BUT THE AO HAS NO ROL E TO PLAY ONCE 14 RELEVANT DETAILS HAVE BEEN FILED TO PROVE THAT THE PROPERTIES ARE INFACT, USED FOR OWN BUSINESS. THE AO CANNOT QUESTI ON THE DECISION OF ASSESSEE MERELY FOR THE REASON THAT THE NATURE O F BUSINESS CARRIED BY THE ASSESSEE DOES NOT REQUIRE SO MUCH SP ACE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED VARIO US DETAILS AND ALSO CLARIFIED WITH EVIDENCES BEFORE THE AO THAT AB OVE TWO PROPERTIES ARE USED AS GODOWNS TO KEEP NECESSARY DO CUMENTS AND OTHER RELATED BOOKS OF ACCOUNTS OF THE ASSESSEE,BUT THE AO DISREGARDED ALL EVIDENCES AND ESTIMATED NOTIONAL RE NT. 17. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ED THE ORDER OF THE LD. CIT(A). 18. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW.THE SOLITARY DISPUTE IS WITH REGARD TO DETERMINATION OF ALV OF TWO FLATS OWNED BY THE ASSESSEE. IT WAS THE CLAIM OF THE ASSE SSEEBEFORE THE AO THAT THOSE TWO PROPERTIES ARE USED IN ITS OWN BU SINESS FOR THE PURPOSE OF KEEPING NECESSARY RECORDS AND DOCUMENTS, THEREFORE THE SAME CANNOT BE CONSIDERED AS PROPERTIES FOR THE PUR POSE OF DETERMINATION OF ALV AS REQUIRED UNDER SECTION 23 O F THE INCOME TAX ACT, 1961. THE AO HAS DETERMINED NOTIONAL RENT ON THE GROUND THAT ALTHOUGH ASSESSEE CLAIMS TO HAVE USED PROPERTI ES FOR ITS OWN 15 BUSINESS,BUT FAILED TO FILE NECESSARY EVIDENCES. HA VING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE DO NOT FIND ANY MERITS IN THE ORDER OF THE AO FOR THE REASON THAT I T IS FOR THE ASSESSEETO DECIDE WHETHER PARTICULAR PROPERTIES ARE REQUIRED FOR HIS BUSINESS OR NOT. ONCE ASSESSEE CLAIMS THAT THE PROP ERTIES ARE USED IN ITS BUSINESS AND ALSO FILED NECESSARY EVIDENCES TO PROVE ITS CLAIM,THE AO SIMPLY CANNOT DISBELIEVE THE CLAIM OF THE ASSESSEEFOR THE SIMPLE REASON THAT NATURE OF BUSINESS CARRIED O N BY THE ASSESSEEDOES NOT REQUIRE SO MUCH SPACE. THE AO CANN OT DECIDE WHETHER PARTICULAR PLACE IS REQUIRED FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE HAS FILED ALL DETAILS TO PROVE THAT THOSE TWO FLATS HAVE BEEN USED AS OFFICE AS WE LL AS GODOWNS PLACE TO CARRY OUT ITS BUSINESS ACTIVITY AND ALSO T O KEEP NECESSARY RECORDS AND BOOKS OF ACCOUNTS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO AS WELL AS LD. CIT(A) WERE ERRED I N ESTIMATING NOTIONAL RENTAL INCOME FROM TWO PROPERTIES,AND HENC E WE DIRECT THE AO TO DELETE THE ADDITIONS MADE TOWARDS ALV OF TWO PROPERTIES. 19. COMING TO DISALLOWANCE OF SOCIETY EXPENSES, THE AO NEVER DISPUTED THE FACT THAT THE ASSESSEE HAS PAID MAINTE NANCE CHARGES TO THE SOCIETIES IN RESPECT OF TWO PROPERTIES.THE AO D ISALLOWED EXPENSES INCURRED UNDER THE HEAD SOCIETY CHARGES ON THE GROUND THAT ONCE INCOME FROM PROPERTY IS ASSESSED UNDER TH E HEAD INCOME 16 FROM HOUSE PROPERTIES ON WHICH STANDARD DEDUCTION I S ALLOWED, THEN NO FURTHER DEDUCTION TOWARDS ANY EXPENDITURE INCLUD ING SOCIETY CHARGES CANNOT BE ALLOWED AS DEDUCTION. WE HAVE ALR EADY STATED THAT THE ASSESSEEHAS USED THOSE PREMISES FOR THE PU RPOSE OF HIS OWN BUSINESS, CONSEQUENTLY ANY EXPENDITURE INCURRED IN RELATION TO SAID PROPERTY INCLUDING SOCIETY CHARGES CAN BE CONS IDERED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS OF ASSESSEE AND HENCE, WE ARE OF THE CONSI DERED VIEW THAT THE AO WAS ERRED IN DISALLOWING SOCIETY CHARGES PAI D IN RESPECT OF ABOVE TWO PROPERTIES. HENCE, WE DIRECT THE AO TO DE LETE DISALLOWANCE OF SOCIETY CHARGE. 20. IN THE RESULT,BOTH THE APPEAL FILED BY THE REVE NUE AND ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.07.2019. SD/- SD/- (PAWAN SINGH) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.07.2019 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); 17 (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. BY ORDER SH (DY./ASSTT.REGISTRAR) ITAT, MUMBAI