DCIT, New Delhi V. M/s. Mahalaxmi Designs Pvt. Ltd., New Delhi

ITA 1991/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3214 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 25-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Keywords: Commercial expediency; Revised return; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH E EE E : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, PRESIDENT PRESIDENT PRESIDENT PRESIDENT AND AND AND AND SHRI KULDIP SINGH SHRI KULDIP SINGH SHRI KULDIP SINGH SHRI KULDIP SINGH, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA ITAITA ITA NO NONO NO . .. . 1991/DEL/2014 1991/DEL/2014 1991/DEL/2014 1991/DEL/2014 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2010 2010 2010 2010 - -- - 11 1111 11 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -6(1), 6(1), 6(1), 6(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS VSVS VS . .. . M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., 141, HUMAYUNPUR, 141, HUMAYUNPUR, 141, HUMAYUNPUR, 141, HUMAYUNPUR, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 029. 110 029. 110 029. 110 029. PAN : AAFCM3948K. PAN : AAFCM3948K. PAN : AAFCM3948K. PAN : AAFCM3948K. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. SHEFALI SWAROOP, CIT - DR. RESPONDENT BY : SHRI AJAY WADHWA, ADVOCATE AND MS. BHARTI SHARMA, CA. DATE OF HEARING : 09.11.2017 09.11.2017 09.11.2017 09.11.2017 DATE OF PRONOUNCEMENT : 23.11.2017 23.11.2017 23.11.2017 23.11.2017 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, PRESIDENT PRESIDENT PRESIDENT PRESIDENT : :: :- -- - THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-IX, NE W DELHI DATED 20 TH JANUARY, 2014. 2. IN THIS APPEAL, THE REVENUE HAS RAISED VARIOUS G ROUNDS. HOWEVER, THEY ARE ALL AGAINST THE DELETION OF DISAL LOWANCE OF INTEREST AMOUNTING TO `12,02,07,944/- MADE BY THE ASSESSING OFFICER. 3. THE FACTS OF THE CASE ARE THAT FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE FILED THE RETURN DECLARING TAXABLE INC OME OF `50,69,200/-. AS PER THE MEMORANDUM OF ARTICLES OF ASSOCIATION, T HE BUSINESS OF THE ASSESSEE IS DEVELOPMENT OF INFRASTRUCTURE AND TO UN DERTAKE INFRASTRUCTURE PROJECTS AND TO PURCHASE, SELL, DEVE LOP, CONSTRUCT, HIRE OR OTHERWISE ACQUIRE AND DEAL IN ALL REAL OR PERSONAL ESTATE/PROPERTIES. ITA-1991/DEL/2014 2 DURING THE YEAR UNDER CONSIDERATION, THE BUSINESS A CTIVITIES HAVE NOT BEEN STARTED BY THE ASSESSEE. FOR THE YEAR UNDER C ONSIDERATION, THE ASSESSEE HAS SHOWN INCOME OF `94,62,276/- IN THE PR OFIT & LOSS ACCOUNT, THE DETAILS OF WHICH ARE AS UNDER :- I. INTEREST INCOME `50,63,213/- II. DIVIDEND ON UNITS ON MUTUAL FUND `43,93,076/- III. PROFIT ON REDEMPTION OF MUTUAL FUND `5,987/- TOTAL `94,62,276/- 4. HOWEVER, WHEN THE DETAILS WERE CALLED FOR AND EX AMINED BY THE ASSESSING OFFICER, HE FOUND THAT DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS EARNED INTEREST AMOUNTING TO `12,5 2,71,157/- AND THE ASSESSEE PAID INTEREST AMOUNTING TO `12,02,07,9 44/-. IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS SHOWN ONLY THE NET INTEREST I.E., `50,63,213/- (`12,52,71,157 - `12,02,07,944). THE ASSESSING OFFICER RAISED THE QUERY REGARDING THE ALLOWABILITY OF INTE REST PAID BY THE ASSESSEE AMOUNTING TO `12,02,07,944/-. AFTER CONSI DERING THE ASSESSEES SUBMISSION, THE ASSESSING OFFICER WAS OF THE OPINION THAT PAYMENT OF INTEREST CANNOT BE SET OFF AGAINST THE I NTEREST INCOME. THE CONCLUSION OF THE ASSESSING OFFICER IS IN PARAGRAPH 2.10 AND 2.11, WHICH ARE REPRODUCED BELOW FOR READY REFERENCE :- 2.10 IN VIEW OF THE FACTS MENTIONED ABOVE, TO SUM UP, THE EXPENDITURE ON ACCOUNT OF INTEREST AMOUNTIN G TO RS.12,02,07,944/- WHICH HAS BEEN SET OFF AGAINST TH E INTEREST INCOME OF RS.12,52,71,157/- IS DISALLOWED FOR THE FOLLOWING REASONS :- I. DURING THE YEAR, THE ASSESSEE HAS NOT STARTED AN Y BUSINESS ACTIVITY AS EXPLAINED ABOVE, BUT TO CARRY OUT THE BUSINESS ACTIVITY HAD RAISED THE FUNDS AS EXPLAINED IN ITS LETTER DATED 16.01.2013, THE RELEVANT EXTRACTS OF W HICH HAVE BEEN REPRODUCED IN PARA 2 ABOVE. ITA-1991/DEL/2014 3 II. AS A COMMERCIAL EXPEDIENCY MEASURE, THE ASSESSE E CHOSE NOT TO KEEP THE FUNDS, SO RAISED IDLE AND OPT ED TO EARN INTEREST INCOME THERE FROM. THIS HAS BEEN EXP LAINED BY THE ASSESSEE IN ITS LETTER DATED 16.01.2013. III. SINCE THE ASSESSEE HAD NOT STARTED ITS BUSINES S DURING THE YEAR UNDER CONSIDERATION, NO EXPENDITURE WILL BE ALLOWED AND THE EXPENDITURE INCURRED PRIOR TO THE S TART OF THE BUSINESS WILL HAVE TO BE CAPITALIZED. IV. THE FUNDS RAISED BY THE ASSESSEE HAD BEEN UTILI ZED FOR INVESTMENTS IN SHARES. HENCE, THE INTEREST INC URRED BY THE ASSESSEE IS NOT ALLOWABLE EXPENDITURE. V. THE ASSESSEE COMPANY IS NOT A NON-BANKING FINAN CE COMPANY EITHER, AND HENCE CANNOT CLAIM EXPENDITURE ON ACCOUNT OF INTEREST PAID. VI. THE EXPENDITURE OF RS.12,02,07,944/- IS NOT ALL OWABLE FOR THE PERIOD RELEVANT FOR A.Y. 2010-11 BY APPLYIN G THE RATIO OF JUDGMENT OF HON'BLE SUPREME COURT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. COMMISSIONER OF INCOME TAX [1997] 92 TAXMAN 502 (SC ). 2.11 HENCE, THE EXPENDITURE ON ACCOUNT OF INTEREST AMOUNTING TO RS.12,02,07,944/- IS DISALLOWED AND AD DED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 5. THE ASSESSING OFFICER ALSO ALTERNATIVELY OPINED THAT INTEREST IS ALSO DISALLOWABLE IN VIEW OF SECTION 14A OF THE INC OME-TAX ACT, 1961 BECAUSE THE BORROWED MONEY HAS BEEN INVESTED IN SHA RES. 6. ON APPEAL, LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE FACTS OF THE CASE, DELETED THE ADDITION. THE REVENUE, AGGRIEVED WITH THE ORDER OF LEARNED CIT(A) , IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING BEFORE US, LEARNED CIT-DR STATED THAT ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION, TH E BUSINESS OF THE ASSESSEE HAS NOT COMMENCED AND THEREFORE, INTEREST ON BORROWED MONEY CANNOT BE ALLOWED WHILE CONSIDERING THE INTER EST RECEIVED BY ITA-1991/DEL/2014 4 THE ASSESSEE. SHE STATED THAT ON THE FACTS OF THE ASSESSEES CASE, THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT [1997] 227 ITR 172 ( SC) WOULD BE SQUARELY APPLICABLE AND, IN VIEW OF THE ABOVE DECISION, THE INTEREST PAYMENT WOULD NOT BE ALLOWED EVEN WHILE COMPUTING THE INCOM E FROM OTHER SOURCES. SHE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS HELD THAT INTEREST INCOME IS DISALLOWABLE U/S 14A. LEARNED C IT(A), WITHOUT PROPERLY APPRECIATING THE FACTUAL AS WELL AS LEGAL POSITION, HELD THAT NO DISALLOWANCE IS REQUIRED U/S 14A. IN SUPPORT OF HE R CONTENTION FOR DISALLOWABILITY OF INTEREST INCOME U/S 14A, SHE REL IED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIABULLS FINANCIAL SERVICES LTD. VS. DCIT [2016] 76 TAXMANN.COM 268 (DELHI) AND ALSO THE FOLLOWING DECISIONS OF THE ITAT :- (I) DCIT VS. VIRAJ PROFILES LTD. 46 ITR 626. (II) NYK LINE INDIA LTD. VS. ACIT 175 TTJ 180. (III) SUPER AUTO FORGE (P) LTD. VS. ACIT 156 ITD 467. (IV) VIPIN MALIK VS. ACIT 45 ITR 589. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STATED THAT IN THE CASE OF THE ASSESSEE, DURING THE YEAR U NDER CONSIDERATION, NO BUSINESS ACTIVITIES HAD COMMENCED AND IT WAS ONL Y THE BORROWING AND LENDING OF THE MONEY DURING THE YEAR UNDER CONS IDERATION. THE MAIN OBJECT OF THE ASSESSEE IS INVESTMENT IN REAL E STATE, BUT, IN THE YEAR UNDER CONSIDERATION, NO REAL ESTATE PROJECT HA S COMMENCED AND THEREFORE, ON THESE FACTS, THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA) WOULD NOT BE APPLICABLE BECAUSE, IN THAT CASE, THE ASSESSEE H AD ALREADY STARTED SETTING UP OF ITS BUSINESS AND THE ASSESSEE HAS CLA IMED THE DEDUCTION OF INTEREST INCOME AGAINST THE PREPRODUCTION EXPENS ES WHICH WERE ULTIMATELY TO BE CAPITALIZED. SINCE THE FACTS OF T HE ASSESSEES CASE ARE ALTOGETHER DIFFERENT, THE ABOVE DECISION OF HON'BLE SUPREME COURT ITA-1991/DEL/2014 5 WOULD NOT BE APPLICABLE. HE STATED THAT ON THESE F ACTS, THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VO DAFONE SOUTH LTD. VS. CIT [2015] 378 ITR 410 (DELHI) WOULD BE SQUARELY APPLICABLE. HE REFERRED TO PAGE 111 OF THE ASSESSEES PAPER BOOK W HICH IS THE LIST OF DEBTORS AND CREDITORS AND FROM WHICH, THE ASSESSEE POINTED OUT THAT THE BORROWED MONEY HAS BEEN UTILIZED FOR EARNING OF INTEREST. THUS, THERE IS A DIRECT NEXUS BETWEEN THE BORROWING OF TH E MONEY AND THE MONEY ADVANCED ON WHICH INTEREST IS EARNED. THEREF ORE, THE DEDUCTION FOR THE INTEREST PAID WOULD BE ALLOWABLE U/S 57(3) FROM INTEREST RECEIVED. HE FURTHER SUBMITTED THAT SO FAR AS THE APPLICABILITY OF SECTION 14A IS CONCERNED, THE ASSESSING OFFICER HAS ONLY USED THE SAME AS AN ALTERNATIVE FOR DISALLOWANCE OF INTEREST . HE HAS NOT MADE OUT DISALLOWANCE AS PER RULE 8D OF THE ITAT RULES A ND SINCE NO BORROWED MONEY IS UTILIZED FOR EARNING OF EXEMPT IN COME, THERE IS NO QUESTION OF ANY DISALLOWANCE U/S 14A. LEARNED CIT( A) HAS EXAMINED THE FACTS OF THE CASE AND HAS RECORDED THE FINDING OF FACT THAT NO INTEREST IS PAID ON THE MONEY INVESTED IN SHARES. THIS FINDING OF FACT HAS NOT BEEN CONTROVERTED BY THE REVENUE. THEREFOR E, THE ORDER OF LEARNED CIT(A) DESERVES TO BE UPHELD. 9. LEARNED CIT-DR, IN REJOINDER, REITERATED HER SUB MISSION THAT ON THESE FACTS, THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. 10. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE REV ENUE HAS HEAVILY RELIED UPON THE DECISION OF HONBLE APEX COURT IN T HE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA). THE FACTS IN THAT CASE WERE THAT FOR THE PURPOSE OF SETTING UP OF THE FACT ORIES, THE COMPANY HAD TAKEN TERM LOANS FROM VARIOUS BANKS AND FINANCI AL INSTITUTIONS. THAT PART OF THE BORROWED FUNDS WHICH WAS NOT IMMED IATELY REQUIRED ITA-1991/DEL/2014 6 BY THE COMPANY WAS KEPT INVESTED IN SHORT-TERM DEPO SITS WITH BANKS. SUCH INVESTMENTS WERE SPECIFICALLY PERMITTED BY THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY. THE COMPAN Y HAD ALSO DEPOSITED CERTAIN SUMS WITH THE TAMIL NADU ELECTRIC ITY BOARD. IT HAD ALSO GIVEN INTEREST-BEARING LOANS TO ITS EMPLOYEES TO PURCHASE VEHICLES. UP TO THE ASSESSMENT YEAR 1980-81, INTER EST EARNED BY THE COMPANY FROM THE VARIOUS LOANS GIVEN BY THE COMPANY AND ALSO FROM THE BANK DEPOSITS WAS SHOWN AS INCOME AND WAS TAXED ACCORDINGLY. FOR THE ACCOUNTING YEAR ENDING ON JUNE 30, 1981 (AS SESSMENT YEAR 1982-83), THE ASSESSEE RECEIVED A TOTAL AMOUNT OF I NTEREST OF RS.2,92,440/-. IN ITS RETURN OF INCOME FILED ON JU NE 22, 1982, THE COMPANY DISCLOSED THE SAID SUM OF RS.2,92,440/- AS INCOME FROM OTHER SOURCES. IT ALSO DISCLOSED BUSINESS LOSS OF RS.3,21,802/-. AFTER SETTING OFF THE INTEREST INCOME AGAINST THE BUSINES S LOSS, THE COMPANY CLAIMED THE BENEFIT OF CARRY FORWARD OF NET LOSS OF RS.29,360/-. THE COMPANY LATER ON REALIZED ITS MISTAKE AND ON DECEMB ER 26, 1984, IT FILED A REVISED RETURN SHOWING BUSINESS LOSS OF RS. 3,21,802/-. IT CLAIMED THAT ACCORDING TO THE ACCEPTED ACCOUNTING P RACTICE, INTEREST AND FINANCE CHARGES ALONG WITH OTHER PRE-PRODUCTION EXPENSES HAD TO BE CAPITALIZED, AND THAT, THEREFORE, THE INTEREST I NCOME OF RS.2,92,440/- SHOULD GO TO REDUCE THE PRE-PRODUCTION EXPENSES (IN CLUDING INTEREST AND FINANCE CHARGES), WHICH WOULD ULTIMATELY BE CAP ITALIZED. THE INCOME-TAX OFFICER REJECTED THE ASSESSEES CLAIM TH AT THE INTEREST INCOME WAS NOT EXIGIBLE TO TAX. THE VIEW OF THE IN COME-TAX OFFICER WAS UPHELD BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMPANYS FURTHER APPEAL TO THE INCOME-TAX APPELLATE TRIBUNAL WAS DISMISSED. IN VIEW OF THE CONFLICT OF DECISIONS BETWEEN THE MADRA S AND ANDHRA PRADESH HIGH COURTS, THE TRIBUNAL REFERRED THE QUES TION REGARDING TAXABILITY OF INCOME, DIRECTLY TO THE SUPREME COURT . 11. FROM THE ABOVE, IT IS EVIDENT THAT IN THE SAID CASE, THE TERM LOANS WERE OBTAINED FROM THE BANK AND FINANCIAL INSTITUTI ONS FOR THE PURPOSE ITA-1991/DEL/2014 7 OF SETTING UP OF THE FACTORIES. HOWEVER, PART OF T HE BORROWED FUNDS WHICH WAS NOT IMMEDIATELY REQUIRED FOR THE PURPOSE FOR WHICH IT WAS BORROWED, THE SAME WAS INVESTED IN SHORT TERM DEPOS IT BY THE BANK. INITIALLY, THE ASSESSEE OFFERED THE INTEREST RECEIV ED AS ITS INCOME FROM OTHER SOURCES WHICH WAS SET OFF AGAINST THE BUSINES S LOSS. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN AND CLAIMED THAT INTEREST INCOME SHOULD BE SET OFF AGAINST THE PRE-P RODUCTION EXPENSES AND SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCE S. NOW, WHEN WE COMPARE THE FACTS OF THE ABOVE CASE WITH THAT OF TH E ASSESSEES CASE, WE FIND THAT THE FACTS IN THE CASE UNDER APPEAL BEF ORE US ARE ALTOGETHER DIFFERENT. IN THE CASE OF TUTICORIN ALKALI CHEMICA LS AND FERTILIZERS LTD. (SUPRA), THE MONEY WAS BORROWED FOR THE PURPOSE OF SETTING UP OF THE FACTORY. IN THE CASE UNDER APPEAL BEFORE US, THE R EAL ESTATE BUSINESS WHICH IS THE MAIN BUSINESS OF THE ASSESSEE AS PER M EMORANDUM AND ARTICLES OF ASSOCIATION HAS NOT COMMENCED AT ALL. THE MONEY WAS NOT BORROWED FOR ANY SPECIFIC PURPOSES. THE ASSESSEE H AD BORROWED THE MONEY FROM SOME PERSONS AND HAS ADVANCED IT TO OTHE RS. HE PAID INTEREST TO THE PERSONS FROM WHOM THE MONEY WAS BOR ROWED AND CHARGED INTEREST FROM THE PERSON TO WHOM THE MONEY WAS ADVANCED. THE DETAILS OF THE PERSONS FROM WHOM MONEY WAS BORR OWED AND TO WHOM MONEY WAS ADVANCED ARE AT PAGE 111 OF THE ASSE SSEES PAPER BOOK. THE SAME IS REPRODUCED BELOW FOR READY REFER ENCE :- MAHALAXMI DESIGNS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 DETAILS OF OTHER LIABILITIES AS ON MARCH 31, 2009 PARTY NAME AMOUNT J R MODI FINANCE P.LTD. (25,000,000) NARENDRA GEHLAUT (32,500,000) VIRENDRA DHINGRA (20,000,000) PRADEEP BURMAN (30,000,000) RAJIV RATTAN (2,794,450,000) ITA-1991/DEL/2014 8 AUDIT FEES PAYABLE 224,720 SAURABH MITTAL 800,000 AARCH I PROPERTIES P.LTD. 805,000,000 GUNGAN PROPERTIES P.LTD. 750,000,000 GURVIT PROPERTIES P.LTD. 750,000,000 SIDDHIDAYAK PROPERTIES P.LTD. 600,000,000 TOTAL 4,074,720 12. IN THE ABOVE LIST, THE LAST FOUR PARTIES ARE PA RTIES FROM WHOM THE ASSESSEE HAS BORROWED THE MONEY AND FIRST FIVE PART IES ARE THE PARTIES TO WHOM THE MONEY HAS BEEN ADVANCED. WHEN THE BORR OWED MONEY AND THE MONEY ADVANCED IS SET OFF, IT IS FOUND THAT EXCEPT `40,74,720/-, THE ENTIRE BORROWED MONEY WAS ADVANCED. THE TOTAL BORROWED WAS `290 CRORES AND 50 LAKHS, OUT OF WHICH, MORE THAN ` 290 CRORES WAS ADVANCED BY THE ASSESSEE. THUS, IN THIS CASE, THER E IS DIRECT AND CLEAR NEXUS OF MONEY BORROWED BY THE ASSESSEE AND THE MON EY ADVANCED BY THE ASSESSEE. 13. IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND F ERTILIZERS LTD. (SUPRA), ADMITTEDLY, THE MONEY WAS BORROWED FOR THE PURPOSE OF SETTING UP OF THE FACTORY. HOWEVER, SINCE THE BORR OWED FUNDS WERE NOT IMMEDIATELY REQUIRED, THE SAME WERE INVESTED IN SHO RT TERM DEPOSITS WITH THE BANK. HOWEVER, THE FACTS IN THE CASE OF T HE ASSESSEE ARE ALTOGETHER DIFFERENT. THE MAIN OBJECT AS PER MEMOR ANDUM OF ARTICLES OF ASSOCIATION IS THE DEVELOPMENT OF INFRASTRUCTURE AND REAL ESTATE BUSINESS. HOWEVER, DURING THE YEAR UNDER CONSIDERA TION, NO INFRASTRUCTURE PROJECT OR REAL ESTATE DEVELOPMENT P ROJECT HAD COMMENCED AND THEREFORE, THE QUESTION OF BORROWING OF ANY MONEY FOR THE PURPOSE OF SUCH PROJECT DOES NOT ARISE. THEREF ORE, IN OUR OPINION, THE FACTS OF THE ASSESSEES CASE ARE ALTOGETHER DIF FERENT THAN THE FACTS IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTI LIZERS LTD. (SUPRA). FURTHER, IN THAT CASE, THE ASSESSEE INITIALLY OFFER ED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES BUT, SUBSEQUENTLY, BY FILING THE REVISED ITA-1991/DEL/2014 9 RETURN, THE ASSESSEE CLAIMED THAT INTEREST INCOME S HOULD NOT BE ASSESSED BUT SHOULD GO TO REDUCE THE PRE-PRODUCTION EXPENSES. IN THE CASE UNDER APPEAL, THE ASSESSEE HAS NEVER DISPUTED THE TAXABILITY OF INTEREST INCOME. THE ASSESSEE OFFERED THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND CLAIMED INTEREST PAYMENT THERE FROM. 14. AT THE TIME OF HEARING BEFORE US, THE ASSESSEE SUBMITTED THAT SUCH INTEREST PAYMENT IS DULY ALLOWABLE UNDER SECTI ON 57(III) OF THE INCOME-TAX ACT, 1961. SECTION 57 PROVIDES THE DEDU CTIONS WHICH ARE ALLOWABLE WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. SUB-SECTION (III) THEREOF READS AS UNDER :- 57. THE INCOME CHARGEABLE UNDER THE HEAD INCOME F ROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY :- (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATUR E OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME; 15. FROM THE ABOVE, IT IS EVIDENT THAT ANY EXPENDIT URE WHICH IS LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPO SE OF EARNING OF INTEREST INCOME IS ALLOWABLE U/S 57(III). IN THE C ASE UNDER APPEAL BEFORE US, WE FIND THAT THE BORROWED MONEY HAS BEEN UTILIZ ED FOR THE PURPOSE OF GIVING ADVANCES TO OTHERS. THERE IS A DIRECT NE XUS BETWEEN THE MONEY BORROWED BY THE ASSESSEE AND MONEY ADVANCED B Y THE ASSESSEE. THE ASSESSEE PAID INTEREST ON THE MONEY BORROWED BY IT AND HAS RECEIVED THE INTEREST ON THE MONEY ADVANCED BY IT. THEREFORE, WE HAVE NO HESITATION TO HOLD THAT THE INTEREST PAID B Y THE ASSESSEE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF INTEREST INCOME AND THEREFORE, THE SAME WAS RIGHTLY CLAIMED U/S 57(III) AND THE LEARNED CIT(A) RIGHTLY DIRECTED FOR ALLOWING THE SA ME. ITA-1991/DEL/2014 10 16. ON THESE FACTS, THE DECISION OF HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF VODAFONE SOUTH LTD. VS. CIT [2015] 378 ITR 410 (DELHI) WOULD BE SQUARELY APPLICABLE, WHEREIN HON'BLE JURIS DICTIONAL HIGH COURT HELD AT PAGE 420 OF THE REPORT AS UNDER :- THE SUM OF RS.25 CRORES DRAWN BY THE ASSESSEE ON DECEMBER 24, 2001, IN TERMS OF HSBCS SANCTION LETT ER WAS TRANSFERRED TO SCL ON THE VERY SAME DATE. WITHOUT THE FACILITY OF CREDIT BY THE HSBC, THE ASSESSEE COULD NOT HAVE ADVANCED THE LOAN TO SCL. THEREFORE, THERE WAS A D IRECT NEXUS BETWEEN THE EARNING OF INTEREST ON THE LOAN ADVANCED BY THE ASSESSEE TO SCL AND PAYMENT OF INTE REST TO HSBC ON THE LOAN DRAWN IN TERMS OF THE SANCTION LETTER DATED AUGUST 2, 2001. THE INCOME EARNED ON THE LOA N ADVANCED TO SCL WAS RIGHTLY OFFERED TO TAX BY THE A SSESSEE AS INCOME FROM OTHER SOURCES. SINCE THE INTEREST PAID TO HSBC ON THE LOAN AVAILED OF WAS THE NATURE OF AN EXPENDITURE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF EARNING THE INTEREST INCOME, IT OUGHT TO BE PERM ITTED TO BE NETTED AGAINST SUCH INCOME FROM OTHER SOURCES IN TERMS OF SECTION 57(III). 17. AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA), THE ABOVE DECISION WAS GIVEN BY THE HON'BLE JURISDICTIONAL HI GH COURT. THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL. THEREFORE, T HE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT WOULD BE SQUARELY APPLICABLE. CONSIDERING THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, WE H OLD THAT LEARNED CIT(A) WAS FULLY JUSTIFIED IN DIRECTING THE ASSESSI NG OFFICER TO ALLOW DEDUCTION OF INTEREST PAID BY THE ASSESSEE AGAINST THE INTEREST RECEIVED BY THE ASSESSEE. 18. BEFORE WE PART WITH THE MATTER, WE MAY MENTION THAT THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST MAINL Y BY FOLLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS ITA-1991/DEL/2014 11 AND FERTILIZERS LTD. (SUPRA), WHICH WE HAVE ALREADY DEALT WITH. HOWEVER, BEFORE CONCLUDING THE MATTER, HE HAS ALSO MENTIONED THAT INTEREST IS ALSO DISALLOWABLE U/S 14A BECAUSE THE B ORROWED MONEY HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHAR ES. LEARNED CIT(A) HAS RECORDED THE FINDING OF FACT THAT NO BORROWED M ONEY HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES. FROM THE DETAILS OF OTHER LIABILITIES SUBMITTED BY THE ASSESSEE, COPY O F WHICH HAS BEEN REPRODUCED ABOVE IN PARAGRAPH 11, IT IS CLEAR THAT THE BORROWED MONEY HAS BEEN UTILIZED FOR GIVING ADVANCES TO OTHERS AND THE REVENUE HAS NOT BEEN ABLE TO POINT OUT THAT ANY BORROWED MONEY HAS BEEN UTILIZED FOR INVESTMENT IN SHARES. THE LEARNED COUNSEL FOR THE ASSESSEE HAD POINTED OUT THAT THE INVESTMENT IN SHARES WAS MAINL Y OUT OF THE 0.001% OPTIONALLY CONVERTIBLE DEBENTURES OF `200 CR ORES ISSUED DURING THE YEAR UNDER CONSIDERATION AS WELL AS RESERVE AND SURPLUS OF `99 CRORES AND SHARE CAPITAL OF `1 CRORE. NO INTEREST WAS PAID ON ANY OF THE ABOVE FUNDS WHICH WERE INVESTED IN SHARES. THE ABO VE SUBMISSION MADE BY THE ASSESSEE HAS NOT BEEN CONTROVERTED BEFO RE US. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO DIST URB THE FINDING OF THE LEARNED CIT(A) THAT NO BORROWED MONEY WAS UTILIZED FOR INVESTMENT IN SHARES. 19. LEARNED DR HAS RELIED UPON VARIOUS DECISIONS TO BUTTRESS HER CLAIM THAT DISALLOWANCE U/S 14A READ WITH RULE 8D I S CALLED FOR. HOWEVER, AS WE HAVE ALREADY MENTIONED THAT ASSESSIN G OFFICER HAS NOT MADE ANY DISALLOWANCE UNDER RULE 8D. HE HAS MADE T HE DISALLOWANCE OF INTEREST WHILE COMPUTING THE ASSESSEES INCOME F ROM OTHER SOURCES AND ALTERNATIVELY OBSERVED THAT INTEREST PAID BY TH E ASSESSEE IS ALSO DISALLOWABLE U/S 14A BECAUSE BORROWED MONEY IS UTIL IZED FOR INVESTMENT IN SHARES. THEREFORE, THE LIMITED ISSUE OPEN FOR OUR EXAMINATION IS WHETHER THE BORROWED MONEY HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES. LEARNED CIT(A) HA S RECORDED THE FINDING THAT NO BORROWED MONEY WAS UTILIZED FOR INV ESTMENT IN SHARES. ITA-1991/DEL/2014 12 AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISS IONS OF BOTH THE PARTIES, WE CONCUR WITH THE FINDING OF THE LEARNED CIT(A). IN THE ABOVE CIRCUMSTANCES, THE WIDER QUESTION WHETHER DISALLOWA NCE U/S 14A READ WITH RULE 8D IS REQUIRED TO BE MADE OR NOT IS NOT B EFORE US. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LEARNED CIT(A). THE SAME IS UPHELD. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 23.11.2017 . SD/- SD/- (KULDIP SINGH (KULDIP SINGH (KULDIP SINGH (KULDIP SINGH ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER PRE PRE PRE PRE SIDENT SIDENT SIDENT SIDENT VK. COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF INCOME TA X, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -6(1), NEW DELHI. 6(1), NEW DELHI. 6(1), NEW DELHI. 6(1), NEW DELHI. 2. RESPONDENT : M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., M/S MAHALAXMI DESIGNS PVT.LTD., 141, HUMAYUNPUR, NEW DELHI 141, HUMAYUNPUR, NEW DELHI 141, HUMAYUNPUR, NEW DELHI 141, HUMAYUNPUR, NEW DELHI 110 029. 110 029. 110 029. 110 029. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR