SUN INFRA, MUMBAI V. ASST CIT 14(3), MUMBAI

ITA 4988/MUM/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3354 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: VALLABHDAS D PARMAR
• Keywords: Business income; Business expenditure; Tax effect; Commercial expediency; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE S HRI SHAMIM YAHYA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 4988/MUM/2014 ASSESSMENT Y EAR: 2010 - 11 M/S SUN INFRA, 288, 3 RD FLOOR, KALBADEVI ROAD, KALBADEVI, MUMBAI 400002 PAN: ABJF S8245H VS. THE INCOME TAX OFFICER 14(3)(4), ROOM NO. 608, 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VALLABHDAS D. PARMAR (A R) REVENUE BY : SHRI M.K SINGH ( SR. D R) DATE OF HEARING: 25/01.2019 DATE OF PRONOUNCEMENT: 22 / 04 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 01.05.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 25 (FOR SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR 2010 - 11 , WHEREBY THE LD. CIT(A) HAS DISMISSED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 143 (3 ) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING, DEVELOPING CONSTRUCTED AND SELLING REAL ESTATE, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING NIL INCOME . SINCE THE CA SE WAS SELECTED FOR SCRUTINY, THE AO PASSED ASSESSMENT ORDER U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 69,14,660/ - AFTER MAKING ADDITION OF RS. 23,78,750/ - / - UNDER THE HEAD INCOME FROM HOUSE PROPERTY, RS. 13,85,000/ - ON ACCO UNT OF INTEREST FREE LOANS AND RS. 2 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 31,50,911 UNDER THE HEAD INCOME FROM OTHER SOURCES . IN THE FIRST APPEAL, THE LD. CIT (A) DISMISSED THE APPEAL FILED BY THE ASSESSEE AND CONFIRMED THE SAID ADDITIONS . AGAINST THE SAID FINDINGS OF THE LD. CIT (A), THE ASSES SEE IN APPEAL BEFORE THIS TRIBUNAL 3 . T HE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE FOLLOWING EFFECTIVE GROUNDS : - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: - 1. INTEREST ON FIXED DEPOSIT 1.1 THE LEARNED CIT (A) FAILED TO AP PRECIATE THAT FIXED DEPOSIT WAS PLACED WITH THE BANK IN ORDER TO PROCURE OVERDRAFT FACILITIES FROM BANK. THE LEARNED CIT (A) FURTHER FAILED TO APPRECIATE THAT THE FIXED DEPOSIT WAS PLACED IN THE NORMAL COURSE OF BUSINESS OPERATIONS OF THE APPELLANT. 1.2 THE L EARNED CIT (A) ERRED IN CONSIDERING THE GROSS AMOUNT OF INTEREST ON FIXED DEPOSIT (FD) OF RS. 31,50,911/ - UNDER THE HEAD INCOME FROM OTHER SOURCES. 1.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT IS ENTITLED TO DEDUCTION OF INTEREST PAID ON BORROWED FUNDS WHICH WERE UTILIZED TO PLACE THE FIXED DEPOSIT. 2. INTEREST FREE LOAN TO SISTER CONCERN 2.1 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE APPELLATE HAS GRANTED BUSINESS ADVANCE TO ITS SISTER I.E., M/S SUN ENTER PRISES IN THE NORMAL COURSE OF BUSINESS ACTIVITIES OF THE APPELLANT SINCE BOTH THE APPELLANT AS WELL AS M/S SUN ENTERPRISES ARE ENGAGED IN THE SAME BUSINESS IN THE SAME LOCALITY UNDER THE SAME BRAND AND TRADEMARK. 2.2 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE ADVANCE GRANTED TO M/S SUN ENTERPRISES WAS ALSO IN THE COMMERCIAL INTEREST OF THE ASSESSEE IN ORDER TO PROMOTE THE BRAND AND TRADE NAME OF THE APPELLANT IN THE LOCALITY. 2.3 THE LEARNED CIT (A) ERRED IN DISALLOWING THE PART OF INTEREST ON ACCOUNT OF A DVANCE GIVEN TO M/S SUN ENTERPRISES. 3 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 2.4 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE APPELLANT HAS NOT CLAIMED ANY INTEREST EXPENDITURE AS DEDUCTION BUT HAS DEBITED THE ENTIRE INTEREST EXPENDITURE TO PROFIT & LOSS ACCOUNT WHICH IS REFLECTED AS A CURRENT ASSETS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. 2.5 THE LEARNED CIT (A) ERRED IN DISALLOWING INTEREST WHICH HAS NOT BEEN CLAIMED AS EXPENDITURE. 3. INCOME FROM HOUSE PROPERTY 3.1 THE LEARNED CIT (A) ERRED IN CLASSIFY THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 1.1 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE RENT WAS EARNED FROM PERSONS LIVING ON THE LAND WHICH HAS BEEN USED BY THE APPELLANT FOR ITS BUSINESS PURPOSES. 1.2 THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE RENTAL INCOME FROM PROPERT Y WHICH IS MAINLY LAND ALONG WITH SOME DILAPIDATED BUILDINGS CANNOT BE TAXABLE UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY. 1.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE IS ENTITLED TO INTEREST EXPENDITURE U/ S 24(B) IN RESPECT OF BORROWINGS FOR ACQUISITION OF PROPERTY, INCOME OF WHICH IS CHARGEABLE TO TAX UNDER THE HEAD FROM HOUSE PROPERTY. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD BORROWED FUNDS FROM BANK BY WAY OF OVE R DRAFT FACILITY AGAINST SECURITY OF FIXED DEPOSITS OF RS. 4 CRORE DURING THE FINANCIAL YEAR 2007 - 08. THE ASSESSEE PAID INTEREST OF RS. 60,25,743/ - ON BORROWED FUNDS. THE SAID BORROWINGS WERE UTILIZED FOR THE PURPOSE OF ACQUIRING LAND FOR DEVELOPMENT AT LA XMI MARKET PROPERTY IN THE NORMAL COURSE OF BUSINESS. THE SAID DEPOSITS WERE NOT MADE BY WAY OF INVESTMENT OF SURPLUS FUNDS TO EARN INTEREST, BUT WERE MADE UNDER COMPULSION IN ORDER TO AVAIL OVER DRAFT FACILITY. THE LD. COUNSEL FURTHER SUBMITTED THAT THE BORROWED FUNDS WERE UTILIZED TO MAKE FDS AND THE ASSESSEE HAS PAID INTEREST ON BORROWED FUNDS. THE LD. COUNSEL PLACING RELIANCE OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF CIT VS. LOKHOLDINGS 198 TAXMAN 452 AND THE DECISION OF THE ITAT CHANDIGARH IN THE 4 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 CASE OF SAMAR ESTATE PVT LTD VS. ITO, 61 TAXMANN.COM 23 SUBMITTED THAT THE INTEREST INCOME FROM FDS MAY BE TREATED AS BUSINESS INCOME. 5. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE RELYING ON THE ORDER PASSED BY THE L D. CIT(A) SUBMITTED THAT THE FINDINGS OF THE LD. CIT(A) ARE BASED ON THE JUDGMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF DR. V GOPINATHAN 248 ITR 449 AND THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. GREATWAYS P LTD . THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT (A) HAS RIGHTLY HELD THAT SINCE OVER DRAFT FACILITY WAS AVAILED BY THE ASSESSEE FOR BUSINESS PURPOSES , DIRECT NEXUS BETWEEN THE INTEREST INCOME ON THE SAID FDRS AND THE INTEREST EXPENSES IS NOT ESTABLISH ED. THEREFORE, THE APPELLANT IS NOT ENTITLED TO GET ANY DEDUCTION OF INTEREST EXPENSES AGAINST THE INTEREST INCOME ON FDRS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE PARTIES. VIDE GROUND NO. 1 TO 1.3, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN HOLDING THAT THE GROSS AMOUNT OF INTEREST ON FIXED DEPOSIT OF RS. 31,50.911 UNDER THE HEAD INCOME FROM OTHER SOURCES. WE NOTICE THAT THE AO HAS REJECTED THE CONTENTION OF THE ASSESSEE ON THE BASIS OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DR. V. GOPINATHAN (SUPRA) AND THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT. IN THE CASE CIT VS. DR. V. GOPINATHAN , THE SUPREME COURT HAS HELD THAT WHERE THE ASSESSEE HAS A TERM DEPOSIT WITH BANK AND HAD ALSO TAKEN LOAN ON SECURITY ON THE SAID FDR, THE ASSESSEE IS TO BE ASSESSED ON GROSS AMOUNT OF INTEREST RECEIVED BY HIM ON FDRS AND NOT ON INTEREST RECEIVED AS REDUCED BY THE AMOUNT OF INTEREST PAID ON LOA N TAKEN ON SECURITY OF SUCH DEPOSITS. THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS HELD THAT EVEN WHERE INTEREST ON FDS ARE GIVEN TO EXPORT PROMOTION COUNCILS IT CAN STILL BE TREATED AS BUSINESS INCOME SO AS TO BE ELIGIBLE FOR THE PURPOSE OF DEDUCTION U/S 80HHG. THE LD. CIT (A) AFFIRMED THE VIEW OF THE AO AND HELD 5 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 THAT INTEREST INCOME SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 7. HOWEVER, A S POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE IDENTICAL ISSUE WAS BEFORE THE LD. CIT (A) IN T HE ASSESSEES OWN CASE PERTAINING TO THE A.Y. 2008 - 09, WHEREIN THE LD. CIT (A) HAS HELD THAT THE INTEREST EXPENSES ATTRIBUTABLE TO FDS SHOULD BE ALLOWED U/S 57(III) OF THE ACT. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A) READS AS UNDER: - 3.3 I HA VE CAREFULLY CONSIDERED THE ARGUMENTS OF THE LD. A.R. AS WELL AS FINDINGS OF THE AO ON THE SUBJECT. IT IS WELL SETTLED BY THE DECISION OF HONBLE SUPREME COURT THAT INTEREST INCOME IS LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES.APART FROM THE DECISION RELIED UPON BY THE AO, THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S. PANDIAN CHEMICALS (129 TAXMAN 539) HAD HELD THAT INTEREST INCOME SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ACTION OF THE AO CONFIRMED IN PRINCIPLE. HOWEVER, MERE IS A FORCE IN THE ARGUMENTS OF THE LD. AO THAT THE EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME SHOULD BE ALLOWED U/S 57 (III) OF THE ACT. THE LD. AR HAD EMPHASIZED THAT F.DS A RE PLACED OUT OF BORROWINGS MADE BY THE ASSESSEE. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AND ASCERTAIN WHETHER THE F.DS ARE PLACED OUT OF BORROWINGS MADE BY THE ASSESSEE. IF THE ASSESSEE IS ABLE TO ESTABLISH THE DIRECT NEXUS OF D.DS. WITH BORROWINGS MADE BY IT, NECESSARY DEDUCTION SHOULD BE ALLOWED AS PER SECTION 57(III) OF THE ACT. IF THE ASSESSEE IS NOT ABLE TO ESTABLISH THE DIRECT NEXUS OF F.DS WITH THE BORROWINGS, NO SUCH EXPENSE SHOULD BE ALLOWED. IN TERMS OF DISCUSSION AS ABOVE, THE ASSESSEE IS ENTITLED FOR PARTIAL RELIEF. 8 . THE LD. DR SUBMITTED THAT THE ORDER OF THE CIT (A) WAS NOT CHALLENGED BY THE DEPARTMENT DUE TO LOW TAX EFFECT. HENCE, THE ASSESSEE WAS GIVEN THE BENEFIT OF SECTION 57 (III) OF THE ACT IN THE ASSESSM ENT YEAR 2008 - 09 . WE FURTHER NOTICE THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE LD. CIT (A) HAS TAKEN A DIFFERENT VIEW WITHOUT ASSIGNING ANY REASON OR POINTING OUT ANY CHANGE IN THE MATERIAL FACTS. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE VIEW TAKEN BY THE 6 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 LD. CIT (A) IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 IS THE CORRECT VIEW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCE OF THE CASE. HENCE, WE AGREE WITH THE FINDINGS OF THE LD. CIT (A) GIVEN IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 AND SET ASIDE THE FINDINGS OF THE LD. CIT (A) IN THE PRESENT CASE. WE ACCORDINGLY DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND ASCERTAIN AS TO WHETHER THE FDS WERE PLACE OUT OF THE BORROWINGS MADE BY THE ASSESSEE AND IF ASSESSEE IS ABLE TO ESTABL ISH THE NEXUS OF FDS WITH THE BORROWINGS MADE BY IT TO ALLOW DEDUCTION AS PER SECTION 57(III) OF THE ACT IN TERMS OF THE ORDER PASSED BY THE LD. CIT (A) PERTAINING TO AY 2008 - 09 IN THE ASSESSEES OWN CASE. 9 . VIDE GROUND NO. 2 TO 2.5 , THE ASSESSEE HAS CHA LLENGED THE ACTION OF THE LD. CIT (A) IN DISALLOWING RS. 13,71,000/ - U/S 36(1) (III) OF THE ACT. THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAD GIVEN INTEREST FREE LOAN TO ITS SISTER CONCERN AND THE ASSESSEE HAD PAID INTEREST ON THE LOAN TAKEN FROM BANK AND O THER PARTIES. THE ASSESSEE CONTENDED THAT UNSECURED LOANS AND OTHER BORROWINGS WERE UTILIZED BY THE ASSESSEE FOR THE BUSINESS PURPOSE. THE AO HELD THAT INTEREST ATTRIBUTABLE THE INTEREST FREE LOAN GIVEN TO ITS SISTER CONCERN IS NOT ALLOWABLE. ACCORDINGLY, THE AO DISALLOWED THE ENTIRE AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE. IN THE FIRST APPEAL, THE LD. CIT (A) CONFIRMED THE DISALLOWANCE HOLDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN THE ADVANCING OF FUNDS OF BUSINESS INTEREST OF THE ASSE SSEE. THE LD. COUNSEL SUBMITTED THAT IDENTICAL ISSUE WAS DEALT WITH BY THE LD. CIT (A) IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 AND THE LD. CIT (A) DIRECTED THE AO TO EXAMINE THE CONTENTION OF THE ASSESSEE AS PER THE ACTUAL HOLDING PERIOD AND DISALL OWED THE INTEREST ACCORDINGLY. 10 . THE LD. COUNSEL FURTHER RELYING ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF INDUSTRIAL FEEDERS VS. ACIT (2016) 68 TAXMAN 92 (MADRAS) SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS COVERED BY THE SAID JUD GMENT IN WHICH IT HAS BEEN HELD THAT WHERE BOTH ASSESSEE AND THE SISTER CONCERN WHOM THE ASSESSEE HAD ADVANCED LOANS WERE MANUFACTURERS OF GI 7 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 CASTING, WITHOUT INDICATING DIFFERENCE IN NATURE OF THE BUSINESS ACTIVITIES, REVENUE COULD NOT DISALLOW INTEREST O N BORROWED CAPITAL ON THE GROUND THAT LOAN WAS ADVANCED ON LOAN BUSINESS PURPOSES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELYING ON THE DECISION OF THE HONB LE SUPREME COURT IN THE HERO CYCLES PVT. LTD. VS. CIT (2015) 63 TAXMAN.COM 308 IN WHICH IT HAS BEEN HELD THAT NO INTEREST CAN BE DISALLOWED IF INTEREST FREE ADVANCE TO GIVEN TO SISTER CONCERN ON ACCOUNT OF COMMERCIAL EXPEDIENCY. IN THE PRESENT CASE, THE APPELLANT HAS GIVEN INTEREST FREE ADVANCES TO ITS SISTER CONCERN M/S SUN ENTERPRISES IN WHICH THR EE PARTNERS ARE COMMON AND HAVE THEIR SHARE MORE THAN 25% AND BOTH ARE IN THE SAME LINES OF BUSINESS OPERATING IN SAME LOCALITY AND HAVE COMMON BRAND NAME SUN DEVELOPERS. SINCE, THE ADVANCES WERE GIVEN BY THE ASSESSEE FOR COMMERCIAL EXPEDIENCY NO DISALLOWA NCE OF INTEREST IS CALLED FOR. 1 1 . ON THE OTHER HAND, THE LD. DR RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT IT HAD SUFFICIENT FUNDS THE LD. CIT (A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE M ADE BY THE AO, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT (A). HENCE, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE. 1 2 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE ASSESS EE. THE HONBLE MADRAS HIGH COURT IN THE CASE OF INDUSTRIAL FEEDERS VS. ACIT (SUPRA), HAS HELD THAT WHERE BOTH ASSESSEE AND THE SISTER CONCERN WHOM THE ASSESSEE HAD ADVANCED LOANS WERE MANUFACTURERS OF GI CASTING, WITHOUT INDICATING DIFFERENCE IN NATURE OF THE BUSINESS ACTIVITIES, REVENUE CANNOT NOT DISALLOW INTEREST ON BORROWED CAPITAL ON THE GROUND THAT LOAN WAS ADVANCED FOR NON - BUSINESS PURPOSES. IN THE CASE OF HERO CYCLES P LTD. VS. CIT (SUPRA), THE HONBLE SUPREME COURT HAS HELD THAT ONCE IT IS ESTABLI SHED THAT THERE IS NEXUS BETWEEN EXPENDITURE AND PURPOSE OF BUSINESS REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN ARMS CHAIR OF BUSINESS MAN OR IN POSITION OF BOARD OF DIRECTOR AND ASSUMED ROLE TO DECIDE 8 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 HOW MUCH IS REASONABLE EXPENDITURE HAVING REGAR D TO THE CIRCUMSTANCES OF THE CASE. IN THE SAID CASE, THE ASSESSING OFFICER HAD REJECTED THE ASSESSEES CLAIM ON TWO POINTS FIRSTLY, DEDUCTION WAS CLAIMED AS BUSINESS EXPENDITURE BUT SUBSTANTIAL MONEY OUT OF THE LOAN TAKEN FROM THE BANK WAS DIVERTED BY GIV ING ADVANCE TO SUBSIDIARY COMPANY ON WHICH NO INTEREST WAS CHARGED AND SECONDLY, THE ASSESSEE HAD ALSO GIVEN ADVANCES TO ITS OWN DIRECTORS ON WHICH THE ASSESSEE CHARGED INTEREST @ 10% AGAINST THE LOAN TAKEN BY THE ASSESSEE @ 18%. THE RELEVANT PARAS OF THE ORDER OF THE HONBLE SUPREME COURT READS AS UNDER: - 13. IN THE PROCESS, THE COURT ALSO AGREED THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (P) LTD. [2002] 254 ITR 377/121 TAXMAN 706 WHEREIN THE HIGH COURT HAD HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM - CHAIR OF THE BUSINESSMAN OR IN THE PO SITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGAR D TO THE CIRCUMSTANCES OF THE CASE. IT FURTHER HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIE S MUST PUT THEMSELVES IN THE SHOWS OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. 14. APPLYING THE AFORESAID RATIO TO THE FACTS OF THIS CASE AS ALREADY NOTED ABOVE, IT IS MANIFEST THAT THE ADVANCE TO M/S HERO FIBRES LIMITED BECAME IMPERATIVE AS A BUSINESS EXPEDIENCY IN VIEW OF THE UNDERTAKING GIVEN TO THE FINANCIAL INSTITUTIONS BY THE ASSESSEE TO THE EFFECT THAT IT WOULD PRO VIDE ADDITIONAL MARGIN TO M/S HERO FIBRES LIMITED TO MEET THE WORKING CAPITAL FOR MEETING ANY CASH LOSES. 15. IT WOULD ALSO BE SIGNIFICANT TO MENTION AT THIS STAGE THAT, SUBSEQUENTLY, THE ASSESSEE COMPANY HAD OFF - LOADED ITS SHARE HOLDING IN THE SAID M/S HERO FIBRES LIMITED TO VARIOUS COMPANIES OF OSWAL GROUP AND AT THAT TIME, THE ASSESSEE COMPANY NOT ONLY 9 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 REFUNDED BACK THE ENTIRE LOAN GIVEN TO M/S HERO FIBRES LIMITED BY THE ASSESSEE BUT THIS WAS REFUNDED WITH INTEREST. IN THE YEAR IN WHICH TH E AFORESAID INTEREST WAS RECEIVED, SAME WAS SHOWN AS INCOME AND OFFERED FOR TAX. 13. IN THE CASE OF INDUSTRIAL FEEDERS VS. ACIT (SUPRA) THE ASSESSEE HAD ADVANCED A SUM OF RS. 16,07,809 TO ONE OF ITS SISTER CONCERN M/S KRISCAST . SINCE THE NET CREDIT BALAN CE IN THE PARTNERS CAPITAL ACCOUNTS AND CURRENT ACCOUNTS WAS ONLY RS. 2,95,644, THE AO TREATED THE BALANCE OF RS. 13,12,164 AS OUT OF INTEREST BEARING LOANS AND DISALLOWED INTEREST ON THE SAID AMOUNT. IN THE FIRST APPEAL THE CIT(A) PARTLY ALLOWED THE APPE AL AND REMITTED THE MATTER BACK TO AO FOR RE - COMPUTATION OF QUANTUM DISALLOWANCE. THE REVENUE APPEALED TO THE ITAT. THE TRIBUNAL ALLOWED THE APPEAL AND RESTORED THE ORDER OF THE AO. ON APPEAL THE HONBLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE HOLDING AS UNDER: 9.KEEPING THE ABOVE ADMITTED FACTS IN MIND, IF WE HAVE A LOOK AT THE ORDERS OF THE THREE AUTHORITIES, IT COULD BE FOUND THAT THE ONLY REASON AS TO WHY THE AUTHORITIES DISALLOWED INTEREST ON LOAN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS, IS THE FACT THAT THE LENDING WAS FOR NON BUSINESS PURPOSES. 10. BUT, A LOOK AT THE ORDERS OF THE THREE AUTHORITIES WOULD SHOW THAT THERE WAS NO BASIS FOR THE AUTHORITIES TO COME TO THE CONCLUSION THAT THE AMOUNTS WERE LENT FOR NON BUSINESS PURPOS ES. M/S KRISCAST IS OBVIOUSLY A CASTING COMPANY. THE APPLICANT IS A MANUFACTURER OF G.I. CASTINGS. THERE WAS NO INDICATION ABOUT THE NATURE OF BUSINESS THAT THE APPLICANT AS WELL AS THE BORROWERS WERE ENGAGED IN. A FINDING MADE ON THIN AIR THAT THE AMOUNTS WERE LENT FOR NON BUSINESS PURPOSES CANNOT BE SUSTAINED. THE ASSESSMENT YEARS ARE 1991 - 92 AND 1993 - 94. THEREFORE, WE HAVE VENTURED TO GO INTO THE MERITS OF THE CASE RATHER THAN SANDING THE MATTER BACK TO THE TRIBUNAL ON THE GROUND OF FAILURE TO AFFORD A R EASONABLE OPPORTUNITY. 11. IN THE RESULT, THE APPEALS ARE ALLOWED AND THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE.NO COSTS. 10 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 14. IN THE PRESENT CASE THE CONTENTION OF THE ASSESSEE IS THE ADVANCE IN QUESTION WAS MADE IN THE NORMAL COURSE OF BUSINESS AS BOTH ASSESSEE AND ITS SISTER CONCERN ARE ENGAGED IN THE SAME BUSINESS IN THE SAME LOCALITY UNDER THE SAME BRAND AND TRADEMARK. WE NOTICE THAT THE AUTHORITIES BELOW HAHE NOT POINTED OUT ANY EVIDENCE TO REBUT THE CONTENTION OF THE ASSESSEE. HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES CASE IS COVERED BY THE CASES DISCUSSED AFORESAID.. WE THEREFORE, APPLYING THE RATIO OF LAW LAID DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE MADRAS HIGH COURT DISCUSSED ABOVE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) ALLOW GROUND NO. 2 TO 2.5 OF APPEAL OF THE ASSESSEE . 15. VIDE GROUND NO 3 TO 3.2 THE ASSESSEE HAS CHALLENGED ACTION OF THE LD. CIT(A) IN TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. THE LD. COUNSEL SUBMITTED BEFORE US THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT RENDERED IN SISTER CONCERN OF THE ASSESSEE FOR THE SAME ASSESSMENT YEAR. 16. THE LD. DR DID NOT CONTROVERT THE FACT THAT THE TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF T HE ASSESSEE IN THE CASE OF SUN ENTERPRISES, A SISTER CONCERN OF THE ASSESSEE, HOWEVER, SUPPORTED THE FINDINGS OF THE LD. CIT(A) IN THE PRESENT CASE. 17. WE NOTICE THAT THIS BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF SUN ENTERPRISES, A SISTER CONCERN OF THE ASSESSEE , ITA 4987/MUM/2014. THE OPERATIVE PORTION OF THE ORDER READS AS UNDER: 6. UPON CAREFUL CONSIDERATION, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. THE ASSESSEE WAS IN THE P OSSESSION OF DATAR BLOCK PROPERTY WHICH IT WAS IN THE PROCESS OF DEVELOPING. THE SAID PROPERTY HAD SOME TENANTS . THE ASSESSEE HAD TO PAY LARGE AMOUNTS OF MONEY IN ORDER TO GET THE PROPERTY VACATED. THESE SUMS PAID HAVE BEEN CAPITALIZED IN WORK - IN - PROGRESS WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. HOWEVER, FOR THE SAME PROPERTY, THE TENANTS HAD PAID RENT ALSO 11 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 WHICH WERE TREATED BY THE ASSESSEE BY CREDITING TO THE WORK - IN - PROGRESS. HOWEVER, THE ASSESSING OFFICER HOLDS THE SAME TO BE INCOME FROM HOUSE PROPERTY. IN THIS REGARD, WE NOTE THAT THE ASSESSEES BUSINESS IS DEVELOPMENT OF PROPERTY. FOR THE SAME PROPERTY, FOR GETTING VACATION, THE SUMS PAID ARE BEING DEBITED TO THE WORK - IN - PROGRESS WHICH IS BEING ACCEPTED BY THE ASSESSING OFFICER. HOWEVER, PENDI NG VACATION, THE RENT RECEIPT FROM THE TENANTS OF THE SAID PROPERTY IS NOT BEING GIVEN THE SAME TREATMENT BY THE ASSESSING OFFICER. HE IS TREATING THE SAME AS INCOME FROM HOUSE PROPERTY. IN OUR CONSIDERED OPINION, THE RENT RECEIVED IS INEXTRICABLY LINKED W ITH THE BUSINESS OF THE ASSESSEE, I.E., DEVELOPMENT OF THE PROPERTY. HENCE, IN OUR CONSIDERED OPINION, THE RENT RECEIVED CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY AND THE ASSESSEES TREATMENT OF CREDITING THE SAME TOWARDS WORK - IN - PROGRESS IS JUSTIFIE D. FOR THIS PROPOSITION, THE CASE LAWS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE REFERRED IN THE SUBMISSIONS HEREINABOVE ARE GERMANE AND SUPPORT THE CASE OF THE ASSESSEE, PARTICULAR THE CASE LAW FROM THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKHOL DINGS (SUPRA) IS OF PARTICULAR EMPHASIS. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 17. SINCE, THIS BENCH HAS DECIDED THE IDENT ICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF SUN ENTERPRISES (SUPRA) IN THE SIMILAR SET OF FACTS, CONSISTENT WITH OUR FINDINGS, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW ISSUE NO 3 OF APPEAL OF THE ASSESSEE. IN THE RESULT, APPEAL FI LED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010 - 2011 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL , 2019 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 22 / 0 4 / 201 9 12 ITA NO. 4988 / MUM/2014 ASSESSMENT YEAR: 2010 - 11 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE C IT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI