FINE ESTATES PVT. LTD., MUMBAI V. CIT (A)-4,

ITA 2866/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7354 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Earning of tax free income; Wholly owned subsidiary; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2866/M/2016 ASSESSMENT YEAR: 2011-12 M/S. FINE ESTATES PVT. LTD., 4 TH FLOOR, KALPATARU HERITAGE, 127 M.G. ROAD, FORT, MUMBAI 400 001 PAN: AAACF2738F VS. COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAKESH MOHAN, A.R. REVENUE BY : MS. POOJA SWAROOP, D.R. DATE OF HEARING : 21.02.2018 DATE OF PRONOUNCEMENT : 27.04.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 12.01.2016 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: 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 CO NCLUDING THAT AN ADDITIONAL DISALLOWANCE U/S 14A R.W.R. 8D IS ATTRAC TED FOR EARNING EXEMPT INCOME IN THE APPELLANT'S CASE BY OVERLOOKIN G THE FACTS AND CIRCUMSTANCES. THE APPELLANT PRAYS THAT THE SAID AC TION OF THE LEARNED AO MAY KINDLY BE DELETED. ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 2 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 DISALLOWING ADDITIONAL AMOUN T OF RS. 30,82,192 U/S 14A BY APPLYING RULE 8D(2)(I) ON ACCOUNT OF THE INTEREST EXPENDITURE ATTRIBUTABLE TO EARNING THE EXEMPT INCO ME UNDER THE NORMAL PROVISIONS OF THE ACT. THE APPELLANT PRAYS T HAT THE DISALLOWANCE OF RS. 30,82,192 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 CONFIRMING THE ACTION OF THE LEARNE D A.O. IN ADDING AN ADDITIONAL AMOUNT OF RS. 30,82,192 U/S 14A OF THE A CT UNDER THE MAT PROVISIONS OF THE ACT. THE APPELLANT PRAYS THAT THE ADDITION OF RS.30,82,192 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 CONFIRMING THE ACTION OF TH E LEARNED A.O. IN HOLDING THAT THE BALANCE AMOUNT OF INTEREST OF RS.1 ,37,64,648/- WAS NOT ALLOWABLE AS DEDUCTION U/S 36(1)(III) OF THE IN COME TAX ACT. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.1,37,64 ,648 MAY KINDLY BE DELETED. 3. THE GROUND NO.1 IS GENERAL IN NATURE AND THEREFOR E REQUIRES NO ADJUDICATION. THE ISSUE RAISED IN GROUN D NO.2 IS AGAINST THE CONFIRMATION OF ACTION OF AO IN DISALLO WING THE ADDITIONAL AMOUNT OF RS.30,82,192/- UNDER SECTION 1 4A READ WITH RULE 8D(2)(I) ON ACCOUNT OF INTEREST EXPENDITU RE DIRECTLY RELATING TO EARNING THE EXEMPT INCOME. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RENTING OF PREMISES AND PROVIDING PROFE SSIONAL SERVICES TOWARDS COORDINATION AND FACILITATION OF P ROJECTS. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOT ED THAT DURING THE YEAR, THE ASSESSEE HAS PAID INTEREST TO T HE TUNE OF RS.1,68,46,840/- ON THE LOANS ADVANCED BUT HAS NOT ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 3 CHARGED/EARNED/RECEIVED ANY INTEREST ON THE LOANS G IVEN BY IT. THE AO HAVING OBSERVED SO ASKED THE ASSESSEE TO JUS TIFY THE CLAIM OF EXPENDITURE. THE ASSESSEE WAS ALSO ASKED T O SUBSTANTIATE THE WORKING OF DISALLOWANCE UNDER SECT ION 14A READ WITH RULE 8D IN ITS COMPUTATION OF INCOME IN W HICH NO INTEREST EXPENDITURE WAS CONSIDERED. IN RESPONSE TH ERETO, THE ASSESSEE REPLIED VIDE LETTER DATED 05.02.14 THAT LOAN OF RS.5,00,00,000/- TAKEN FROM M/S. JHALAK DEVELOPERS PV T. LTD. ON WHICH INTEREST OF RS.30,82,192/- WAS PAID. THE LOAN WAS UTILISED DIRECTLY FOR MAKING INVESTMENT IN M/S. SHA RYANS RESOURCES LTD. THE AO OBSERVED THAT THE BANK STATEM ENT SHOWED THAT RS.5,00,00,000/- WAS RECEIVED ON 08.04.10 AND INVESTMENT WAS MADE ON 21.04.10 TO THE TUNE OF RS.14. 22 CRORE. THE ASSESSEE SUBMITTED BEFORE THE AO THAT N O DISALLOWANCE TOWARDS INTEREST UNDER SECTION 14A REA D WITH RULE 8D(2)(I) SHOULD BE MADE. THE ASSESSEE SUBMITTED BE FORE THE AO BY RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEERS PV T. LTD. IN WHICH IT HAS BEEN HELD THAT INVESTMENTS MADE IN SUB SIDIARY COMPANIES WERE ATTRIBUTABLE TO COMMERCIAL EXPEDIENC Y AND THEREFORE NO DISALLOWANCE OF EXPENSES/INTEREST IS A TTRIBUTABLE TO THE SAID INVESTMENTS UNDER SECTION 14A READ WITH RULE 8D. THOUGH THE ASSESSEE ADMITTED THAT THE SAID EXPENDIT URE ON ACCOUNT OF INTEREST TO THE TUNE OF RS.30,82,192/- WAS INCURRED ON MAKING INVESTMENTS IN THE SUBSIDIARY COMPANIES A ND WITHOUT PREJUDICE TO THE ABOVE SUBMISSION THE ASSES SEE SUBMITTED THAT THIS COULD ONLY BE ATTRIBUTED AT THE MOST FOR EARNING EXEMPT INCOME UNDER SECTION 14A READ WITH R ULE ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 4 8D(2)(I). HOWEVER, THE AO BRUSHING ASIDE THE SUBMIS SION OF THE ASSESSEE ADDED RS.30,82,192/- UNDER SECTION 14A READ WITH RULE 8D(2)(I) TO THE TOTAL INCOME OF THE ASSES SEE. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) SUST AINED THE ADDITION BY OBSERVING AND HOLDING AS UNDER: 3.3 I HAVE CONSIDERED THE FINDINGS OF THE ASSESSIN G OFFICER AND RIVAL SUBMISSIONS OF THE APPELLANT, CAREFULLY. IT IS THE FACT THAT AN AMOUNT OF RS.5 CRORES TAKEN FROM M/S. JHALAK DEVELO PERS PVT. LTD. HAS BEEN INVESTED WITH M/S. SHARYANS RESOURCES LTD. ON WHICH INTEREST OF RS.30,82,192/- HAS PAID. SINCE INVESTME NT HAS BEEN MADE FROM INTEREST BEARING LOAN, SUCH EXPENDITURE CAN BE DISALLOWED UNDER RUIE 8D(2)(I) OF THE L.T. RULES. APPELLANT HAS NOT BEEN ABLE TO REFUTE FACTUAL FINDING OF THE ASSESSING OFFICER. WHEN INTE REST BEARING FUNDS HAS BEEN UTILIZED FOR INVESTMENT CAPABLE OF EXEMPT INCOME, SUCH INTEREST EXPENDITURE RELATED TO SUCH FUND HAS TO BE DISALLOWED. LD. ASSESSING OFFICER HAS CORRECTLY DISALLOWED THE EXPE NDITURE U/S.14A R.W. RULE 8D. THE DECISIONS RELIED UPON BY THE A.R. ARE NOT APPLI CABLE TO THE FACTS OF THIS CASE. I FIND NO REASON TO INTERFERE WITH FACTUAL FINDING OF THE ASSESSING OFFICER, HENCE DISALLOWANCE SO MADE O F RS.30,82,192/- IS SUSTAINED. 6. LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE LD. CIT(A) HAS TOTALLY IGNORED THE FACTS OF THE CASE AN D THE APPLICABLE LAW AND THE RATIO LAID DOWN BY VARIOUS C OURTS IN UPHOLDING THE DISALLOWANCE UNDER SECTION 14A READ W ITH RULE 8D(2)(I) AMOUNTING TO RS.30,82,192/-. THE LD. A.R. SUBMITTED THAT M/S. SHARYANS RESOURCES LTD. IS A GRO UP COMPANY IN WHICH THE GROUP HAS AN EXPOSURE TO THE T UNE OF 60% OF THE TOTAL EQUITY CAPITAL WHEREAS THE ASSESSE E INDIVIDUALLY HOLDING IN THE EQUITY CAPITAL ACCOUNTE D FOR 20% OF THE SHARE HOLDING. THE LD. A.R. SUBMITTED THAT SINCE THE INVESTMENT WAS MADE OUT OF COMMERCIAL AND BUSINESS EXPEDIENCY IN ORDER TO GAIN CONTROL OVER THE SAID C OMPANY AND THUS CONSTITUTED A STRATEGIC INVESTMENT ON WHICH NO ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 5 DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WO ULD BE MADE. THE LD. A.R. REITERATED THE ARGUMENT AS MADE BE FORE THE AUTHORITIES BELOW AND SUBMITTED THAT NO DISALLO WANCE COULD BE MADE UNDER SECTION 14A READ WITH RULE 8D W ITH RESPECT TO THE EXPENSES INCURRED IN CONNECTION WITH MAKING INVESTMENT IN THE SUBSIDIARY COMPANIES FROM STRATEG IC POINT OF VIEW. 7. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDE R OF THE LD. CIT(A) AND SUBMITTED THAT SINCE THE INVESTME NT HAS BEEN MADE OUT OF THE INTEREST BEARING FUNDS AND THE REFORE, THE DISALLOWANCE HAS TO BE MADE UNDER RULE 8D(2)(I) AS THE EXPENSES ARE DIRECTLY INCURRED IN CONNECTION WITH M AKING SAID SUCH INVESTMENTS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE BORROWED MONEY TO THE TUNE OF RS.5 CRORES FROM M/S. JHALAK DEVELOPERS PVT. LTD. ON WHICH AN INTEREST OF RS.30,82,192/- WAS PAID AND THE SAID FINANCES WERE USED BY THE ASSESSEE FOR MAKING INVES TMENTS IN M/S. SHARYANS RESOURCES LTD. WHICH IS A GROUP COMPAN Y AND THE GROUP HOLDING 60% OF THE TOTAL EQUITY CAPITAL W HEREAS THE ASSESSEE INDIVIDUALLY HOLDING IN THE EQUITY CAPITAL TO THE TUNE OF 20% OF THE SHARE HOLDING. THUS THE INVESTMENTS IN THE SAID SUBSIDIARY COMPANY ARE OUT OF COMMERCIAL EXPEDIENCY AND MADE FROM THE STRATEGIC POINT OF VIEW IN ORDER TO G AIN CONTROL OVER THE SAID SUBSIDIARY COMPANY AND NOT TO EARN DI VIDEND. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON BLE DELHI ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 6 HIGH COURT IN THE CASE OF CIT VS. ORIENTAL STRUCTUR AL ENGINEERS PVT. LTD BUT THE HONBLE APEX COURT IN THE CASE MAX OPP INVESTMENTS LTD VS CIT APPEALS NOS. 104-109 OF 201 5 ORDER DATED 12.02.2018 HAS HELD THAT THE DISALLOWANCE HAS T O BE MADE EVEN IN CASE OF STRATEGIC INVESTMENTS IN THE A SSOCIATE COMPANY. THEREFORE, FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT WE UPHOLD THE ORDER OF CIT(A) . THE GROUND RA ISED BY THE ASSESSEE IS DISMISSED. 9. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.30,82,192/- UNDER T HE MAT PROVISION OF THE ACT. THE LD. A.R., AT THE OUTSET, B ROUGHT TO THE NOTICE OF THE BENCH THAT ISSUE IS COVERED BY TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AC IT VS. VIREET INVESTMENT (P.) LTD. (2017) 82 TAXMANN.COM 415 (DELHI TRIB.)(SB) WHEREIN IT HAS BEEN HELD THAT COMPUTATIO N UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UN DER SECTION14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1962 AND SUBMITTED THAT THE ADDITION MADE OF RS.30,82,192/- SH OULD NOT BE MADE FOLLOWING THE SPECIAL BENCH DECISION. 10. THE LD. D.R. FAIRLY AGREED TO THE CONTENTION OF T HE ASSESSEE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIN D THAT THE ADDITION OF RS.30,82,192/- WHICH HAS BEEN MADE UNDER SECTION 14A WHILE COMPUTING THE PROFIT UNDER MAT PROVISION IS ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 7 SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT ( P.) LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT COMPUTATION U NDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UN DER SECTION14A READ WITH RULE 8D OF THE ACT. ACCORDING LY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE AO IS DIRECTED TO DELETE THE ADDITION WHILE COMPUTING BOO K PROFIT UNDER MAT. THE GROUND RAISED BY THE ASSESSEE IS ALLO WED. 12. THE ISSUE RAISED IN GROUND NO.4 IS AGAINST THE CONFIRMATION OF RS.1,37,64,648/- BY THE LD. CIT(A) AS MA DE BY THE AO ON ACCOUNT OF INTEREST NOT ALLOWABLE UNDE R SECTION 36(1)(III) OF THE ACT. 13. THE BRIEF FACTS OF THE CASE ARE THAT UPON A QUE RY BY THE AO AS TO THE BALANCE INTEREST EXPENDITURE OF RS.1,37, 64,648/- THE ASSESSEE REPLIED VIDE WRITTEN SUBMISSION DATED 20.02.14 THAT RS.11,65,00,000/- WAS PAID TO M/S. MRIGNAYANI INVESTMENTS TRADING COMPANY PVT. LTD. FOR PURCHASE OF BONDS/DEBT INSTRUMENTS IN THE CORPORATE INTEREST OF THE ASSESSEE COMPANY WHICH WAS LATER MERGED WITH THE AS SESSEE COMPANY. SIMILARLY, RS.11,85,00,000/- WAS PAID TO M/S. SMIT CAPITAL SERVICES PVT. LTD. FOR PURCHASE OF BONDS TO ACQUIRE COMPETITIVE ADVANTAGE AND CONSOLIDATE ITS POSITION IN THE MARKET AND THE SAID AMOUNT WAS LATER ON REFUNDED BA CK DURING THE YEAR. LIKEWISE RS.2,12,50,000/- WAS PAID TO HSB DEVELOPERS AND BUILDERS PVT. LTD. WHICH IS A 100% S UBSIDIARY OF THE ASSESSEE COMPANY AND THE SAME WAS GIVEN IN T HE ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 8 CAPACITY OF THE ASSESSEE AS A HOLDING COMPANY HAVIN G INTEREST IN ITS SUBSIDIARY BUSINESS OF DEVELOPMENT OF HOUSIN G AND COMMERCIAL PROJECTS. AN AMOUNT OF RS.2 CRORES WAS ALSO ADVANCED TO VAJRADHAR LEASING & FINANCE PVT. LTD. OUT OF COMMERCIAL EXPEDIENCY FOR EXPANDING ITS CORPORATE B USINESS AND BUILDING A STRATEGIC ADVANTAGE IN THE MARKET. THE ASSESSEE SUBMITTED THAT SINCE THE MONEY WAS ADVANCE D TO THESE ENTITIES OUT OF COMMERCIAL EXPEDIENCY AND ST RATEGIC CONSIDERATION AND THEREFORE NO DISALLOWANCE ON ACC OUNT OF INTEREST PAID BY THE ASSESSEE IS ATTRACTED. THE ASS ESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF S.A. BUILDERS VS. CIT (2007) 288 ITR 1 (SC). HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND THE AO, ULTIMATELY BY GIVING A DETAILED JUSTIFICATION AS IN CORPORATED IN PARA 7.1 OF THE ASSESSMENTS ORDER, DISALLOWED RS.1,37,64,648/- UNDER SECTION 36(1)(III) AS INTERES T EXPENDITURE NOT INCURRED FOR THE PURPOSE OF BUSINES S. 14. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) SUS TAINED THE ADDITION BY DISMISSING THE APPEAL OF THE ASSESS EE AFTER TAKING INTO ACCOUNT THE DETAILED SUBMISSIONS AND CO NTENTIONS WHICH HAVE BEEN INCORPORATED IN PARA 6.4 BY HOLDING THAT THE FUNDS WERE NOT ADVANCED FOR THE PURPOSE OF BUSINESS AND THE LD. CIT(A) FURTHER HELD THAT THE INTEREST BEARING FU NDS WERE ADVANCED TO THE SUBSIDIARY COMPANY IS NOT PERMISSIB LE UNDER SECTION 36(1)(III) OF THE ACT AND ALSO THAT INTERES T IS NOT DEDUCTABLE WHERE FUNDS WERE USED FOR NON BUSINESS P URPOSES BY RELYING ON VARIOUS DECISIONS AS HAVE BEEN INCORP ORATED IN ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 9 PARA 6.6 OF THE APPELLATE ORDER. THE LD. A.R. VEHEMEN TLY SUBMITTED BEFORE US THAT THE LD. CIT(A) HAS COMPLET ELY IGNORED THE FACTS ON RECORD THAT THE ASSESSEE ADVANCED/INVESTED MONEY OUT OF BUSINESS EXPEDIENCY IN THOSE ENTITIES WHICH WERE EITHER THE SUBSIDIARY COMPANIES OF THE ASSESSEE OR WERE SUBSEQUENTLY MERGED WITH THE ASSES SEE COMPANY OR FOR THE PURCHASE OF BUSINESS ASSETS. THE LD. A.R. FILED A CHART OF UTILISATION OF BORROWED FUNDS WHIC H HAS BEEN INCORPORATED BY LD. CIT(A) IN PARA 6.5 OF THE APPEL LATE ORDER. THE LD. A.R. WHILE REFERRING TO THE TABLE REPRODUCED B Y LD. CIT(A) IN PARA 6.5 OF THE APPELLATE ORDER SUBMITTED THAT SOME ADVANCES WERE ALSO TRANSFERRED TO THE ASSESSEE COMP ANY UPON MERGER AND NO BORROWED FUNDS WERE USED FOR THE PURP OSE OF MAKING SUCH ADVANCES. THE LD AR CONTENDED THAT THE FINDING OF BOTH THE AUTHORITIES BELOW WERE CONTRARY TO FACT S ON RECORD. THE LD. COUNSEL SUBMITTED THAT THE NAME OF THE ENTIT IES APPEARING AT SR.NO. 1 TO 5 OF THE SAID TABLE WERE SU BSIDIARY COMPANIES OF THE ASSESSEE AND WERE LATER ON MERGED WITH ASSESSEE AND THUS THE PROVISIONS OF SECTION 36(1)(I II) ARE NOT APPLICABLE TO THE ADVANCES MADE TO SUBSIDIARY OUT O F BUSINESS CONSIDERATION. THE LD. COUNSEL SUBMITTED THAT ADVANC ES TO COMPANIES/ENTITIES APPEARING FROM SL.NOS. 6 TO 9 WER E MADE OUT OF BUSINESS CONSIDERATION AS ALL THESE WERE SUB SIDIARY COMPANIES OF THE ASSESSEE WHICH LATER ON MERGED WIT H THE ASSESSEE W.E.F. 01.04.10 AND THUS WERE NOT ADVANCES T O THE OUTSIDE PARTIES. THE ENTITY APPEARING AT SL. NO.10 I S A SUBSIDIARY COMPANY AND THE MONEY WAS ADVANCED OUT O F PURELY BUSINESS AND COMMERCIAL CONSIDERATIONS TO TH E ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 10 SUBSIDIARY AND THUS NO DISALLOWANCE IS CALLED FOR U NDER SECTION 36(1)(III). AS REGARDS ADVANCE TO KALPATARU ENTERPR ISES OF RS.21 LAKHS, THE LD. A.R. SUBMITTED THAT THE MONEY WA S PAID FOR THE PURCHASE OF FLAT BY THE ASSESSEE AND THEREF ORE NO DISALLOWANCE UNDER SECTION 36(1)(III) IS CALLED FOR . AS REGARDS THE ADVANCE TO SMIT CAPITAL SERVICES PVT. LTD. AMOUN TING TO RS.11,85,00,000/- THE LD. A.R. SUBMITTED THAT DURING T HE YEAR THE MONEY WAS TRANSFERRED UNDER AN MOU WHICH WAS EN TERED INTO BY THE ASSESSEE IN CONNECTION WITH THE BUSINES S OF THE ASSESSEE. A COPY OF MOU WAS ALSO PLACED BEFORE THE BENCH JUSTIFYING THE SAID TRANSFER OF MONEY TO THE SAID E NTITIES. THE LD. A.R. FINALLY SUBMITTED THAT SINCE ALL THE MONEY T O VARIOUS ENTITIES AS STATED ABOVE ARE EITHER FOR BUSINESS/CO MMERCIAL EXPEDIENCY TO THE SUBSIDIARY WHICH WERE MERGED WITH THE ASSESSEE COMPANY OR FOR THE PURCHASE OF FLAT BY THE ASSESSEE OR UNDER MOU AND THEREFORE NO DISALLOWANCE UNDER S ECTION 36(1)(III) IS CALLED FOR. THE LD. A.R. PRAYED BEFORE THE BENCH THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT (SUPRA) THE ORDER OF LD. CIT(A) BE SET ASIDE ON THIS ISSUE AND AO BE DIRECTED TO DELETE THE ADDITION. 15. THE LD DR ,PER CONTRA, RELIED ON THE ORDER OF AUT HORITIES BELOW AND SUBMITTED THAT INTEREST BEARING MONEY HAS BEEN TRANSFERRED TO THE OTHER BUSINESS ENTITIES THOUGH T HE ASSOCIATE CONCERNS FREE OF INTEREST RESULTING INTO CLAIM OF HIGHER AMOUNT OF INTEREST. THE LD. D.R. PRAYED THAT THE ORDER OF CI T(A) BE UPHELD ON THIS ISSUE. ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 11 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE UN DISPUTED FACTS ARE THAT THE ASSESSEE PAID SOME MONEY TO VARI OUS ENTITIES OUT OF BORROWED FUNDS DURING THE YEAR ON W HICH AN INTEREST OF RS.1,37,64,648/- WAS PAID WHICH WAS DISALL OWED BY THE AO UNDER SECTION 36(1)(III) AS BEING USED FOR T HE NON BUSINESS PURPOSES. DURING THE COURSE OF HEARING, TH E DETAILED UTILISATION CHART OF THE BORROWED FUNDS WAS SUBMITT ED BY THE LD. A.R. WHICH IS REPRODUCED AS UNDER: SR. NO . NAME AND ADDRESS OF PARTY OP. BAL AS ON 01.04.10 ADDITION REPAYMENT CL. BAL AS ON 31.03.11 REMARKS 1. LIZ INVESTMENT PVT. LTD. - 39,09,753 - 39,09,753 ADVANCES TRANSFERRED FROM BOOKS OF ATHITH INVESTMENT & RADING CO. PVT. LTD. ON ACCOUNT OF MERGER. 2 DILIP KUMAR - 54,00,000 - 54,00,000 ADVANCES TRANSFERRED FROM BOOKS OF ATHITH INVESTMENT & TRADING CO. PVT. LTD. ON ACCOUNT OF MERGER. 3 YUSUF LAKDAWALA - 32,50,000 - 32,50,000 ADVANCES TRANSFERRED FROM BOOKS OF ATHITH INVESTMENT & TRADING CO. PVT. LTD. ON ACCOUNT OF MERGER. 4 PEGASUS STOCKS & SHARES PVT. LTD. - 49,00,000 - 49,00,000 ADVANCES TRANSFERRED FROM BOOKS OF CAPRILLOY POLYMERS PVT. LTD. ON ACCOUNT OF MERGER. 5 VAJRADHAR LEASING & FINVEST PVT. LTD. - 2,00,00,000 - 2,00,00,000 ADV ANCES TRANSFERRED FROM BOOKS OF CAPRILLOY POLYMERS PVT. LTD. ON ACCOUNT OF MERGER. 6 MRIGNAYANI INVESTMENTS AND TRADINGCOMP ANY PVT. LTD. 1,75,00,000 11,65,00,000 13,40,00,000 - LOAN TO WHOLLY OWNED SUBSIDIARY WHICH SUBSEQUENTLY MERGED WITH APPELLANT W.E.F.01.04.2010 7 WAHEDNA STOCK & SHARES PVT. LTD. - 5,181 5,181 - LOAN TO WHOLLY OWNED SUBSIDIARY WHICH SUBSEQUENTLY ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 12 MERGED WITH APPELLANT W.E.F. 01.04.2010. 8 PROFITECH TRADE & INVESTMENT PVT. LTD. - 21,00,000 21,00,000 - - LOAN TO WHOLLY OWNED SUBSIDIARY WHICH SUBSEQUENTLY MERGED WITH APPELLANT W.E.F. 01.04.2010 9 ATHITH INVESTMENT & TRADING CO. PVT. LTD. - 53,00,000 53,00,000 - LOAN TO WHOLLY OWNED SUBSIDIARY WHICH SUBSEQUENTLY MERGED WITH APPELLANT W.E.F. 01.04.2010. 10 HJB DEVELOPERS & BUILDERS PVT. LTD. - 2,12,50,838 838 2,12,50,000 LOAN TO SUBSIDIARY COMPANY 11 TOTAL (A) 18,26,15,772 12 KALAPATARU ENTERPRISES - 21,00,000 - 21,00,000 ADVANCE AGAINST PURCHASE OF FLATS 13 SMIT CAPITAL SERVICES PVT. LTD. 12,50,00,000 11,85,00,000 24,35,00,000 - MONEY TRANSFERRED ON ACCOUNT OF MOU ENTERED ON 20.03.2010 15 TOTAL (B) 12,06,00,000 14,25,00,000 30,32,15,772 38,49,06,019 6,08,09,753 17. AS IS CLEAR FROM THE ABOVE STATEMENT, THE ENTIT IES FROM SL. NO.1 TO 5 ARE THE ENTITIES WHICH MERGED WITH THE AS SESSEE COMPANY AND ALL THE ADVANCES MENTIONED FROM SL. NO.1 TO 5 WERE RECEIVED BY THE ASSESSEE COMPANY UPON MERGER O F THE SAID ENTITIES WITH THE ASSESSEE COMPANY. 18. SO FAR AS THE ADVANCES TO ENTITIES FROM SL. NO. 6 TO 9 ARE CONCERNED, THESE WERE THE WHOLLY OWNED SUBSIDIARIES OF THE ASSESSEE WHICH WERE MERGED WITH THE ASSESSEE W.E.F. 01.04.10. ENTITY AT SL. NO.10 M/S. HJB DEVELOPERS & BUI LDERS PVT. LTD. IS A SUBSIDIARY OF THE ASSESSEE COMPANY AN D PAYMENT TO KALPATARU ENTERPRISES OF RS.21,00,000/- WAS AGAINS T THE PURCHASE OF FLAT WHEREAS THE ADVANCE GIVEN TO M/S. SMIT CAPITAL SERVICES PVT. LTD. AT SL. NO.13 WAS GIVEN UND ER MOU ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 13 ENTERED INTO ON 20.02.10. IT IS CLEAR FROM THE ABO VE THAT THE ADVANCES WERE EITHER TRANSFERRED TO THE ASSESSEE CO MPANY FROM THOSE SUBSIDIARY WHICH MERGED WITH THE ASSESSE E W.E.F. 01.04.10 OR GIVEN TO SUBSIDIARY OUT OF COMMERCIAL EXP EDIENCY FOR PURCHASE OF FLAT ARE UNDER BUSINESS COMMITMENT UNDER MOU ENTERED INTO BY THE ASSESSEE WITH M/S. SMIT CAP ITAL SERVICES PVT. LTD. LOOKING AT THE TOTALITY OF THE F ACTS, WE OBSERVE THAT ALL THE ADVANCES ARE CONNECTED WITH TH E BUSINESS OF THE ASSESSEE AND NONE WAS GIVEN FOR NON BUSINESS PURPOSES. THE CASE OF THE ASSESSEE IS SQUARELY COVE RED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S .A. BUILDERS VS. CIT (SUPRA). THEREFORE, WE ARE NOT IN AGREEMENT WITH THE FINDINGS OF LD. CIT(A) THAT ADVANCES WERE GIVEN FOR NON BUSINESS PURPOSES AND NOR OUT OF COMMERCIAL CONSIDERATION. CONSEQUENTLY, THE DISALLOWANCE OF IN TEREST AMOUNTING TO RS.1,37,64,648/- AFFIRMED BY THE LD. CIT(A) CANNOT BE SUSTAINED. ACCORDINGLY, WE SET ASIDE THE O RDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.04.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27.04.2018. * KISHORE, SR. P.S. ITA NO.2866/M/2016 M/S. FINE ESTATES PVT. LTD. 14 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.