ITO, New Delhi V. M/s. Pushpanjli Fincon Pvt. Ltd., New Delhi

ITA 2216/DEL/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5795 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Keywords: Business income; Business expenditure; Earning of tax free income; Rule 8D; Capital Gains
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.2216/DEL/2017 ASSESSMENT YEAR: 2012-13 INCOME TAX OFFICER, WARD-20(1), NEW DELHI. VS. M/S. PUSHPANJALI FINCON PVT. LTD., M-62 & 63 FIRST FLOOR CONNAUGHT PLACE, NEW DELHI. TAN/PAN: AAFCP2690B (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. SULEKHA VERMA, CIT-D.R. RESPONDENT BY: SHRI GAUTAM JAIN, ADV. DATE OF HEARING: 11 07 2019 DATE OF PRONOUNCEMENT: 01 10 2019 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 10.01.2017, PASSED BY COMMISSIONER OF INCOME TAX (APPEALS)-XXXVI, NEW DEL HI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN THE GROUNDS OF APPEAL T HE ASSESSEE HAS RAISED FOLLOWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.25,30,80,822/- MADE BY THE ASSESSING OFFICER WIT HOUT APPRECIATING THE FACT THAT THE FUNDS BORROWED BY TH E ASSESSEE I.T.A. NO.2216/DEL/2017 2 WERE UTILIZED FOR THE PURPOSE OF INVESTMENT AND AS SUCH THE DISALLOWANCE OF INTEREST ON FUNDS USED FOR INVESTME NTS WAS MERITED AS PER THE PROVISION OF SECTION 14A OF THE INCOME TAX ACT IRRESPECTIVE OF WHETHER DIVIDEND AND BEEN DECLA RED OR NOT. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMP ANY WAS INCORPORATED ON 22 ND DECEMBER, 2009 AND WAS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. IT WAS E NGAGED IN THE BUSINESS OF PROVIDING CONSULTANCY RELATING TO I NVESTMENT, ACQUIRING, HOLDING, PROCURING, PURCHASING OF ALL TY PES OF SECURITIES. ASSESSING OFFICER FROM THE PERUSAL OF T HE BALANCE SHEET NOTED FOLLOWING POSITION:- AS AT MARCH 31, 2012 AS AT MARCH 31, 2011 SHARE CAPITAL RS.4,01,00,000/- RS.1,00,000/- RESERVE AND SURPLUS RS.3,93,64,99,858/- RS. (2,40,5 5,991) SHORT TERM BORROWING RS.2,48,74,00,000/- RS.4,10,32 ,00,000/) NON CURRENT INVESTMENT RS.4,00,00,00,000/- - (RS.400 CRORE) RS.2,00,00,00,000/- (RS.200 CRORE) 3. ON THE APPLICATION OF FUNDS SHOWN IN THE BALANCE -SHEET ASSESSING OFFICER NOTED THAT IN THE BEGINNING OF TH E YEAR ENTIRE INVESTMENT OF RS.200 CRORE WAS FUNDED BY SHO RT-TERM INTEREST-BEARING BORROWINGS AND ONLY RS.1 LAKH TOWA RDS EQUITY CAPITAL WAS AVAILABLE TOWARDS INTEREST FREE FUNDS. THUS, THERE WAS A DIRECT CLEAR NEXUS OF UTILIZATION OF BO RROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. FURTHER, ASS ESSEE HAS SHOWN INTEREST INCOME OF RS.53,19,75,237/- AS OTHE R INCOME IN THE P&L ACCOUNT AND CLAIMED EXPENSES TOWARDS IN TEREST I.T.A. NO.2216/DEL/2017 3 AND FINANCE COST AMOUNTING TO RS.53,13,31,859/- AN D OTHER EXPENSES OF RS.17,529/-. THE RESULTANT PROFIT WAS S HOWN AT RS.8,25,849/-. HE FURTHER NOTICED THAT THE ASSESSEE HAS RECEIVED OPTIONALLY CONVERTIBLE PREFERENCE SHARES V ALUING RS.400 CRORE FROM SIX PARTIES, THE DETAILS OF WHICH HAS BEEN GIVEN AT PAGE 2 OF THE ASSESSMENT ORDER. THE ASSESS ING OFFICER HAS ALSO NOTED THE DETAILS OF INVESTMENTS MADE BY T HE ASSESSEE DURING THE YEAR IN M/S. SHIVSHAKTI FINANCI AL SERVICES PVT. LTD. FOR RS.200 CRORE. THE ASSESSING OFFICER FURTHER NOTICED THAT ASSESSEE HAS GIVEN INTEREST ON ALL THE FUNDS BORROWED BY IT AT THE RATE OF INTEREST RANGIN G FROM 8% TO 12.5%. HOWEVER, FUNDS WHICH WERE CONVERTED INTO INV ESTMENT IN THE BOOKS CARRIED A RATE OF INTEREST OF 10.25%. AFTER TAKING NOTE OF THESE FACTS, ASSESSING OFFICER ASKED THE AS SESSEE AS TO WHY THE INTEREST EXPENSE RELATABLE TO INVESTMENT SH OULD NOT BE DISALLOWED AS THE INVESTMENT WOULD EITHER RESULT IN CAPITAL GAINS OR EXEMPT INCOME OR BOTH. THE ASSESSEES SUBM ISSION WAS THAT DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE HAS NOT EARNED ANY EXEMPT INCOME, AND THEREFORE, TH E PROVISIONS OF SECTION 14A READ WITH RULE 8D CANNOT BE APPLIED. FURTHER, ASSESSEE HAS NOT EARNED ANY EXEMP T INCOME FROM THE INVESTMENT ON 31.03.2012 AND IN THE LATER YEAR ALSO TILL THEIR REDEMPTION. THE INVESTMENTS WERE REDEEME D DURING THE FINANCIAL YEAR 2014-15. THE LD. ASSESSING OFFIC ER OBSERVED THAT, FIRSTLY, INTEREST EXPENSE IS NOT REL ATED TO BUSINESS AS ASSESSEE COMPANY IS NOT AN NBFC AND HEN CE IS NOT ALLOWABLE U/S.36(I)(III) NOR U/S.57(III). THERE AFTER, HE MADE I.T.A. NO.2216/DEL/2017 4 TOTAL DISALLOWANCE OF RS.25,30,80,822 U/S. 14A OF T HE ACT. THE ASSESSING OFFICERS FINDINGS AND OBSERVATIONS READ AS UNDER: SECTION 36(I)(III) OF THE I.T ACT ALLOWS DEDUCTION FROM THE PROFIT OF BUSINESS OR PROFESSION, THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PRO FESSION. AS STATED ABOVE, THE ASSESSEE IS NOT AN NBFC. IT IS NO T THE BUSINESS OF THE ASSESSEE TO EARN INCOME FROM INVESTMENTS MADE. IN THE MEMORANDUM OF ASSOCIATION ALSO, ITS BUSINESS ACTIVI TY RELATES TO CONSULTANCY IN FINANCIAL MATTERS. IN THE PROFIT AND LOSS ACCOUNT AND COMPUTATION OF INCOME IT HAS SHOWN THE INTEREST REC EIPT AS 'OTHER INCOME'. THE COMPANY HAS RIGHTLY NOT CLAIMED ALLOWA NCE OF EXPENDITURE INVOKING THE PROVISIONS OF SECTION 36(1 )(III) OF THE I.T ACT. HOWEVER, IF AT ANY STAGE, SUCH SUBMISSION IS MADE, THEN ALSO IT IS HELD THAT THE SAME WOULD BE NOT ALLOWABLE. THE AO M ENTIONED 5LP IN THE CASE OF M/S. TULIP STAR HOTELS LIMITED (ITR) & STATED THAT IT IS CLEAR THAT THE INTEREST EXPENSE RELATABLE TO INVEST MENT IS NOT ALLOWABLE U/S. 36(L)(III) OF THE I.T ACT. THERE IS NO MENTION OF WHAT AMOUNT OF INTEREST IS RELATABLE TO HOW MUCH OF INVE STMENT. (II). ASSESSEE HAS IN ITS NOTES TO BALANCE SHEET AD MITTED THAT IT IS NOT INTO THE BUSINESS OF GIVING LOAN AND MAKING INV ESTMENT BUT IT PROVIDES CONSULTANCY SERVICES IN THIS REGARD. THE A SSESSEE IN ITS PROFIT AND LOSS ACCOUNT ITSELF HAS CLAIMED THE INTE REST INCOME, NOT AS REVENUE FROM OPERATIONS BUT AS 'OTHER INCOME'. AS S UCH IT IS CLEAR THAT THE ASSESSEE IS ENTITLED ONLY TO DEDUCTION OF EXPENSES AVAILABLE AGAINST INCOME FROM OTHER SOURCES. THUS, ONLY THOSE INTEREST EXPENSES WHICH IS EXPENDED TOWARDS EARNING OF INTER EST INCOME IS ALLOWABLE TO THE ASSESSEE AS PER THE PROVISION OF S ECTION 57(III) OF THE I.T ACT. AS SUCH, INTEREST RELATABLE TO INVESTM ENT MADE IS NOT ALLOWABLE. THERE IS NO OTHER INCOME SHOWN BY THE AS SESSEE AGAINST WHICH SUCH INTEREST EXPENDITURE CAN BE CLAIMED ALLO WABLE U/S. 57(III) OF THE I.T ACT. I.T.A. NO.2216/DEL/2017 5 (III). THE INVESTMENT MADE IN THE FORM OF PREFERENC E SHARES BY THE ASSESSEE WOULD YIELD DIVIDEND INCOME AND IF SOLD WO ULD RESULT IN CAPITAL GAINS. THE DIVIDEND INCOME IS EXEMPT BY VIR TUE OF SECTION 10 OF THE I.T ACT. AS PER THE PROVISIONS OF SECTION 14 A OF THE ACT, ANY EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME I S TAXABLE. THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE TOWARDS EXEM PT INCOME THOUGH THE INVESTMENT MADE ABOVE IS CLEARLY OUT OF THE BORROWED FUNDS. THERE IS DIRECT NEXUS BETWEEN THE INTEREST E XPENSES RELATABLE TO FUND, WHICH IS USED FOR THE PURPOSE OF INVESTMENT. AS SUCH THE CLAIM OF THE ASSESSEE THAT NO EXPENSE WAS INCURRED FOR EARNING EXEMPT INCOME IS WITHOUT ANY BASIS. THERE W AS NO DIVIDEND EARNED BY THE ASSESSEE. DELHI SPECIAL BENC H OF THE ITAT IN CHEMINVEST LTD. V ITO (2009) 121 ITD 318 (DEL) ( SB) TOOK A VIEW THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION T O EXEMPT INCOME, IT HAS TO SUFFER DISALLOWANCE IRRESPECTIVE OF THE F ACT WHETHER ANY EXEMPT INCOME IS EARNED BY THE ASSESSEE OR NOT. TOT AL DISALLOWANCE OF RS. 25,30,80,822/- IS MADE U/S. 14A OF THE I.T A CT. THIS IS NOTWITHSTANDING THE GROUNDS TAKEN FOR THE DISALLOWA NCE OF INTEREST EXPENSE UNDER OTHER PROVISION OF THE ACT. 4. LD. CIT(A) AFTER PERUSING THE ENTIRE FACTS, MATE RIAL ON RECORD AND THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE ORDER OF THE ASSESSING OFFICER NOTED THAT THE F INANCIAL STATEMENT REFLECTED THAT INTEREST INCOME IS FROM IN TER CORPORATE DEPOSITS AND THE EXPENSES ARE ALSO ON INT EREST ON INTER CORPORATE DEPOSITS. THUS, THEY ARE SIMILAR IN NATURE. THE INTEREST INCOME IS OF RS.53,19,75,237/- AND INTERES T EXPENDITURE IS RS.53,13,31,859/- OUT OF WHICH ASSES SING OFFICER HAS MADE DISALLOWANCE U/S.14A READ WITH RUL E 8D OF RS.25,30,80,882/- WHICH WAS WITHOUT PREJUDICE TO TH E I.T.A. NO.2216/DEL/2017 6 INTEREST EXPENDITURE DISALLOWABLE U/S.36(1)(III) OR U/S.57(III) OF THE ACT. ADMITTEDLY, THE ASSESSEE DOES NOT HAVE ANY EXEMPT INCOME EXCEPT SOURCE OF INCOME AND ALSO THERE IS NO DIVIDEND INCOME RECEIVED DURING THE YEAR. THE ASSESSING OFFI CER HAD RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF CHEMINVEST WHICH HAS NOW BEEN REVERSED BY HONBLE D ELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT , AS REPORTED IN 378 ITR 33 (DEL) WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE U/S. 14A WILL NOT APPLY IF THERE IS NO EXEMPT INCOME REGARDING OTHER ALTERNATIVE DISALLOWANCE MAD E BY THE LD. ASSESSING OFFICER, WAS IN THE FOLLOWING MANNER: - (I) SINCE THE ASSESSEE IS NOT AN NBFC AND ITS BUSI NESS ACTIVITIES RELATES TO CONSULTANCY IN FINANCIAL MATTERS, THE IN TEREST IS NOT ALLOWABLE AS THERE IS USE OF BORROWED FUNDS FOR MAK ING INVESTMENTS. (II) SINCE THE ASSESSEE HAS MENTIONED THE INCOME AS ''OTHER INCOME IN THE P&L A/C. AND THERE IS NO NEXUS BETWE EN THE INTEREST EARNED AND INTEREST PAID, THE AMOUNT IS DISALLOWED U/S. 57(III) OF THE ACT. (III) SINCE THE INVESTMENT MADE COULD TURN INTO CAP ITAL GAINS LATER THE DIRECT INTEREST EXPENSES RELATABLE TO HOLDING O F INVESTMENT IS NOT ALLOWABLE. 5. LD. CIT(A) HELD THAT IN THIS CASE THE ASSESSEE H AD NOT SHOWN INCOME AS INCOME FROM OTHER SOURCES NOR HAS BEEN CLAIMED, THEREFORE, SECTION 57(III) IS NOT RELEVANT . IN SO FAR AS DISALLOWANCE U/S.36(1)(III) IS CONCERN, SHE HELD TH AT THOUGH THE ASSESSEE IS NOT A NBFC, HOWEVER, THE FUNDS USED WERE BOTH FOR FORWARDING OF LOANS AND INVESTMENT IN SHAR E CAPITAL I.T.A. NO.2216/DEL/2017 7 WHICH DID NOT YIELD DIVIDEND INCOME DURING THE YEAR . THE ASSESSING OFFICER HAS NOT DISCUSSED AS TO WHETHER, WHERE THE INTEREST INCOME HAS BEEN SHOWN AS BUSINESS INCOME A ND WHAT WILL HAPPENED TO THE INTEREST INCOME AND HAVIN G DIRECT NEXUS WITH THAT BUSINESS INCOME. THE RELEVANT OBSER VATION OF THE LD. CIT(A) IN THIS REGARD READS AS UNDER: ONLY ISSUE THAT REMAINS IS OF DISALLOWANCE U/S. 36 (1)(III). IN THIS CASE ALTHOUGH THE APPLICANT IS NOT AN NBFC, IT IS S EEN THAT THE FUNDS ARE USED FOR BOTH FORWARDING OF LOANS AND INV ESTMENTS IN SHARE CAPITAL WHICH DID NOT HAVE ANY DIVIDEND INCOM E DURING THE YEAR. THE AO HAS NOT DISCUSSED THAT IN CASE WHERE T HE INTEREST EARNED IS CONSIDERED AS BUSINESS INCOME THEN WHAT W OULD HAPPEN TO THE EXPENSES ON INTEREST (ON SIMILAR INTER CORPO RATE DEPOSITS), WHICH HAVE ACTUALLY BEEN MADE. IT IS NOT THE CASE O F THE AO THAT THE ASSESSEE HAS ADOPTED ANY COLOURFUL DEVICE OR DUBIOU S METHOD OR THAT THE INTEREST WAS NOT ACTUALLY PAID ON AMOUNT B ORROWED FOR BUSINESS PURPOSE WHICH MAY INCLUDE INVESTMENT IN OT HER COMPANIES. THE ASSESSEE HAS RELIED UPON A NUMBER OF CASE LAWS WHEREIN IT HAS BEEN DECIDED THAT THE PURPOSE OF BUS INESS DOES NOT HAVE A NARROW VIEW AND INTEREST EXPENSE, IF IT HAS BEEN INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSEE IS ALLOWED E VEN IF THERE IS NO INCOME. IT IS ALSO OBSERVED THAT THE AO HAS NOT EVE N QUANTIFIED OR SEPARATED THE AMOUNT OF THE INTEREST THAT HE HOLDS AS DISALLOWABLE U/S. 36(1)(III) OF THE ACT AND HAS MERELY MENTIONED /THAT INTEREST EXPENSE RELATABLE TO INVESTMENT IS NOT ALLOWABLE U/ S. 36(L)(III) OF THE ACT. 6. BEFORE US, THE LD. CIT-DR AFTER REFERRING TO THE VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER ALSO REF ERRED TO CBDT CIRCULAR NO.5/15 DATED 11 TH FEBRUARY, 2014 WHEREIN IT I.T.A. NO.2216/DEL/2017 8 WAS STATED THAT FOR INVOKING DISALLOWANCE U/S.14A I T IS NOT MATERIAL THAT ASSESSEE SHOULD HAVE EARNED DIVIDEND INCOME DURING THE FINANCIAL YEAR. SHE HAS ALSO REFERRED TO THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD., AS REPORTED IN (2018) TAXMANN.COM 154 AND REITERATED THE FOLLOWING PRINCIPLE OF HONBLE A PEX COURT. (I) ONLY THAT EXPENDITURE WHICH IS IN RELATION TO EARNING DIVIDENDS CAN BE DISALLOWED UNDER SECTION 14A AND RULE 8D. (II) THE DOMINANT PURPOSE FOR WHICH INVESTMENT INT O SHARES IS MADE BY ASSESSEE MAY NOT BE RELEVANT AS SECTION 14A APPLIES IRRESPECTIVE OF WHETHER SHARES ARE HELD TO GAIN CON TROL OR AS STOCK- IN-TRADE. HOWEVER, WHERE SHARES ARE HELD AS STOCK-I N-TRADE, MAIN PURPOSE IS TO TRADE IN THOSE SHARES AND EARN PROFIT S THEREFROM AND, IN PROCESS, CERTAIN DIVIDEND IS ALSO EARNED WHICH I S TAX EXEMPT UNDER SECTION 10(34); EXPENDITURE ATTRIBUTABLE TO E XEMPT DIVIDEND INCOME WILL HAVE TO BE APPORTIONED TO BE DISALLOWED UNDER SECTION 14A. (III) RULE 8D IS PROSPECTIVE IN NATURE AND COULD N OT HAVE BEEN MADE APPLICABLE IN RESPECT OF ASSESSMENT YEARS PRIO R TO 2007 WHEN THIS RULE WAS INSERTED. 7. SHE ALSO REFERRED TO JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD., AS REPORTED IN (2010) 326 ITR 1 (SC) ON THE ISSUE OF DISALLOWANCE U/S.57(III) AND 36(1)(III) MADE BY THE ASSESSING OFFICER. SHE STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS ASSESSEE IS NOT A NBFC AND HOW THE INTEREST EXPENDITURE CANNOT BE TREATED AS BUSINESS EXPENDITU RE AND THEREFORE, ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. I.T.A. NO.2216/DEL/2017 9 8. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(A) AND SUBMITTED THAT IN THE ASSESSMENT YEAR 2011-12, THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALLOWED INTERES T EXPENDITURE AS BUSINESS EXPENDITURE. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDE R, WE FIND THAT, FIRST OF ALL, THE ASSESSING OFFICER HAS FINAL LY MADE THE ADDITION U/S.14A READ WITH RULE 8D. IT IS AN ADMITT ED FACT THAT NO DIVIDEND INCOME HAS BEEN EARNED BY THE ASSE SSEE NEITHER IN THIS YEAR NOR IN THE SUBSEQUENT YEARS. T HUS, IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT, 378 ITR 33 (DEL) , NO DISALLOWANCE U/S.14A CAN BE MADE. MOREOVER, THE TRI BUNAL IN ASSESSEES OWN CASE HAS HELD THAT THE INTEREST INC OME AND INTEREST EXPENDITURE WERE DIRECTLY LINKED TO THE BUSINESS OF THE ASSESSEE. THE RELEVANT OBSERVATION AND THE FIND ING OF THE TRIBUNAL READS AS UNDER: 9. THE GROUND NO. 1 - 3 OF THE APPEAL OF THE ASSES SEE PERTAINS TO THE DISALLOWANCE OF INTEREST OF RS.31,26,79,151/-. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO PERUS ED THE RELEVANT DOCUMENTS PRODUCED BY THE ASSESSEE IN THE FORM OF P APER BOOK AS WELL AS VARIOUS DECISIONS CITED BEFORE US AS FAR AS THEY ARE RELEVANT IN DECIDING THE ISSUE BEFORE US. UNDOUBTEDLY, ASSES SEE IS A COMPANY OF INDIA BULLS GROUP. IT HAS RECEIVED UNSECURED LOA NS OF RS. 3931.32 CRORES FROM 10 COMPANIES ON INTEREST AT THE RATE OF 9% TO 13%. IT HAS ALSO REPAID RS. 3521.07 CRORES TO THESE COMPANIES. THEREFORE, I.T.A. NO.2216/DEL/2017 10 ASSESSEE HAS PAID INTEREST OF RS. 312, 673, 614 /- DURING THE YEAR. THE SURPLUS FUND FROM ABOVE LOANS OF THE ASSESSEE O F RS. 410.25 CRORES WAS FURTHER LENT TO 6 COMPANIES AND EARNED I NTEREST THEREON AT THE RATE OF 9% TO 52% AMOUNTING TO RS. 289,351,3 52/-. THEREFORE, THERE IS INTEREST LOSS INCURRED BY THE ASSESSEE FRO M THE TRANSACTIONS ENTERED INTO FOR PROVIDING LOANS AND OBTAINING LOAN S. IT IS INTERESTING TO NOTE THAT FROM SHIVA SHAKTHI FINANCIAL SERVICES PRIVATE LIMITED, ASSESSEE HAS OBTAINED LOAN OF RS. 31 CRORES WHICH W AS REPAID DURING THE YEAR AND INTEREST HAS BEEN PAID TO THIS COMPANY OF RS. 197,260/-. THE RATE OF INTEREST STATED TO BE 12%. T HE ASSESSEE HAS ALSO RECEIVED INTEREST FROM THIS COMPANY ON LOAN GR ANTED OF RS. 1322.3 CRORES WHICH WAS REPAID BY THAT COMPANY TO T HE EXTENT OF RS. 1222.3 CRS BUT HAS PAID INTEREST TO THE ASSESSEE OF RS. 261,277,098/- AT VARYING RATES RANGING FROM 9% TO 5 2%. FURTHER MEMORANDUM OF ASSOCIATION OF THIS COMPANY PROVIDES THAT THIS COMPANY CAN GIVE LOANS AND BORROW LOANS. THE MAIN C ONTENTION OF THE LD. AO IS THAT ASSESSEE IS NOT CARRYING ON ANY BUSINESS AND LENDING AND BORROWING OF THE FUNDS IS NOT THE BUSIN ESS OF THE COMPANY AS ASSESSEE COMPANY IS NOT REGISTERED AS A NONBANKING FINANCIAL COMPANIES WITH THE RESERVE BANK OF INDIA. WE APPRECIATE THE CONCERN OF THE LD. ASSESSING OFFICER HOWEVER, W E FAILED TO COMPREHEND THAT WHY BORROWING AND LENDING OF THE FU NDS CANNOT BE CONSIDERED AS A BUSINESS. FURTHER ABSENCE OF ANY RE GISTRATION CERTIFICATE WITH THE ASSESSEE IN ACCORDANCE WITH TH E RBI DIRECTIONS APPLICABLE TO NONBANKING FINANCIAL COMPANIES WILL N OT MAKE ANY MATERIAL DIFFERENCE IN ASSESSING THE CORRECT INCOME OF THE ASSESSEE. IT MAY BE AN OFFENCE UNDER THE PARTICULAR DIRECTIONS O F THE RESERVE BANK OF INDIA ISSUED IN 1998. FURTHERMORE, IT CANNOT BE SAID THAT ASSESSEE HAS NOT BORROWED FOR THE PURPOSE OF THE BUSINESS WH EN THE SAME MONEY IS LENT, INTEREST IS EARNED AND SAME IS TAXED AS BUSINESS INCOME. IN FACT, OUT OF THE TRANSACTIONS WITH 16 CO MPANIES OF BORROWING AND LENDING OF THE FUNDS, THE LD. ASSESSI NG OFFICER HAS NOT I.T.A. NO.2216/DEL/2017 11 STATED THAT ANY OF THE LOANS GIVEN BY THE ASSESSEE DOES NOT CARRY INTEREST. THEREFORE, ALL THE TRANSACTIONS OF BORROW ING AND LENDING OF THE MONEY ENTERED INTO BY THE ASSESSEE ARE CARRYING INTEREST AT VARYING RATES. FOR THIS ASSESSEE HAS SUBMITTED A CH ART SHOWING PERIOD OF FINANCE, AMOUNT FINANCED AND RATE OF INTE REST WITH INTEREST EARNED AND PAID. THE ASSESSEE IS PAYING INTEREST MA XIMUM AT THE RATE OF 25% AND THAT TOO TO INDIABULLS FINANCIAL SE RVICES LTD FOR A LIMITED PERIOD OF SEPTEMBER TO DECEMBER. THE SAME C OMPANY IS ALSO PAID INTEREST OF TO THE AUGUST 2010 AT THE RATE OF 9% AND FROM JANUARY TO MARCH 2011 AT 14%. THEREFORE ALL THE LOA NS TAKEN BY THE ASSESSEE ARE GENERALLY CARRYING INTEREST RATE OF 9% TO 13% EXCEPT IN CASE OF ONE TRANSACTION WHERE THE RATE OF INTEREST HAS GONE UP TO 25%. THE ANALYSIS OF THE INTEREST RECEIVED BY THE A SSESSEE SHOWS THAT ASSESSEE IS RECEIVING INTEREST AT THE RATE OF 9% TO 12% GENERALLY. IN ONE CASE OF SHIV SHAKTHI FINANCIAL SERVICES PRIV ATE LIMITED WHERE THE ASSESSEE HAS EARNED INTEREST OF RS. 261,277,098 /- THE RATE OF INTEREST IN THE MONTH OF MAY TO JULY WAS 27%, FROM JULY TO SEPTEMBER 36 PERCENT, FROM OCTOBER TO DECEMBER 52% AND FROM JANUARY TO MARCH 45 PERCENT. THE LD. AO AS WELL AS THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US COULD NOT CON TROVERT THESE TRANSACTIONS OF THE ASSESSEE. THEREFORE ON ANALYSIS OF THE DETAILS OF INTEREST PAID AND RECEIVED BY THE ASSESSEE IT IS AP PARENT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MONEY LENDIN G. HENCE, THE NATURAL COROLLARY THAT FOLLOWS IS THAT ASSESSEE IS INCURRING INTEREST EXPENDITURE FOR THE PURPOSE OF ITS BUSINESS. WE HAV E ALSO CAREFULLY PERUSED THE ASSESSMENT ORDER PASSED BY THE LD. AO F OR ASSESSMENT YEAR 2012 - 13. IT IS NOT DISPUTED BY THE REVENUE T HAT IDENTICAL SITUATION PREVAILED THEREIN ALSO. IN THAT PARTICULA R ASSESSMENT YEARS THE LD. ASSESSING OFFICER HAS DISALLOWED THE INTERE ST EXPENDITURE OF RS. 23,80,80,822/- BY APPLYING THE PROVISIONS OF SE CTION 14 A OF THE INCOME TAX ACT AND NOT UNDER SECTIONS 36 OF THE ACT . ON APPEAL SUCH DISALLOWANCE UNDER SECTION 14 A IS DELETED. THIS SI MILAR I.T.A. NO.2216/DEL/2017 12 DISALLOWANCES ARE ALSO MADE UNDER SECTION 14 A FOR ASSESSMENT YEAR 13-14 ALSO. HOWEVER, NO DISALLOWANCE WAS MADE UNDER SECTION 36 OF THE ACT. FOR ASSESSMENT YEAR 2010 - 11, THE A SSESSEE WAS ASSESSED UNDER SECTION 143 (3) OF THE INCOME TAX AC T. THERE WAS NO SUCH DISALLOWANCE BECAUSE OF INTEREST EXPENDITURE. ON PERUSAL OF THE BALANCE SHEET AS AT 31/3/2010 WHERE THE ASSESSEE HA S EARNED INTEREST INCOME OF RS. 1256 7671/- AND PAID INTERES T OF RS. 13386301/- FROM THE PERIOD 22/12/2009 TO 31/3/2010. IN FACT IF THE DISALLOWANCE IS MADE U/S 14A OF THE ACT, IT IS ADMITTED BY REVENUE THAT THIS EXPENDITURE THOUGH OTHERWISE ALLO WABLE TO THE ASSESSEE IS DISALLOWABLE AS IT HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME. HENCE, FOR THE FOLLOWING REASONS WE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INT EREST THAT A. ALL THE LOANS MADE BY THE ASSESSEE ARE ONLY INT EREST AND ALL THE LOANS RECEIVED BY THE ASSESSEE ALSO CARRY INTER EST, B. THE INTEREST RATES CARRIED BY THE LOANS GIVEN A ND TAKEN BY THE ASSESSEE ARE NOT DISPUTED C. THE INTEREST INCOME EARNED BY THE ASSESSEE IS T AXED AS BUSINESS INCOME D. IN THE EARLIER YEARS ON THE IDENTICAL FACTS THE INTEREST EXPENDITURE HAS BEEN DISALLOWED AND THERE IS NO ACT ION TAKEN TO DISTURB THAT ASSESSMENT YEAR E. IN THE SUBSEQUENT YEARS THE INTEREST DISALLOWAN CE HAS NOT BEEN MADE UNDER SECTION 36 BUT UNDER SECTION 14A OF THE INCOME TAX ACT WHICH TO WHAT DELETED BEFORE THE 1ST APPELLATE AUTHORITY. F. PROVISION IN THE MEMORANDUM OF ASSOCIATION PERM ITTING THE ASSESSEE COMPANY TO GRANT AND RECEIVE THE LOANS. 10. THUS, WHEN THERE IS A DIRECT NEXUS BETWEEN THE DIRECT EARNING AND DIRECT INVESTMENT, NO DISALLOWANCE U/S. 36(1)(III) CAN BE MADE. IN SO FAR AS SECTION 57(III) IS CONCER NED, ADMITTEDLY IT IS NOT IN DISPUTE THAT THE INTEREST EXPENDITURE I.T.A. NO.2216/DEL/2017 13 HAS BEEN ASSESSED AS BUSINESS INCOME, THEREFORE, NO DISALLOWANCE U/S.57(III) CAN BE MADE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST OCTOBER, 2019. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 1 ST OCTOBER, 2019 PKK: