M/s. Pushpanjli Fincon Ltd., New Delhi V. DCIT, New Delhi

ITA 3093/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5470 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 22-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 15-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Keywords: Business income; Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 3093/DEL/2015 (ASSESSMENT YEAR: 2011 - 12 ) PUSHPANJ A LI FINCON LTD, M - 62 & 63, FIRST FLOOR, CONNAUGHT PLACE, NEW DELHI PAN:AAFCP2690B VS. DCIT, CIRCLE - 14(1), ROOM NO. 221, CR BUILDING, IP ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA, ADV SHRI SANTANU JAIN, ADV REVENUE BY: SMT PARAMITA TRIPATHY, CIT DR DATE OF HEARING 16/01/2018 DATE OF PRONOUNCEMENT 0 4 / 04 / 201 8 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) 7, NEW DELHI DATED 17/3/2015 FOR ASSESSMENT YEAR 2011 12 WHEREIN THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE LD. ASSESSING OFFICER OF RS. 31,26,79,151/ IS CONFIRMED 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD COMMISSIO NER OF INCOME TAX (APPEALS) (HEREINAFTER REFERRED TO AS CIT (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AO) TO DISALLOW THE EXPENDITURE REPRESENTING PAYMENT OF INTEREST AMOUNTING TO RS. 312679151/ - IN DISR EGARD TO THE LAW ON THE SUBJECT AND THE FACT OF THE CASE. 2. THE LD CIT(APPEALS) HAD ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN UPHOLDING THE ERRONEOUS FINDING OF FACT OF THE AO THAT THE MONEY WAS BORROWED FOR NON BUSINESS PURPOSES. 3 . WITHOUT PREJUDICE TO THE EACH OF THE ABOVE GROUNDS, THE LD CIT(APPEALS) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN UPHOLDING THE ACTION OF THE AO WHO TREATED THE INTEREST INCOME AS BUSINESS INCOME ON ONE HAND AND REJECTED THE CLAI M OF INTEREST EXPENSES ON THE OTHER. 4. THE LD CIT(APPEALS) ERRED IN UPHOLDING THAT THE AO WAS CORRECT IN INITIATING THE PENALTY PROCEEDINGS DISREGARDING THE FACT THAT THE ASSESSEE NEITHER CONCEALED ANY PARTICULARS NOR SUBMITTED ANY INACCURATE INFORMATION . 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY ENGAGED IN SERVICE INDUSTRY TO PROVIDE CONSULTANCY RELATING TO INVESTMENT AND OTHER MATTERS. ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF NIL. THE ASSESSEE PROPOSED TO CARRY FORWA RD THE CURRENT YEAR LOSS OF RS. 2, 32, 46, 730/ . 4. DURING ASSESSMENT PROCEEDINGS, THE LD. ASSESSING OFFICER NOTED THAT ASSESSEE HAS TAKEN LOAN FROM ALMOST 10 PARTIES AMOUNTING TO RS. 3931.32 CRORES AND ALSO REPAID LOAN OF RS. 3521.207 CRORES AND THEREFORE N ET LOAN AVAILABLE WITH THE ASSESSEE IS WAS RS. 4 10.25 CRORES. IN TURN ASSESSEE HAS ALSO GIVEN LOANS TO 6 PARTIES AND ALSO MADE INVESTMENT IN SHARES OF ONE OF THE COMPANIES. THE LD. ASSESSING OFFICER PREPARED A FLOWCHART OF THE FUNDS, WHICH IS REPRODUCED A T PAGE NO. 5 OF HIS ORDER. ACCORDING TO THE THAT ANALYSIS HE NOTED THAT THOUGH ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONSULTANCY RELATING TO INVESTMENT AND OTHER MATTERS HOWEVER IT IS FACILITATING TO ITS GROUP COMPANIES AS A BRIDGE TO RECEIVE AND INFUSE FUNDS. HE STATED THAT THE RECORDS OF THE ASSESSEE DO NOT SHOW ANY COMMERCIAL EXPEDIENCY ON THE PART OF THE ASSESSEE COMPANY. HE FURTHER NOTED THAT ASSESSEE HAS PAID INTEREST OF RS. 28.94 CRORES AND HAS BOOKED INTEREST EXPENSES OF RS. 31.27 CRORES AND HAS SHOWN A LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. HE THEREFORE STATED THAT THERE IS NO JUSTIFICATION IN NATURE AND PURPOSE OF THE TRANSACTIONS EXECUTED AS WELL AS OF INTEREST EXPENSES PAID. ACCORDING TO HIM, THE OBJECT OF THE ASSESSEE COMPANY IS ONLY TO INVOLVE IN CONSULTING BUSINESS AND NOT TO BE INVOLVED IN MONEY LENDING ACTIVITIES. HE FURTHER NOTED THAT ASSESSEE IS NOT A NON - BANKING FINANCIAL COMPANY REGISTERED WITH THE RESERVE BANK OF INDIA TO INVOLVE AND OPERATE BUSINESS OF MONEY LENDING. ACCORDING TO HIM, THE TRANSACTIONS ENTERED INTO BY THE COMPANY ARE DEVICE AND LOSS IS SELF - INFLIC TED IN ORDER TO REDUCE ASSESSEES TAXABLE INCOME. HE FURTHER NOTED THAT ASSESSEE COMPANY HAS RECEIVED INTEREST - BEARING LOAN FROM ONE PRIVAT E LIMITED COMPANY OF RS. 2 77.77 CRORES AND HAS INFUSED FUNDS FOR RS. 1 36 CRORES IN THE SAME COMPANY AND HAS AGAIN DISTRIBUTED THE FUNDS TO OTHER GROUP COMPANIES. ON THESE FACTS HE DISALLOWED THE INTEREST EXPENDITURE OF RS. 31, 26, 79, 151/ AND AGAINST TH E RETURNED INCOME SHOWN BY THE ASSESSEE OF RS. NIL THE TOTAL INCOME WAS ASSESSED AT RS. 28,94,32,421 / - AS PER ORDER UNDER SECTION 143 (3) OF THE ACT DATED 28/2/2014. 5. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT (A). HE NOTED THE FACTS OF THE CAS E AND THE ACCOUNTS OF THE ASSESSEE. HIS OBSERVATIONS ARE THAT THE TOTAL AMOUNT OF INTEREST PAID BY THE ASSESSEE IS RS. 3 1, 26, 79, 151/ AND THE ONLY INCOME IS FROM INTEREST. THE ONLY OTHER EXPENDITURE INCURRED BY THE ASSESSEE IS RS. 1 2, 160/ WHICH IS ADM INISTRATIVE EXPENDITURE AND THERE ARE NO EXPENSES ON SALARY. THEREFORE, ACCORDING TO HIM, THE APPELLANT WAS NOT DOING ANY BUSINESS AND THERE ARE NO SALES AND PURCHASES. HE FURTHER NOTED THAT THE COMPANY DOES NOT HAVE ANY FIXED ASSETS OR INVENTORY. THEREFOR E, HE HELD THAT THERE IS NO PURPOSE OF THE UNSECURED LOANS TAKEN BY THE COMPANIES AND THEREFORE HE HELD THAT THAT EXPENDITURE OF INTEREST IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE . H E CONFIRMED THE ADDITION. 6. ASSESSEE, AGGRIEVED WITH THE ORDER OF THE L D. CIT (A) PREFERRED APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS RECEIVED INTEREST OF RS. 289,351,352/ FROM SIX PARTIES AT VARYING RATE OF INTERESTS. HE FURTHER SUBMITTED A CHART OF THE INTEREST PAID BY THE ASSESSEE TO 10 PARTIES AMOUNTING TO RS. 3 12,673,614/ VARYING THE RATE OF INTEREST PAID BY THE ASSESSEE RANGING FROM 9% TO 12%. FURTHER, WITH RESPECT TO THE PAYMENT OF INTEREST TO INDIA BULLS FINANCE COMPANY PRIVATE LIMITED THE RATE OF INTEREST FOR SOME PART OF THE Y EAR WAS ALSO 25%. HE THEREFORE SUBMITTED THAT THAT THE ASSESSEE COMPANY FROM VARIOUS COMPANIES RECEIVED UNSECURED LOANS ARE ON INTEREST AND HAS INVESTED SUCH FUNDS IN VARIOUS COMPANIES AND EARNED INTEREST THEREON. HE THEREFORE HELD THAT THE LOANS RAISED BY THE ASSESSEE AND THE LOANS ADVANCED BY THE ASSESSEE HAVE DIRECT NEXUS WITH THE INTEREST INCOME EARNED BY THE ASSESSEE AND INTEREST EXPENSES INCURRED BY THE ASSESSEE. HE FURTHER RELIED UPON THE DECISION OF CIT VERSUS SASAN POWER LTD (2012 TIOL 44 HC DEL IT DATED 6/1/2012 TO SUPPORT THAT WHEN THE INTEREST EXPENSES ARE PAID AND INTEREST INCOME IS RECEIVED AND BOTH ARE IN EXTRICABLE LINKED TOGETHER , FOR TAXATION BOTH HAVE TO BE CONSIDERED TOGETHER. HE FURTHER SUBMITTED THAT EVEN IF THE CASE OF THE AO IS ACCEPTED THEN THE LOSS INCURRED BY THE ASSESSEE , IF CONSIDERED AS SELF INFLECTED LOSS, EVEN THEN THE LOSS ALONE COULD HAVE BEEN DISALLOWED AND NOT THE ENTIRE EXPENDITURE. HE FURTHER STATED THAT ON IDENTICAL FACTS AND CIRCUMSTANCES FOR ASSESSMENT YEAR 2010 11 PRIOR TO THE IMPUGNED ASSESSMENT YEAR, AND FOR A Y 2012 13 TO AY 2014 - 15, ON IDENTICAL FACTS AND CIRCUMSTANCES NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN ASSESSMENT ORDERS PASSED UNDER SECTION 143 (3) OF THE ACT. HE RELIED ON S UCH ASSESSMENT ORDERS. TO SUPPORT HIS CONTENTION HE ALSO PRODUCED THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR ALL THOSE YEARS TO SHOW THAT IDENTICAL SITUATION EXISTED . HE FURTHER REFERRED TO THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY AND STATED THAT IT PROVIDES TO RAISE LOANS AND GIVE LOANS. HE FURTHER REFERRED TO THE DECISION OF THE LD. CIT (A) AT PARA NO. 5.3 WHERE THE LD. CIT (A PPEAL ) HAS IGNORED THE FACT THAT THE COMPANY IS ALSO IN MONEY LENDING ACTIVITIES WHICH IS SUBSTANTIATED BY THE ANNUAL ACCOUNTS OF THE COMPANY. WITH RESPECT TO THE LIMITED ASSETS AND EXPENSES INCURRED BY THE ASSESSEE COMPANY IT WAS SUBMITTED BY HIM THAT THERE ARE DIRECTORS IN THE COMPANY WHO WERE CONDUCTING THE BUSINESS OF LENDING AND BORROWING AND THEREFORE IT CANNOT BE SAID THAT THAT LOSS INCURRED BY THE ASSESSEE IS NOT ARISING OUT OF BUSINESS AND THEREFORE, A BUSINESS LOSS. HE FURTHER SUBMITTED T HAT INTEREST INCOME EARNED BY THE ASSESSEE IS TAXED AND THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS DISALLOWED IS HIGHLY UNJUST. HE FURTHER STATED THAT COMMERCIAL EXPEDIENCY IS TO BE JUDGED FROM THE POINT OF VIEW OF ASSESSEE AND NOT FROM THE REVENUE. HE FURTHER REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT VERSUS MALAYALAM PLANTATIONS LTD 53 ITR 140 (SC) TO SUBMIT THAT THE EXPRESSION FOR THE PURPOSE OF THE BUSINESS UNDER SECTION 36 (1) (III) IS VERY WIDE IN SCOPE AND THEREFORE IT CANNOT BE INTERPRETED IN SUCH AN NARROW SENSE AS INTERPRETED BY THE AO AND 1 ST APPELLATE AUTHORITY. HE THEREFORE SUBMITTED THAT THE ADDITION MADE BY THE LD. AO AND SUSTAINED BY THE 1 ST APPELLATE AUTHORITY DESERVES TO BE DELETED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT ASSESSEE IS NOT CARRYING ON ANY BUSINESS BUT IS A COMPANY, WHICH IS GENERATING LOSS ONLY WITHOUT ANY PURPOSE. HE SUBMITTED THAT THIS COMPANY BELONGS TO INDIA BULLS GROUP AND MERELY USED AS A TOOL BY THE GROUP TO TRANSF ER THE FUNDS FROM VARIOUS COMPANIES THROUGH THIS COMPANY TO THE MAIN COMPANIES OF INDIA BULLS GROUP. HE THEREFORE SUBMITTED THAT INTEREST DISALLOWANCE HAS RIGHTLY BEEN MADE AS THE BORROWING IS NOT FOR THE PURPOSE OF THE BUSINESS. HE FURTHER STATED THAT LD. ASSESSING OFFICER AND LD. CIT (A) HAVE GIVEN ENOUGH REASONS FOR DISALLOWING THE INTEREST EXPENDITURE. 8. THE GROUND NO. 1 3 OF THE APPEAL OF THE ASSESSEE PERTAINS TO THE DISAL LOWANCE OF INTEREST OF RS. 3 1, 26,79,151/ . 9. WE HAVE CAREFULLY CONSIDERED THE RIVA L CONTENTIONS AND ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO PERUSED THE RELEVANT DOCUMENTS PRODUCED BY THE ASSESSEE IN THE FORM OF PAPER BOOK AS WELL AS VARIOUS DECISIONS CITED BEFORE US AS FAR AS THEY ARE RELEVANT IN DECIDING THE ISSUE BEFORE US. UNDO UBTEDLY, ASSESSEE IS A COMPANY OF INDIA BULLS GROUP. IT HAS RECEIVED UNSECURED LOANS 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, ASSESSEE HAS PAID INTERE ST OF RS. 312, 673, 614 / - DURING THE YEAR. THE SURPLUS FUND FROM ABOVE LOANS OF THE ASSESSEE OF RS. 4 10.25 CRORES WAS FURTHER LENT TO 6 COMPANIES AND EARNED INTEREST THEREON AT THE RATE OF 9% TO 52% AMOUNTING TO RS. 289,351,352/ . THEREFORE, THERE IS I NTEREST LOSS INCURRED BY THE ASSESSEE FROM THE TRANSACTIONS ENTERED INTO FOR PROVIDING LOANS AND OBTAINING LOANS. IT IS INTERESTING TO NOTE THAT FROM SHIVA SHAKTHI FINANCIAL SERVICES PRIVATE LIMITED , ASSESSEE HAS OBTAINED LOAN OF RS. 3 1 CRORES WHICH WAS REPAID DURING THE YEAR AND INTEREST HAS BEEN PAID TO THIS COMPANY OF RS. 1 97,260/ . THE RATE OF INTEREST STATED TO BE 12%. THE ASSESSEE HAS ALSO RECEIVED INTEREST FROM THIS COMPANY ON LOAN GRANTED OF RS. 1322.3 CRORES WHICH WAS REPAID BY THAT COMPANY TO TH E EXTENT OF RS. 1222.3 CRS BUT HAS PAID IN TEREST TO THE ASSESSEE OF RS. 2 61,277,098/ AT VARYING RATES RANGING FROM 9% TO 52%. FURTHER MEMORANDUM OF ASSOCIATION OF THIS COMPANY PROVIDES THAT THIS COMPANY CAN GIVE LOANS AND BORROW LOANS. THE MAIN CONTENTION OF THE LD. AO IS THAT ASSESSEE IS NOT CARRYING ON ANY BUSINESS AND LENDING AND BORROWING OF THE FUNDS IS NOT THE BUSINESS OF THE COMPANY AS ASSESSEE COMPANY IS NOT REGISTERED AS A NONBANKING FINANCIAL COMPANIES WITH THE RESERVE BANK OF INDIA . WE APPRECIAT E THE CONCERN OF THE LD. ASSESSING OFFICER HOWEVER, WE FAILED TO COMPREHEND THAT WHY BORROWING AND LENDING OF THE FUNDS CANNOT BE CONSIDERED AS A BUSINESS. FURTHER ABSENCE OF ANY REGISTRATION CERTIFICATE WITH THE ASSESSEE IN ACCORDANCE WITH THE RBI DIRECTI ONS APPLICABLE TO NONBANKING FINANCIAL COMPANIES WILL NOT MAKE ANY MATERIAL DIFFERENCE IN ASSESSING THE CORRECT INCOME OF THE ASSESSEE. IT MAY BE AN OFFENCE UNDER THE PARTICULAR DIRECTIONS OF THE RESERVE BANK OF INDIA ISSUED IN 1998. FURTHERMORE, IT CANNOT BE SAID THAT ASSESSEE HAS NOT BORROWED FOR THE PURPOSE OF THE BUSINESS WHEN THE SAME MONEY IS LENT, INTEREST IS EARNED AND SAME IS TAXED AS BUSINESS INCOME. IN FACT, OUT OF THE TRANSACTIONS WITH 16 COMPANIES OF BORROWING AND LENDING OF THE FUNDS, THE LD. ASSESSING OFFICER HAS NOT STATED THAT ANY OF THE LOANS GIVEN BY THE ASSESSEE DOES NOT CARRY INTEREST. THEREFORE, ALL THE TRANSACTIONS OF BORROWING AND LENDING OF THE MONEY ENTERED INTO BY THE ASSESSEE ARE CARRYING INTEREST AT VARYING RATES. FOR THIS ASSESSEE HAS SUBMITTED A CHART SHOWING PERIOD OF FINANCE, AMOUNT FINANCED AND RATE OF INTEREST WITH INTEREST EARNED AND PAID. THE ASSESSEE IS PAYING INTEREST MAXIMUM AT THE RA TE OF 25% AND THAT TOO TO INDIA BULLS FINANCIAL SERVICES LTD FOR A LIMITED PERIOD OF SEPTEMBER TO DECEMBER. THE SAME COMPANY 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 LOANS TAKE N BY THE ASSESSEE ARE GENERALLY CARRYING INTEREST RATE OF 9% TO 13% EXCEPT IN CASE OF ONE TRANSACT ION WHERE THE RATE OF INTEREST HA S GONE UP TO 25%. THE ANALYSIS OF THE INTEREST RECEIVED BY THE ASSESSEE SHOWS THAT ASSESSEE IS RECEIVING INTEREST AT THE RATE OF 9% TO 12% GENERALLY. IN ONE CASE OF SHIV SHAKTHI FINANCIAL SERVICES PRIVATE LIMITED WHERE THE ASSESS EE HAS EARNED INTEREST OF RS. 2 61,277,098/ THE RATE OF INTEREST IN THE MONTH OF MAY TO JULY WAS 27%, FROM JULY TO SEPTEMBER 36 PERCENT , FROM OCTOBER T O DECEMBER 52% AND FROM JANUARY TO MARCH 45 PERCENT. THE LD. AO AS WELL AS THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US COULD NOT CONTROVERT THESE TRANSACTIONS OF THE ASSESSEE. THEREFORE ON ANALYSIS OF THE DETAILS OF INTEREST PAID AND RECEIVED BY THE ASSE SSEE IT IS APPARENT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MONEY LENDING . HENCE, THE NATURAL COROLLARY THAT FOLLOWS IS THAT ASSESSEE IS INCURRING INTEREST EXPENDITURE FOR TH E PURPOSE OF ITS BUSINESS. WE HAVE ALSO CAREFULLY PER USED THE ASSESSMENT ORDER PASSED BY THE LD. AO FOR ASSESSMENT YEAR 2012 13. IT IS NOT DISPUTED BY THE REVENUE THAT IDENTICAL SITUATION PREVAILED THEREIN ALSO. IN THAT PARTICULAR ASSESSMENT YEARS THE LD. ASSESSING OFFICER HAS DISALLOWED THE INTEREST EX PENDITURE OF RS. 2 3,80,80,82 2/ - BY APPLYING THE PROVISIONS OF SECTION 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 SIMILAR 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 ASSESSEE WAS ASSESSED UNDER SECTION 143 (3) OF THE INCOME TAX ACT. THERE WAS NO SUCH DISALLOWANCE BECAUSE OF INTEREST EXPENDITURE. ON PERUSAL OF THE BALANCE SHEET AS AT 31/3/2010 WHERE THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 1 256 7671/ AND PAID INTEREST OF RS. 1338 6301/ 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 ALLOWABLE 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 INTEREST THAT A. ALL THE LOA NS MADE BY THE ASSESSEE ARE ONLY INTEREST AND ALL THE LOANS RECEIVED BY THE ASSESSEE ALSO CARRY INTEREST, B. THE INTEREST RATES CARRIED BY THE LOANS GIVEN AND TAKEN BY THE ASSESSEE ARE NOT DISPUTED C. THE INTEREST INCOME EARNED BY THE ASSESSEE IS TAXED AS BUSINE SS INCOME D. IN THE EARLIER YEARS ON THE IDENTICAL FACTS THE INTEREST EXPENDITURE HAS BEEN DISALLOWED AND THERE IS NO ACTION TAKEN TO DISTURB THAT ASSESSMENT YEAR E. IN THE SUBSEQUENT YEARS THE INTEREST DISALLOWANCE HAS NOT BEEN MADE UNDER SECTION 36 BUT UNDER S ECTION 14 A OF THE INCOME TAX ACT WHICH TO WHAT DELETED BEFORE THE 1 ST APPELLATE AUTHORITY F. PROVISION IN THE MEMORANDUM OF ASSOCIATION PERMITTING THE ASSESSEE COMPANY TO GRANT AND RECEIVE THE LOANS 10. ACCORDINGLY, IN THE RESULT ORDER OF THE LD. CIT (A) IS REVERSED GROUND NO. 1 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. GROUND NO. 4 OF THE ASSESSEE IS AGAINST THE INITIATION OF THE PENALTY PROCEEDINGS, WHICH IS PREMATURE AND HENCE DISMISSED. 12. APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 / 0 4 / 2018 . - SD/ - - SD/ - ( SUDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04/ 04 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI