ASHISH ESTATE & PROPERTIES P.LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 3769/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93029 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: JEETENDRA JAIN
• Keywords: Business income; Business expenditure; Earning of tax free income; Commercial expediency
• Section: 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 3769/MUM/2012 / ASSESSMENT YEARS 2008-09 ASHISH ESTATE & PROPERTIES PVT. LTD., 115, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI 400021 / VS. THE DCIT 3(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 ! ./ ./ PAN/GIR NO. : AAACA 4555D ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) . / ITA NO. 4006/MUM/2012 / ASSESSMENT YEARS 2008-09 THE DCIT 3(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 / VS. ASHISH ESTATE & PROPERTIES PVT. LTD., 115, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI 400021 ! ./ ./ PAN/GIR NO. : AAACA 4555D ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) ASSESSEE BY : SHRI JEETENDRA JAIN REVENUE BY : SHRI ASGHAR ZAIN ( ) * / DATE OF HEARING : 23/06/2015 ( ) * / DATE OF PRONOUNCEMENT : 23/06/2015 . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 2 / O R D E R PER I.P.BANSAL, JM: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) DATED 20/03/2012 FOR ASSESSMENT YEAR 2008-09 . GROUNDS OF APPEAL IN BOTH THE APPEALS READ AS UNDER: GROUNDS OF ASSESSES APPEAL: GROUND NO.1 THE COMMISSIONER OF INCOME TAX (APPEALS )-5 MUMBAI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN INVOKING THE PROVISIONS OF SECT ION 14A R.W.R.SO TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND CONFORMING THE DISALLOWANCE OF RS.93,61,9S0. THE CIT (A) HAS NOT APPRECIATED THE FACT THAT THE A O HAS FAILED TO DISCHARGE THE ONUS CASTED ON HIM UNDER SUB SECTION (2) OF SECTION 14A BEFORE INVOKING THE PROVISIONS OF RULE 8D . WITHOUT PREJUDICE TO ABOVE, THE AO HAS ERRED IN CON SIDERING THE AMOUNTS INVESTED IN THE AOP AND WITH THE PARTNERSHIP FIRM AS INVESTMENT, IN COME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME AND ACCORDINGLY COMPUTED THE DISALL OWANCE UNDER CLAUSE (II) TO SUB RULE (2) OF RULE 8D GROUNDS OF REVENUES APPEAL: L(A) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT INTEREST ATTRIBUTABLE TO INVESTMENT OF RS.10 CRORE IN THE SHARES OF TRIDENT ESTATES PVT . LTD. IS AN ALLOWABLE EXPENDITURE U/S. .36(1) (III), NOTWITHSTANDING THE FACT THAT THE INCOME GEN ERATED THERE FROM IS TAXED AS CAPITAL GAINS OR AS DIVIDEND INCOME?'. L(B) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT INTEREST ATTRIBUTABLE TO A SUM OF RS.1.90 CRORE, BEING LOAN TO M/S TRIDENT ESTATES PVT. LTD. IS AN ALLOWABLE EXPENDITURE UL S.36(1)(III), NOTWITHSTANDING THE FINDINGS OF THE A.O. THAT SUCH AMOUNT WAS IN THE NATURE OF 'LOAN' AND WAS REFUNDED BACK IN THE SUBSEQUENT YEAR AND THE ASSESS EE COULD NOT PRODUCE THE EVIDENCES BEFORE THE A.O. TO PROVE THE PURPOSE OF GIVING THE LOAN?'. L(C) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT INTEREST ATTRIBUTABLE TO PURCHASE OF PLOT AT ALIBAUG IS AN ALLOWABLE EXPENDITURE U/S..36(1)(III) , NOTWITHSTANDING THE FINDINGS OF THE A.O. THAT THE ASSESSEE HAS SHOWN THE ENTIRE AMOUNT AS ADVANCE AS ON 31.03.2008 & 31.03.2009 AND THAT THERE IS NO MENTION OF ANY WORK-IN-PROGRESS IN RESP ECT OF THE SAID PROJECT AND ALSO THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE TO PROVE TH AT THE ALIBAUG PROPERTY IS IN THE NATURE OF' STOCK-IN-TRADE'?'. L(D) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT INTEREST ATTRIBUTABLE TO UTILIZATION TOWARDS LOAN/ ADVANCES GIVEN TO AOP/FIRM, MORE PARTICULARLY MI S PODDAR & ASHISH DEVELOPERS, IS ALLOWABLE DEDUCTION, NOTWITHSTANDING THE FINDINGS O F THE A.O. THAT INCOME OF THOSE PROJECTS ARE OFFERED FOR TAX IN THE RESPECTIVE AOPS & FIRMS, AND THE SAME IS EXEMPT FROM TAX IN THE HANDS OF ASSESSEE COMPANY? L(E) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT THE LOSS OF RS.2.67 CRORE REPRESENT THE EXCESS OF EXPENDITURE OVER INCOME AND THAT THE AMOU NT BORROWED TO FUND THIS LOSS IS ALLOWABLE AS BUSINESS EXPENDITURE, WITHOUT APPRECIATING THAT THE VERY REASON FOR SUCH LOSS IS THE INTEREST EXPENSE CLAIMED WHICH HAS BEEN DISALLOWED BY THE A. O.?'. 1(F) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT THE RATIO OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS, (158 TAX MAN 74) APPLIES WITHOUT APPRECIATING THE FOLLOWING DIFFERENCES ?' . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 3 (I) UNLIKE IN S.A.BUILDERS' CASE, THE AO HAD EXAMIN ED THE COMMERCIAL EXPEDIENCY OF EACH OF THE TRANSACTION. (II) THE A.O. HAS CLEARLY POINTED OUT THAT SEVERAL OF THE FUND UTILIZATION IN SHARES AND IN AOP /FIRM RESULT IN EXEMPT INCOME OR INCOME OTHER THAN BUSINESS INCOME, UNLIKE IN THE CASE OF S.A.BUILDERS' . L(G) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT INVESTMENT OF RS.10 CRORES IN SHARES OF TRIDENT ESTATES PVT. LTD. IS NOT COVERED BY WHETHER SECTION 14A IN CONTRADICTION OF HIS FINDING IN PAGE-28 OF HIS ORDER ~ THAT 'AS REGARDS INVESTMENT IN THE SHARES OF COMPANIES AND PARTNERSHIP FIRMS, I AM OF THE VIEW THAT THESE ARE CLEARLY COVE RED BY SECTION 14A/RULE-8D?'. L(H) 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING THAT IN THE COMPUTATION FILED BEFORE THE CIT(A) AND WHICH FORMS PART OF THE APPELLATE ORDER AS ANNE XURE-A, THE CURRENT ACCOUNT BALANCE WITH PANCHAVATI ASSOCIATES (RS.2,64,54,535/-- AS ON 31.0 3.2007 AND RS.3,06,32,045/ - AS ON 31.03.2008, BOTH FIGURES BEING NEGATIVE BALANCES) H AVE BEEN ALLOWED TO BE REDUCED FROM THE AMOUNT OF INVESTMENTS WHICH IS NOT IN ACCORDANCE WI TH SECTION 14 OF THE ACT AS SUCH NEGATIVE BALANCES DO NOT GIVE RISE TO ANY EXEMPT INCOME AND CONSEQUENTLY, THE DISALLOWANCE U/ S.14A DESERVES TO BE ENHANCED?' . 2. 'WHETHER THE LD.CIT(A) WAS CORRECT IN HOLDING T HAT PROCESSING CHARGES OF RS.33,55,9021 -, PAID FOR OBTAINING LOAN FROM HDFC IS AN ALLOWABLE B USINESS EXPENDITURE WITHOUT APPRECIATING THAT THE INCOME GENERATED FROM SUCH LOAN IS TAXED A S CAPITAL GAINS OR AS DIVIDEND INCOME'. 3. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT( A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED'. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE W ERE DRASTICALLY HIGHER AS COMPARED TO FINANCIAL YEAR 2006-07. HE REQUIRED TH E ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST CLAIMED BY THE ASSESSEE SHOULD NOT BE DISALLOWED UNDER SECTION 36(1)(III) AND UNDER SECTION14A OF THE INC OME TAX ACT, 1961 (THE ACT). IN RESPONSE, THE ASSESSEE SUBMITTED A LETTER DATED 17/9/2010 ON 11/10/2010, WHICH HAS BEEN REPRODUCED IN THE ASSES SMENT ORDER. IT WAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD BORROWED LOANS OF RS.29.20 CRORES AS UNDER: LOAN FROM HDFC- INTEREST BEARING 23,00,00,000 INTEREST FREE UNSECURED LOANS 6,20,00,000 TOTAL 29,20,00,000 2.1 IT WAS SUBMITTED THAT THE AFOREMENTIONED LOANS WERE UTILIZED IN VARIOUS PROJECTS UNDERTAKEN BY THE ASSESSEE DURING THE YEAR EITHER DIRECTLY OR THROUGH SOME SPECIAL PURPOSE VEHICLE (SPV). THE MAJOR PORT IONS OF THE AMOUNT OF LOANS WERE UTILIZED FOR ACQUIRING DEVELOPMENT RIGHTS AND UTILIZED FOR INVESTMENTS IN . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 4 SPV FOR CARRYING OUT VARIOUS PROJECTS. THE UTILIZA TION OF FUNDS WERE SUBMITTED IN THE FOLLOWING CHART: TRIDENT ESTATE FOR DEVELOPMENT RIGHTS OF RAJMAHAL PROPERTY 11,90,00,000 PURCHASE OF PLOTS IN ALIBAUG 2,67,00,000 AMOUNTS INVESTS IN A G DEVELOPERS (INTEREST @ 12% HAS BEEN EARNED) 2,25,00,000 INVESTED IN AOPS/FIRMS (SPV) 10,38,00,000 LOSS FOR THE YEAR 2,25,00,000 TOTAL 29,45,00,000 2.2 IT WAS FURTHER SUBMITTED THAT AMOUNT OF RS.11. 90 CRORES WAS UTILIZED FOR ACQUIRING DEVELOPMENT RIGHTS OF RAJMAHAL PROPERTY SITUATED AT JUHU AND DEVELOPMENT RIGHTS WERE ACQUIRED IN A.Y 2008-09 AND RESPECTIVE BALANCES IN TRIDENT ACCOUNT WERE TRANSFERRED TO RAJMAHAL PROPER TY ACCOUNT SHOWN UNDER CURRENT ASSETS. TO SUPPORT, ANNUAL ACCOUNT FOR THE YEAR ENDING 31/3/2009 WERE SUBMITTED ALONGWITH CERTIFIED COPY OF CONVEY ANCE DEED DATED 16/10/2009 CONFIRMING THE SAID TRANSACTION. IT WAS SUBMITTED THAT ORIGINALLY PROPOSAL WAS TO PURCHASE SHARES TRIDENT ESTATE PVT. LTD., WHICH WAS 1/3 RD OWNER OF RAJMAHAL PROPERTY. THE RAJMAHAL PROPERTY WAS EQUALLY OWNED BY THREE PERSONS NAMELY; (1) M/S. TRIDENT ESTATE PVT. LTD.; (2) MRS. HARSH SAKSERIA AND (3) MRS. TARU SAKSERIA. THE ASSESSEE ORIGINAL LY PROPOSED TO PURCHASE 1/3 RD SHARE IN THE PROPERTY BY PURCHASING SHARE OF TRID ENT. ACCORDINGLY, DURING THE YEAR RS.10.00 CRORES WAS ADVANCED TO THE RESPECTIVE SHAREHOLDERS OF TRIDENT AND RS.1.90 CRORES WAS ALSO PAID TO TRIDENT IN CONNECTION WITH DEVELOPMENT RIGHTS OF JUHU PROPERTY AND ACCORDINGLY , A SUM OF RS.11.90 CRORES WAS REFLECTED IN THE BALANCE SHEET AS ON 31/3/2008 AS UNDER: 1. INVESTMENTS SHARES IN PVT. CO. TRIDENT ESTATE 10.00 CRORES 2. LOANS & ADVANCES TRIDENT ESTATE P LTD. 1.4 0 CRORES 3. LOANS & ADVANCES TRIDENT ESTATE (DEVELOPMENT) PAID TO BMC TOWARDS FEES FOR DEVELOPMENT 0.50 CRORE 11.90 CRORES. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 5 2.3 IT WAS SUBMITTED THAT SUBSEQUENTLY THE TRANSACT ION WAS CANCELLED AND THE SHAREHOLDERS OF TRIDENT AND TRIDENT HAVE RETUR NED THE AMOUNT OF RS.11.40 CRORES AND ASSESSEE HAS PURCHASED 30.51% SHARE FRO M MR. HARSH SAKSERIA. IT WAS SUBMITTED THAT THE AMOUNT ADVANCED TO M/S. TRID ENT ESTATE PVT. LTD. FROM ITS INCEPTION WAS WITH AN INTENTION TO PURCHASE D EVELOPMENT RIGHTS OF RAJMAHAL PROPERTY, THEREFORE, THE INVESTMENT BY THE ASSESSEE CANNOT BE PRESUMED TO BE AN INVESTMENT MADE FOR EARNING TAX F REE INCOME. IT WAS FURTHER SUBMITTED THAT IT WAS IN THE NATURE OF ADVANCE AND NO SHARES WHATSOEVER WERE TRANSFERRED BY THE SAID COMPANY TO THE ASSESSEE AS ON 31/3/2008, THEREFORE, PROVISIONS OF SECTION 14A WERE ALSO NOT ATTRACTED. IT WAS FURTHER SUBMITTED THAT THE UTILIZATION OF THE BORROWED FUNDS IN RESPECT OF ALL THE ABOVE MENTIONED ITEMS WAS FOR THE PURPOSE OF BUSINESS, THEREFORE, NO DISALLOWANCE EITHER UNDER SECTION 36(1)(III) OR SECTION 14A OF THE ACT WAS CA LLED FOR. 2.4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AO RECORDED THE FOLLOWING CONCLUSIONS: (1) THE FUNDS BORROWED FROM HDFC WAS IN THE NATURE OF CONSTRUCTION FINANCE LOAN WHICH COULD BE USED TOWARDS CONSTRUCTION OF ACTIVITIES UNDERTAKEN BY THE ASSESSEE AND COULD NOT BE USED FOR ANY OTHER PURPOS E. (2) ADVANCE OF RS.10.00 CRORES TO M/S. TRIDENT ESTA TE PVT. LTD. WAS NOT FOR THE PURPOSE OF BUSINESS AS THE SAME WAS REFUNDED TO THE ASSESSEE IN SUBSEQUENT YEAR AND BY THE REFUND THE SAID TRANSACTION WAS OVE R AND WHEN THE SHARE OF MR. HARSH SAKSERAI WAS OBTAINED THE SAME REPRESENTE D NEW TRANSACTION AFTER COMPLETION OF THE TRANSACTION WITH M/S. TRIDENT EST ATES PVT. LTD., THEREFORE, ADVANCE OF RS.10.00 CRORES CANNOT BE CONSIDERED TO BE UTILIZATION FOR THE PURPOSE OF BUSINESS. (3) AS REGARDS SUM OF RS.1.98 CRORES EXTENDED LOAN TO TRIDENT ESTATE PVT. LTD., SUCH TRANSACTION WAS ALSO CANCELLED AND THE AMOUNT WAS REFUNDED TO THE ASSESSEE. THE ASSESSEE COULD NOT PRODUCE DOCUMENT ARY EVIDENCE IN THE SHAPE OF MOU OR AGREEMENT TO PROVE THE PURPOSE OF THE LOA N. THEREFORE, THE SAID . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 6 AMOUNT ALSO CANNOT BE CONSIDERED TO BE AMOUNT ADVAN CED FOR THE PURPOSE OF BUSINESS. (4) RS.2.67 CRORES UTILIZED BY THE ASSESSEE FOR PU RCHASE OF PLOT AT ALI BAUGH ALSO WAS NOT FOR THE PURPOSE OF BUSINESS AS THE PE RUSAL OF BALANCE SHEET WOULD REVEAL THAT THIS AMOUNT WAS NOT CONSIDERED FOR WOR K-IN-PROGRESS RELATING TO ALI BAUGH PROPERTY AND NO EVIDENCE WAS SUBMITTED TO PROVE THAT ALI BAUGH PROPERTY WAS IN THE NATURE OF STOCK IN TRADE. (5) AS REGARDS SUM OF RS.10.38 CRORES INVESTED IN A OP/FIRM (SPV) THE AO OBSERVED THAT INCOME FROM SPV IS EXEMPT FROM TAX I N THE HANDS OF THE ASSESSEE COMPANY, THEREFORE, SUCH INTEREST WAS DISA LLOWABLE UNDER SECTION 14A OF THE ACT. 2.5 IT IS IN THESE CIRCUMSTANCES, THE AO DISALLOWED A SUM OF RS.2,43,77,300/- BEING NET INTEREST PAID BY THE ASS ESSEE UNDER SECTION 36(1)(III) OF THE ACT. THE AO ALSO OBSERVED THAT PROVISIONS O F SECTION 14A R.W. RULE 8D ARE ALSO APPLICABLE. SINCE ENTIRE INTEREST BEING D ISALLOWED, NO SEPARATE ADDITION IS MADE UNDER SECTION 14A R.W. RULE 8D AND IN CASE THE ASSESSEE GETS RELIEF IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 36(1)(II I) THEN DISALLOWANCE UNDER SECTION 14A WILL BE SUSTAINED. 2.6 THE AO FURTHER DISALLOWED A SUM OF RS.33,51,902 /- ON ACCOUNT OF VALUATION CHARGES, STAMP DUTY AND PROCESSING CHARGE S ON THE LOAN OBTAINED FROM HDFC AFTER ALLOWING 10% ON ACCOUNT OF UTILIZAT ION OF LOAN FOR AG DEVELOPERS. 3. THE AFOREMENTIONED DISALLOWANCE WAS SUBJECT MAT TER OF APPEAL FILED BEFORE LD.CIT(A). THE SUBMISSIONS MADE BEFORE AO W ERE REITERATED. FOLLOWING CHART WAS SUBMITTED TO SHOW THE INVESTMENT MADE IN SPV. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 7 S.NO. NAME & ADDRESS OF FIRM/JV STATUS NAME OF PROJECT UNDER CONSTRUCTION APPELLANTS SHARE CONTRIBUTION AS ON 31.3.2008 1. AG DEVELOPERS FIRM 75% 3.87 CR. 115 MAKER CHAMBERS III, NARIMAN POINT, MUMBAI. 2. PODDAR & ASHISH DEVELOPERS (JOINT VENTURE) 5C COURT CHAMBERS, NEW MARINE LINES, MUMBAI 20. AOP GARDEN ESTATES 50% 10.70 CR. 3. CONWOOD ASHISH ASSOCIATES (JOINT VENTURE) 115, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI 21. FIRM PRAKRITI 50% 5.52 CR. 4. PANCHVATI ASSOCIATES 115, MAKER CHAMBERS III, NARIMAN POINT. FIRM SAHAYADRI 33.33% 2.72CR 5. PANCHVATI ASSOCIATES 115, MAKER CHAMBERS III, NARIMAN POINT. FIRM 50% 0.05 CR. 6. ANILINE DYESTUFF (EQ SHARE) CO. PARKS WOOD 24% 3.03 CR. 3.1 REFERRING TO THE AFOREMENTIONED CHART IT WAS SU BMITTED THAT THESE SPVS WERE CONSTITUTED WITH THE OBJECTIVE OF EXECUTING D IFFERENT PROJECTS WITH DIFFERENT PARTNERS/LAND OWNERS. IT WAS SUBMITTED THAT IT IS A NORMAL PRACTICE IN THE CONSTRUCTION BUSINESS TO FLOAT NEW PROJECTS IN SEPA RATE SPV WHENEVER THE PROJECT IS DEVELOPED JOINTLY. THE PERCENTAGE WISE UTILIZATION OF BORROWED FUNDS WAS SUBMITTED IN THE SHAPE OF FOLLOWING CHART: S.NO. PARTCULARS AMOUNT (RS.) % OF TOTAL A) TRIDENT ESTATE FOR DEVELOPMENT RIGHTS OF RAJMAHAL PROPERTY 11,90,00,000 40.41% B) PURCHASE OF PLOTS IN ALIBAUG 2,67,00,000 9 .07% C) AMOUNTS INVESTED IN AG DEVELOPERS (INTEREST @ 12% HAS BEEN EARNED) 2,25,00,000 7.64% D) INTEREST FREE DEPOSIT FOR JV 3,00,00,000 10 .19% E) INVESTED IN AOPS/FIRMS (SPV) 7,38,00,000 25. 06% F) LOSS FOR THE YEAR 2,25,00,000 7.64% TOTAL 29,45,00,000 100% . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 8 3.2 IT WAS SUBMITTED THAT AO WAS WRONG IN CONCLUDI NG THAT ASSESSEE DID NOT UTILIZE AMOUNT ADVANCED TO TRIDENT FOR THE PURP OSE OF BUSINESS AS THE DEAL FINALLY MATURED VIDE CONVEYANCE DEED DATED 16/10/2 009, COPY OF WHICH WAS FILED BEFORE THE AO. IT WAS SUBMITTED THAT THE SAI D INVESTMENT MADE BY THE ASSESSEE WAS NEVER INTENDED TO ACQUIRE THE SHARES F OR THE PURPOSE OF EARNING THE DIVIDEND AS OBJECTIVE WAS TO DEVELOP THE PROPE RTY. 3.3 SO FAR AS IT RELATES ADVANCE GIVEN FOR PURCHASE OF PLOT AT ALI BAUGH AMOUNTING TO RS.2.67 CRORES IT WAS SUBMITTED THAT A CCORDING TO THE BUSINESS OF THE ASSESSEE THE SAID AMOUNT REPRESENTS ADVANCE GIV EN FOR PURCHASE OF LAND AND SINCE THE PROPERTIES WERE NOT CONVEYED IN FAVO UR OF ASSESSEE BY THE END OF THE YEAR I.E. BY 31/3/2008, THE AMOUNTS WERE SHOWN AS ADVANCE IN THE BALANCE SHEET AND ALLOWABILITY OF INTEREST CANNOT B E DENIED. 3.4 AS REGARDS AMOUNT INVESTED IN AG DEVELOPERS OF RS.2.25 CRORES, IT WAS SUBMITTED THAT ASSESSEE HAS EARNED INTEREST OF RS. 42.00 LACS, THEREFORE, INTEREST ON THAT AMOUNT ALSO CANNOT BE DISALLOWED. 3.5 AS REGARDS AMOUNT INVESTED IN SPV OF RS.7.38 AN D INTEREST FREE DEPOSIT WITH JV PARTNERS OF RS.3.00 CRORES, IT WAS SUBMITTE D AS UNDER: THE APPELLANTS HAVE ENTERED INTO A JOINT VENTURE A GREEMENT DATED 19 TH JUNE 2004 (PAGE NO.80-147) WITH BEDROCK (TRUST) AND ESVE E PODDAR FAMILY TRUST FOR DEVELOPMENT OF PROJECT GARDEN ESTATE. BEDROCK (TRUST) AND ESVEE PODDAR FAMILY TRUST ARE O WNER OF THE LAND SITUTATED LAXMI INDUSTRIAL ESTATE WHICH HAS BEEN CONTRIBUTED BY THEM TO THE JOINT VENTURE ENTERED WITH THE APPELLANTS. THE APPELLANTS ARE RE SPONSIBLE FOR DEVELOPING THE SAID PROPERTY AT ITS COST AND SHARE THE CONSTRUCTED AREAS WITH THE BEDROCK (TRUST) AND ESVEE PODDAR FAMILY TRUST AND ACCORDINGLY THE A PPELLANTS HAVE BEEN OFFERED 50% SHARE IN JOINT VENTURE. AS PER THE JOINT VENTURE AGREEMENT, THE APPELLANTS ARE UNDER AN OBLIGATION TO: . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 9 I) PLACE ON INTEREST FREE DEPOSITS OF RS. 1 CR WITH B EDROCK AND 2 CR WITH ESVEE PODDAR (CLAUSE 21 OF THE JV AGREEMENT)( PAGE NO.93) II) ENSURE THAT THE DEVELOPMENT AND CONSTRUCTION OF THE PROJECT IS CARRIED OUT IN ACCORDANCE WITH THE APPROVED PLAN (CLAUSE 24) (P AGE NO.94) III) TO COMPLETE THE PROJECT ON TIME AS AGREED BETWEEN T HE MEMBERS (CLAUSE 24) (PAGE NO.94) IV) TO OBTAIN AT ITS COST ALL CONSENTS AND PERMISSIONS FROM BMC, MHADA ETC. (CLAUSE 24) (PAGE NO.95) V) TO MEET WITH ANY CLAIM, DEMAND, SUIT , PROCEEDINGS ETC. CONCERNING WITH DEVELOPMENT OF THE SAID PROPERTY (CLAUSE 24) (PAGE 95) VI) TO ENSURE THAT THE PAYMENT TO THE LABOUR, LABOUR WE LFARE ETC. ARE REGULARLY PAID (CLAUSE 24) (PAGE NO.95) VII) TO OBTAIN OCCUPATION CERTIFICATE FOR ENTIRE CONSTRU CTED AREA BEING SUBJECT MATTER OF THIS AGREEMENT (CLAUSE 24) (PAGE NO.95). ACCORDINGLY, THE APPELLANTS HAD PLACED INTEREST FRE E DEPOSITS WITH BOTH THE TRUST OF RS. 3 CRORES AND CONTRIBUTED RS.7.8 CRORES FOR C ONSTRUCTION OF THE PROJECT. SINCE THE SAID CONTRIBUTION WAS MADE IN VIEW OF THE COMMERCIAL UNDERSTANDING ARRIVED BETWEEN THE PARTIES TO THE JOINT VENTURE A GREEMENT AND ALSO TO DEVELOP THE PROPERTY IN JOINT VENTURE PROJECT, THE SAME IS WHOLLY AND EXCLUSIVELY RELATED TO THE BUSINESS OF THE APPELLANTS AND THE INTEREST COS T RELATABLE TO THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. 3.6 THE ASSESSEE RELIED ON VARIOUS JUDICIAL PRONOUN CEMENTS TO CONTEND THAT DISALLOWANCE WAS NOT CALLED FOR. ON THESE SUBMISSI ONS OF THE ASSESSEE LD. CIT(A) HAS RECORDED HIS FINDINGS IN PARA 3.3, WHICH CAN BE SUMMARIZED AS FOLLOWS: (1) AS REGARDS INVESTMENT TIN TRIDENT ESTATE PVT. LTD., ACCORDING TO THE FACTS OF THE CASE, STAND OF AO CANNOT BE ACCEPTED, SINCE IT IS AMPLY CLEAR THAT INVESTMENTS WAS MADE SOLELY FOR THE PURPOSE OF ACQ UIRING 1/3 RD SHARE IN THE SAID PROPERTY WITH THE INTENTION TO DEVELOP THE SAM E JOINTLY WITH OTHER CO- OWNERS AND THE SAID INVESTMENT WAS NOT FOR INVESTME NT IN THE SHARES. THE TRANSACTION COULD NOT BE CALLED IN THE NATURE OF D IVERSION OF BORROWED FUNDS. LD. CIT(A) OBSERVED THAT TO SUPPORT SUCH CONTENTIO N, COPY OF BMC BILL WAS ALSO SUBMITTED WHICH PROVE THAT THE ENTIRE SUM OF RS.11. 90 CRORES WAS UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 10 (2) AS REGARDS AMOUNT INVESTED IN PURCHASE OF PLOT IN ALIBAG OF RS.2.67 CRORES, THIS INVESTMENT BY THE ASSESEE ARE ALSO FOR THE BUS INESS PURPOSE. THERE WAS NO QUESTION OF DISALLOWANCE OF INTEREST. THE ASSES SEE IS REAL ESTATE DEVELOPER AND AMOUNT UTILIZED FOR PURCHASE OF PLOT IS CLEARL Y FOR THE BUSINESS PURPOSE. (3) AS REGARDS ADVANCE OF RS.2.25 CRORES TO AG DE VELOPERS, WHERE THE ASSESSEE IS A PARTNER, PARTNERSHIP FIRM IS PAYING INTEREST @ 12% AND ASSESSEE HAS RECEIVED A SUM OF RS.42.00 LACS, WHICH HAS BEEN ASS ESSED AS BUSINESS INCOME, THEREFORE, DISALLOWANCE OF INTEREST UNDER SECTION 3 6(1)(III) OF THE ACT WAS NOT CALLED FOR. (4) AS REGARDS THE INVESTMENT OF THE ASSESSEE OF R S.10.38 CRORES IN THE JOINT VENTURE KNOWN AS PODDAR & ASHISH DEVELOPERS, OUT OF WHICH A SUM OF RS.7.38 CRORES IS TOWARDS ASSESSEES CAPITAL AND BA LANCE OF RS.3.00 CORES IS INTEREST FREE DEPOSITS AS PER JOINT VENTURE AGREEM ENT FOR DEVELOPING THE PROPERTY KNOWN AS GARDEN ESTATES. THUS, SANCTION LETTER FROM HDFC CLEARLY MENTIONED THAT THE SAID LOAN HAS BEEN ADVANCED FOR INVESTMENT IN THIS SPECIFIC PROJECT BEING CARRIED OUT BY THE ASSESSEE. THEREFO RE, THIS INVESTMENT BY THE ASSESSEE ALSO CANNOT BE SAID TO BE FOR NON-BUSINES S PURPOSES AND, THEREFORE, INTEREST WOULD BE ALLOWABLE UNDER SECTION 36(1)(III ) OF THE ACT. (5) AS REGARDS LOSS OF RS.2.67 CRORES, LD. CIT(A) HAS OBSERVED THAT THE SAME REPRESENT EXCESS OF EXPENDITURE OVER THE INCOME AND THERE CANNOT BE AN ARGUMENT THAT SUCH AMOUNT WAS IN THE NATURE OF DIVE RSION OF FUNDS FOR NON- BUSINESS PURPOSES, SUCH LOSS IS ALLOWABLE AS BUSINE SS EXPENDITURE. 3.7 ON THE ABOVE CONCLUSIONS, LD. CIT(A) HAS DELETE D THE ADDITION OF RS.2,43,77,300/- AGAINST WHICH THE REVENUE HAS FILE D GROUNDS OF APPEAL NO. 1(A) TO 1(F). 4. FURTHER LD. CIT(A) HAS DISCUSSED WITHOUT PREJUD ICE STAND OF THE AO FOR CONVERTING THE DISALLOWANCE OF INTEREST FROM SECTIO N 36(1)(III) TO SECTION 14A R.W. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 11 RULE 8D. IN THE PROCESS, HE HAS DEALT WITH EACH OF THE INVESTMENT MADE BY THE ASSESSEE AND HAS RECORDED HIS FINDING AS UNDER: (1) AS REGARDS INVESTMENT IN TRIDENT ESTATE PVT. L TD., IT IS HELD BY LD. CIT(A) THAT THE INVESTMENT CANNOT BE CONSIDERED RELATING T O EARNING OF EXEMPT INCOME, THEREFORE, CANNOT BE CONSIDERED FOR DISALLOWANCE UN DER SECTION 14A OF THE ACT. (2) AS REGARDS AMOUNT OF RS.2.67 CRORES BEING UTIL IZED FOR PURCHASE OF PLOTS AT ALI BAUGH THE SAME IS ALSO TO BE CONSIDERED OUTSIDE THE PURVIEW OF SECTION 14A. (3) AS REGARDS INVESTMENT OF RS.7.79 CRORES IN AOP KNOWN AS PODDAR & ASHISH DEVELOPERS, SINCE THE INCOME OF AOP IS SUBJECTED TO MAT UNDER SECTION 115JB AND TAX HAS ACTUALLY BEEN PAID, PROVISIONS OF SECT ION 14A COULD NOT BE APPLIED. (4) AS REGARDS THE INVESTMENT IN THE SHARES OF CO MPANIES AND PARTNERSHIP FIRMS, LD. CIT(A) HAS OBSERVED THAT SECTION 14A R.W . RULE 8D WAS ATTRACTED AND HE CALCULATED THE DISALLOWANCE AT RS.93,61,980/-, W HICH HAS BEEN UPHELD. THE ASSESSEE IS AGGRIEVED BY SUSTAINING OF SUCH ADDITIO N AND IS AGITATING SUCH ACTION OF LD. CIT(A) IN GROUNDS OF APPEAL. (5) THE REVENUE IN ITS GROUND NO. 1(G) HAS AGITATED THE DECISION OF LD. CIT(A) WITH REGARD TO INVESTMENT MADE BY THE ASSESSEE IN T HE TRIDENT ESTATE PVT. LTD. IN GROUND NO. 1(H) THE REVENUE IS AGITATING THE ORD ER OF LD. CIT(A) IN RESPECT OF CALCULATION OF DISALLOWANCE MADE BY LD. CIT(A) UNDE R SECTION 14A AS PER RULE 8D. (6) AS REGARDS DISALLOWANCE OF PROCESSING CHARGES PAID TO HDFC, LD. CIT(A) FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT, 60 ITR 52 HAS DELETED THE DISALLOWANCE. AGAINST THIS DELETION THE DEPARTMENT IS AGGRIEVED AND HAS PREFERRED GROUND NO.2. 5. AFTER NARRATING THE FACTS, ARGUING THE APPEAL OF THE REVENUE, IT WAS SUBMITTED BY LD. DR THAT THE DISALLOWANCE WAS RIGHT LY MADE BY THE AO AND IT HAS WRONGLY BEEN DELETED BY LD. CIT(A). IT WAS SUB MITTED THAT SO FAR AS IT RELATES TO DISALLOWANCE CALCULATED BY LD. CIT(A) U NDER SECTION 14A, LD. DR SUBMITTED THAT DISALLOWANCE FOR THE INVESTMENT MADE BY THE ASSESSEE IN . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 12 TRIDENT ESTATE PVT. LTD., THE SAME WAS FOR THE P URPOSE OF INVESTMENT IN SHARES AND THEREFORE, DISALLOWANCE HAS WRONGLY BEEN DELETED. IT WAS FURTHER SUBMITTED THAT THERE IS MISTAKE IN CALCULATION MAD E BY LD. CIT(A) WHILE CALCULATING DISALLOWANCE UNDER SECTION 14A OF THE A CT AND APPROPRIATE RELIEF SHOULD BE GRANTED TO THE REVENUE. 5.1 SO FAR AS IT RELATES TO PROCESSING CHARGES BY T HE ASSESSEE TO HDFC, IT WAS SUBMITTED THAT THE SAME HAS WRONGLY BEEN DELETED AN D ORDER PASSED BY LD. CIT(A) ON THIS GROUND SHOULD BE SET ASIDE AND THAT OF AO SHOULD BE RESTORED. 6. ON THE OTHER HAND, RELYING UPON THE CONTENTION RAISED BEFORE AO AND LD. CIT(A) IT WAS SUBMITTED BY LD. AR THAT ENTIRE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS AND THEREFORE, DISALLOW ANCE UNDER SECTION 36(1)(III) WAS NOT CALLED FOR AND LD. CIT(A) HAS RIGHTLY HELD THAT THE ENTIRE UTILIZATION OF BORROWED FUNDS WERE FOR THE PURPOSE OF BUSINESS. S O FAR AS IT RELATES TO DISALLOWANCE SUSTAINED BY LD. CIT(A) UNDER SECTION 14A, IT WAS SUBMITTED BY LD. AR THAT THE ENTIRE INVESTMENT BY THE ASSESSEE WAS STRATEGIC INVESTMENT AND ON SUCH TYPE OF INVESTMENT DISALLOWANCE UNDER S ECTION 14A WAS NOT CALLED FOR IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCEMENT S. 1. CIT VS. INDIA ADVANTAGE SECURITIES LTD. I.T.AP PEAL NO.1131 OF 2013 OF HONBLE BOMBAY HIGH COURT ORDER DATED 17/3/2015. 2. DCIT VS. M/S. INDIA ADVANTAGE SECURITIES LTD. , ITA NO.6711/MUM/2011 ORDER DATED 14/09/2012. 3. ACIT V. M/S. SPRAY ENGINEERING DEVICES LTD., IT A NO.701/CHD/2009 & OTHERS ORDER DATED 22/6/2012. 4. ITO VS. M/S. POINEER RADIO TRAINING SERVICES PV T. , ITA NO.4448/DEL/2013 ORDER DATED 19/1/2015. 5. GARWARE WALL ROPES LIMITED VS. ADDL. CIT, ITA NO .5408/MUM/2012 & ITA NO.4957/MUM/2012 (CROSS APPEALS) ORDER DATED 15/1/2 014. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 13 6. INTERGLOBE ENTERPRISES LTD. VS. DCIT, ITA NO.13 62 & 1032/DEL/2013,ITA NO.1580/DEL/2013 (CROSS APPEALS) ORDER DATED 4/4/2 014. 7. M/S. JM FINANCIAL LIMITED, VS. ADDL. CIT, ITA N O.4521/MUM/2012 ORDER DATED 26/3/2014 8. HOLCIM (INDIA) PVT. LTD. VS. DCIT, ITA NO.5123& 5124/DEL/2012 ORDER DATED 27/09/2013 9. CIT VS. ORIENTAL STRUCTURAL ENGINEERS (P) LTD. [2013] 35 TAXMANN.COM 210 (DEL) 10. EIH ASSOCIATED HOTELS LTD. VS. DCIT, [2009] 126 TTJ 246 (KOL) 11. ACIT VS. M/S. ORIENTAL STRUCTURAL ENGINEERS (P) LTD., ITA NO.4245/DEL/2011, ORDER DATED 2/12/2011. 6.1 HE SUBMITTED THAT COPIES OF ALL THESE DECISIONS ARE FILED IN THE PAPER BOOK AND RELEVANT PAGES FROM THOSE DECISIONS WERE CITED TO SUPPORT THE CONTENTION. 6.2 AS REGARDS IT RELATES TO DELETION OF PROCESSING CHARGES, IT WAS SUBMITTED BY LD. AR THAT SINCE ENTIRE UTILIZATION OF BORROWED FUNDS WAS FOR THE PURPOSE OF BUSINESS, THEREFORE, LD. CIT(A) WAS RIGHT IN HOLDIN G THAT PROCESSING CHARGES WERE ALLOWABLE AS BUSINESS EXPENDITURE. 6.3 COMING TO THE APPEAL FILED BY THE ASSESSEE, IT WAS SUBMITTED BY LD. AR THAT THOUGH LD. CIT(A) HAS CONSIDERED EACH AND EVER Y INVESTMENT BY THE ASSESSEE AND HAS COME TO A CONCLUSION THAT DISALLOW ANCE UNDER SECTION 14A WAS NOT CALLED FOR EXCEPT INVESTMENT IN THE SHARES OF COMPANIES AND PARTNERSHIP FIRMS, BUT HE HAS NOT ASSIGNED ANY REA SON FOR SUSTAINING THE DISALLOWANCE. EVEN IF WE GO BY THE OBSERVATION OF LD. CIT(A) WHILE CALCULATING THE DISALLOWANCE AS PER RULE 8D, LD. CIT(A) HAS WRO NGLY INCLUDED INVESTMENT IN AOP NAMELY PODDAR & ASHISH DEVELOPERS AS AFTER RECO RDING SUCH FINDING THAT SUCH INVESTMENT HAD SUFFERED TAX UNDER SECTION 115J B OF THE ACT, EVEN THEN THE SAME HAS BEEN COMPUTED WHILE CALCULATING THE AV ERAGE VALUE OF INVESTMENT INCOME WHICH IS EXEMPTED FROM TAX IN THE CALCULATI ON MADE UNDER RULE 8D. THUS, IT WAS SUBMITTED THAT IF CONTENTION OF THE AS SESSEE IS NOT ACCEPTED THAT . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 14 DISALLOWANCE UNDER SECTION 14A WAS NOT CALLED FOR I N ITS ENTIRETY, THE DUE RELIEF SHOULD BE GIVEN TO THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE INTEREST BEARING LOAN OBTAINED BY THE ASSESSEE, AS FOUND BY THE AO IN THE ASSESSMENT ORDER IS LOAN FROM HDFC AM OUNTING TO RS.23 CRORES. THE OTHER AMOUNT OF RS.6.20 CORES REPRESENT INTERES T FREE UNSECURED LOANS. THE UTILIZATION OF INTEREST BEARING AS WELL AS INTE REST FREE UNSECURED LOAN IS DESCRIBED IN THE CHART REPRODUCED IN THE ABOVE PART OF THIS ORDER IN PARA2.1. THE MAJOR AMOUNT IS OF RS.11.90 CRORES WHICH WAS UT ILIZED BY THE ASSESSEE FOR DEVELOPMENT OF RAJMAHAL PROPERTY AND ULTIMATELY THE PROPERTY WAS CONVEYED TO THE ASSESSEE FOR WHICH THE CONVEYANCE DEED WAS ALSO SUBMITTED TO THE AO. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPING A ND CONSTRUCTION OF BUILDINGS AND PROPERTIES AND ACCORDING TO THE FACTS OF THE CA SE WHICH HAVE BEEN DISCUSSED IN DETAILS IN THE ABOVE PART OF THIS ORD ER, THERE CANNOT BE TWO OPINION THAT THIS AMOUNT HAS BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. THUS, TO THIS EXTENT, WE ARE OF THE OPINION THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN HOLDING THAT SUCH UTILIZATION B Y THE ASSESSEE WAS FOR THE PURPOSE OF BUSINESS, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF INTEREST IN THIS REGARD COULD BE MADE. 7.1 NOW COMING TO PURCHASE OF PLOTS IN ALIBAG, FOR WHICH AMOUNT OF RS.2.67 CRORES HAVE BEEN UTILIZED, A SPECIFIC FINDING HAS B EEN RECORDED BY LD. CIT(A) THAT THESE ARE ALSO FOR THE BUSINESS PURPOSE OF THE ASSESSEE AND SUCH FINDING OF LD. CIT(A) HAVE NOT BEEN CONTROVERTED BY THE MATERI AL BROUGHT ON RECORD TO SUGGEST THAT THE PURCHASE OF PLOTS IN ALIBAG WERE N OT FOR THE PURPOSE OF BUSINESS, THEREFORE, WE ARE OF THE OPINION THAT T O THIS EXTENT ALSO LD. CIT(A) DID NOT COMMIT ANY ERROR IN ARRIVING AT A CONCLUSIO N THAT THE SAID AMOUNT WAS UTILIZED FOR THE PURPOSE OF THE BUSINESS OF THE ASS ESSEE. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 15 7.2 AS REGARDS A SUM OF RS.2.25 CRORES PAID TO AG D EVELOPERS, THE ASSESSEE HAD EARNED 12% INTEREST I.E. A SUM OF RS.42.00 LAC S, WHICH HAS BEEN ASSESSED AS BUSINESS INCOME. TO THIS EXTENT ALSO THERE IS N O DOUBT THAT THE SAME WAS UTILIZED FOR THE PURPOSE OF BUSINESS. 7.3 SO FAR AS IT RELATES TO ANOTHER AMOUNT OF RS.1 0.38 CRORES INVESTED IN PODDAR & ASHISH DEVELOPERS, A SUM OF RS.7.38 CORES STANDS TOWARDS ASSESSEES CAPITAL AND BALANCE RS.3.00 CRORES IS INTEREST FREE DEPOSIT AS PER JOINT VENTURE AGREEMENT FOR DEVELOPING THE PROPERTY KNOWN AS GARD EN ESTATE. IN THE SANCTIONED LETTER ISSUED BY HDFC IT IS CLEARLY MENT IONED THAT THE SAID LOAN WAS ADVANCED FOR INVESTMENT IN THIS SPECIFIC PROJECT AL ONGWITH OTHER PROJECTS BEING CARRIED OUT BY THE ASSESSEE. IT IS FOR THESE REASO NS LD. CIT(A) HAS HELD THAT NO DISALLOWANCE ON INTEREST WAS CALLED FOR IN RESPECT OF THIS AMOUNT. IN ABSENCE OF ANY CONTRARY MATERIAL, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY LD. CIT(A). MOREOVER, WHILE DECIDING THE ISSUE REGARDI NG DISALLOWANCE UNDER SECTION 14A OF THE ACT LD. CIT(A) HAS RECORDED A FI NDING THAT THE AOP OF THE ASSESSEE NAMELY PODDAR AND ASHISH DEVELOPERS HAS SU FFERED TAX UNDER SECTION 115JB OF THE ACT. IN THIS VIEW OF THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS RECORDED BY LD. CIT(A) THAT NO DISALLO WANCE OF INTEREST CAN BE MADE IN RESPECT OF INVESTMENT MADE BY THE ASSESSEE IN THE JOINT VENTURE. 7.4 AS REGARDS LOSS OF RS.2.25 CRORES, THE SAME CAN NOT BE SAID TO BE UTILIZED BY THE ASSESSEE FOR THE PURPOSE OTHER THAN BUSINE SS AS THE SAME REPRESENT EXCESS OF EXPENDITURE OVER INCOME. 7.5 IN VIEW OF ABOVE DISCUSSIONS, WE ARE OF THE OP INION THAT LD.CIT(A) HAS RIGHTLY CONCLUDED THAT DISALLOWANCE OF RS.2,43,77,3 00/-, AS DONE BY THE AO UNDER SECTION 36(1)(III), WAS NOT CALLED FOR. WE D ECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. CIT(A). ACCORDINGLY, GROUNDS NO.1(A ) TO 1(F) OF THE REVENUES APPEAL ARE DISMISSED. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 16 7.6 NOW COMING TO GROUND TAKEN BY REVENUE IN 1(G) A ND 1(H), LD. CIT(A) HAS CONSIDERED ONE BY ONE ENTRIES OF INVESTMENT MADE B Y THE ASSESSEE AND FOR THE REASON DISCUSSED IN THE ABOVE PART OF THIS ORDER H E HAS HELD THAT THOSE INVESTMENTS WERE MADE FOR THE PURPOSE OF BUSINESS, LD. CIT(A) HAS EXCLUDED THOSE INVESTMENTS FROM THE SCOPE OF DISALLOWANCE UN DER SECTION 14A EXCEPT A SUM OF RS.7.79 CRORES INVESTED IN PODDAR & ASHISH D EVELOPERS, WHICH HAS BEEN CONSIDERED FOR THE PURPOSE OF DISALLOWANCE MADE UND ER SECTION 14A OF THE ACT AND ALSO INVESTMENT IN THE SHARES OF COMPANIES AND PARTNERSHIP FIRM. RELEVANT OBSERVATION OF LD. CIT(A) ARE AS UNDER: III. IN CONNECTION WITH THE INVESTMENT OF RS.7.79 CROES IN THE AOP, KNOWN AS PODDAR ASHISH DEVELOPERS, THE APPELLANTS HAVE SUBMI TTED THAT SINCE THE INCOME OF THE AOP IS SUBJECTED TO MAT U/S. 115JB, AND THEY HAVE ACTUALLY PAID TAX UNDER THIS SECTION, IT SHOULD NOT BE CONSIDERED AS EXEMPT INCOME FOR THE PURPOSES OF SECTION 14A. IN MY VIEW, SINCE THE INCOME FOR T HE AOP IS TO BE EXCLUDED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE U/S. 86. IT IS PRIMA FACIE EXEMPTED FROM TAX AND THEREFORE, I AM UNABLE TO ACCEPT THE A RGUMENT OF THE APPELLANTS THAT THIS INVESTMENT SHOULD NOT BE CONSIDERED FOR THE PU RPOSE OF SECTION 14A R.W.R. 8D. HOWEVER, AS REGARDS INTEREST FREE DEPOSIT OF RS.3 C RORES GIVEN TO THIS JOINT VENTURE, I AM OF THE VIEW THAT THE AGREEMENT CLEARL Y PROVIDES THAT THIS AMOUNT IS A INTEREST FREE DEPOSIT WHICH DOES NOT FORM PART OF THE CAPITAL OF THE AOP AND THEREFORE WOULD NOT PRIMA FACIE CONSTITUTE AN INVES TMENT FOR EARNING EXEMPT INCOME. THE PROVISIONS OF SECTION 14A THEREFORE WI LL NOT APPLY. IV) AS REGARDS INVESTMENT IN THE SHARES OF COMPANIE S AND PARTNERSHIP FIRMS, I AM OF THE VIEW THAT THESE ARE CLEARLY COVERED BY SECT ION 14A/RULE 8D. 7.7 IT IS IN THIS MANNER LD. CIT(A) HAS UPHELD THE ADDITION OF RS.93,61,980/- FOR COMPLETION OF FACTS THE CALCULATION DONE BY LD. CIT(A) WITH REGARD TO DISALLOWANCE CALCULATED U/R 8D AND ALSO THE COMPU TATION OF INVESTMENT, INCOME FROM WHICH IS EXEMPT FROM TAX WHICH ARE MA DE PART OF ORDER OF LD. CIT(A) AS ANNEXURE ARE REPRODUCED BELOW: . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 17 . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 18 8. WE HAVE CAREFULLY CONSIDERED SUCH CALCULATION OF LD. CIT(A). THE AFOREMENTIONED CONCLUSION IS CONTRARY TO THE STAND TAKEN BY LD. CIT(A) WHILE DECIDING THE ISSUE OF DISALLOWANCE UNDER SECTION 3 6(1)(III). THE INVESTMENT OF THE ASSESSEE OF RS.7.79 CORES IN PODDAR & ASHISH DE VELOPERS CANNOT BE CONSIDERED TO BE AN INVESTMENT, THE INCOME FROM WHI CH IS EXEMPT FROM TAX. IF THE INCOME IS OFFERED TO TAX UNDER SECTION 115JB, THEN THE SAME INCOME CANNOT BE SAID TO BE EXEMPT FROM TAX AND THE SAME W OULD REQUIRED TO BE EXCLUDED WHILE COMPUTING INVESTMENT ON WHICH ASSES SEE HAS EARNED EXEMPTED INCOME. THEREFORE, WHILE CALCULATING THE INVESTMENT FROM WHICH INCOME EXEMPT FROM TAX IS EARNED, THIS INVESTMENT OF THE ASSESSEE HAS TO BE EXCLUDED AS AT THE BEGINNING AND AS AT THE END OF THE FINANCIAL YEAR AND DISALLOWANCE HAS TO BE COMPUTED ACCORDINGLY. IF TH E SAME IS EXCLUDED THEN THE INVESTMENT OF THE ASSESSEE AS ON 31/3/2008 WOU LD BE A SUM OF RS.6,38,44,874/- AND INVESTMENT AS AT THE BEGINNIN G OF THE YEAR I.E. 1/4/2007 WOULD BE RS.3,41,86,085/-. THEREFORE, THE DISALLOW ANCE COMPUTED BY LD. . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 19 CIT(A) BY INCLUDING THE INVESTMENT IN PODDAR & ASH ISH DEVELOPERS IS CONTRARY TO THE FINDINGS RECORDED BY LD. CIT(A) AND IS TO B E AMENDED ACCORDINGLY. THUS, WE DIRECT THE AO TO EXCLUDE THE INVESTMENT OF THE ASSESSEE FROM PODDAR & ASHISH DEVELOPERS WHILE CALCULATING DETAILS OF I NVESTMENT, INCOME FROM WHICH IS EXEMPT FROM TAX AS DONE BY LD. CIT(A) IN ANNEXURE A WHICH IS REPRODUCED ABOVE IN PARA 7.7. WE DIRECT ACCORDING LY. 8.1 THE ABOVE DISCUSSION WOULD TAKE CARE OF GROUND NO.1(G) AND1(H) OF THE REVENUES APPEAL AS WELL AS GROUND OF APPEAL RAISED BY THE ASSESSEE. ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO.1(G) AND 1(H) OF THE REVENUE S APPEAL ARE DISMISSED. 9. NOW COMING TO GROUND NO.2 OF THE REVENUES APPEA L, AS IT HAS BEEN HELD THAT THE AMOUNT OF LOAN OBTAINED BY THE ASSESSEE FROM HDFC IS UTILIZED FOR THE PURPOSE OF BUSINESS, THE PROCESSING CHARGES PAI D ON OBTAINING SUCH LOAN WOULD BE ALLOWABLE EXPENDITURE. WE, THEREFORE, DEC LINE TO INTERFERE IN THE IMPUGNED RELIEF GRANTED BY LD. CIT(A) AND ACCORDING LY GROUND NO.2 OF REVENUES APPEAL IS DISMISSED. `10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 23/06/2015 ( 0 1 2 23/06/2015 ( SD/- SD/- ( / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 1 DATED 23/06/2015 . / ITA NO. 3769&4006/MUM/2012 / ASSESSMENT YEARS 2008-09 20 / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. 4) ( ) / THE CIT(A)- 4. 4) / CIT 5. 56 %)78 , * 78 , / DR, ITAT, MUMBAI 6. 9 / GUARD FILE. / BY ORDER, & 5) %) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS