PAWANSUT DWELLERS PRIVATE LIMITED, MUMBAI v. INCOME TAX OFFICER 10(3)(3), MUMBAI

ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH M UMBAI BEFORE SHRI RAVISH SOOD JM AND SHRI N.K PRADHAN AM ITA NO (S) . 317 TO 320 /MUM/201 9 ( / ASSESSMENT YEAR (S) : 20 1 2 - 1 3 TO 2015 - 16 ) M/S PAWANSUT DWELLERS PRIVATE LIMITED PLOT NO. 54 - B 402 SAGAR AVENUE JUNCTION OF S.V.ROAD & LALLU BHAI PARK ANDHERI(WEST) MUMBAI - 400058 . / VS. INCOME TAX OFFICE - 10(3)(3) MUMBAI . ./ ./ PAN NO. AAFCP3422R ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : S /S HRI. UTTAM CHAND BOTHRA & AMIT BOTHRA A.R S . / RESPONDENT BY : SH RI . AWUNGSHI GIMSON C.I.T D.R. / DATE OF HEARING : 20.09 .2019 / DATE OF PRONOUNCEMENT : 08 . 11 .201 9 / O R D E R PER RAVISH SOOD JUDICIAL MEMBER: THE PRESENT APPEALS FILED BY THE ASSESSE E ARE DIRECTED AGAINST THE CONSOLIDATED ORDER PASSED BY THE CIT(APPEALS) - 17 MUMBAI DATED 26.12.2018 WHICH IN TURN ARISES FROM THE RESPECTIVE ASSESSMENT ORDERS PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT 1961 (FOR SHORT I.T. ACT) FOR A.Y. 2012 - 13 TO A . Y. 2015 - 16 . AS COMMON ISSUES ARE INVOLVED IN THE AFOREMENTIONED APPE ALS THEREFORE THE SAME ARE BEING TAKEN UP AND DISPOSED OFF BY WAY OF A CONSOLIDATED ORDER. WE SHALL FIRST ADVERT TO THE APPEAL FILED BY ASSESSEE FOR A.Y. 2012 - 1 3 . THE ASSESSEE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS OF APPEAL BEFORE US : - ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 2 1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE VERSION OF THE ASSESSING OFFICER THAT YOUR APPELLANT IS HAVING PROJECT IN HAND . 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR TREATING THE WHOLE INTEREST INCOME OF RS. 26 37 87 842/ - AS INCOME OF YOUR APPELLANT AND WITHOUT GIVING ANY DEDUCTION OF THE EXPE NSES INCURRED BY YOUR APPELLANT FOR EARNING SAID INTEREST . 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN CAPITALIZING THE WHOLE EXPENDIT URE AS PART OF WORK - IN - PROGRESS IN SPITE OF THE FACT THAT YOUR APPELLANT HAS NO PROJECT IN ITS HAND AND NO EXPENDITURE WHICH IS REQUIRED TO BE INCURRED FOR CARRYING OUT CONSTRUCTION ACTIVITIES HAVE BEEN INCURRED TILL THE DATE OF FILING OF THIS APPEAL . 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE ENTIRE INTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINE SS . 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING ANY EXPENDITURE AS BUSINESS EXPENDITURE INCLUDING CLAIM OF PAYMENT OF INT EREST U/S. 36(1)(III) OR U/S. 37(1) OF THE INCOME TAX ACT. 6. WITHOUT PREJUDICE OF ABOVE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLO WING DEDUCTION U/S. 57(III) OF THE INCOME TAX ACT 1961 IN RESPECT OF EXPENDITURE INCURRED IN EARNING THE INTEREST INCOME. 7. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE EVIDENCES FILED BY WAY OF AFFIDAVIT ALONG WITH NECESSARY DOCUMENTARY PROOFS WHILE DECIDING THE ABOVE MATTER. 8 . THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. 60 ITR 52 (SC) REFERRED TO BY YOUR APPELLANT WHICH HELD THAT INTEREST ON BORROWED MONEY BE ALLOWED ON THE BASIS OF ITS USAGES AND NOT ON THE BASIS OF OBJECT FOR WHICH THE MONEY IS BORROWED . 2 . BRIEFLY STATED THE ASSESSEE COMPANY HAD E - FILED ITS RETURN OF INCOME FOR A.Y. 2012 - 13 ON 30.09.2012 DECLARING ITS TOTAL INCOME AT RS. 23 68 010/ - . THE RETURN OF INCOME FILED BY THE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 3 ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE I.T. ACT. SUBSEQUENTLY THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(2). B RIEF BACKGROUND : 3 (I). THE ASSESSEE COMPANY WAS INCORPORATED ON 11.01.2010 WITH THE MAIN OBJECT TO CARRY ON THE BUSINESS OF A BUILDER AND A DEVELOPER . APART THERE FROM THE ASSESSEE AMONGST OTHERS INTER ALIA HAD AS ITS INCIDENTAL OBJECTS VIZ. (I) TO ENTER INTO JOINT VENTURE S OR RECIPROCAL CONCESSION S WITH ANY PERSON FIRM OR COMPANY CARRYING ON OR ENGAGED IN ANY BUSINESS OR TRANSACTION WHICH THE ASSESS EE WAS AUTHORIZED TO CARRY ON; AND (II) TO L E ND AND ADVANCE MONEY O R GIVE CREDIT TO SUCH PERSONS FIRMS COMPANIES AND OTHER ENTITIES AND ON SUCH TERMS AND WITH OR WITHOUT SECURITY AND/OR INTEREST AS MAY BE THOUGHT FIT AND PARTICULARLY TO CUSTOMERS OR OTHE R PERSONS OR CORPORATION S HAVING DEALING WITH THE COMPANY . (II) T HE ASSESSEE COMPANY HAD IN THE MONTH OF FEBRUARY 2011 RAISED A PROJECT/MORTGAGE LOAN OF RS. 184 CRORE S (SPREAD OVER THE PERIOD 07.02.2011 TO 11.02.2011) FROM M/S DEWAN HOUSING FINANCE LIMITED (FOR SHORT DHFL). AS IS PRIMA FACIE DISCERNIBLE FROM THE RECORDS T HE AFORE SAID LOAN WAS RAISED BY THE ASSESSEE FOR A REDEVELOPMENT PROJECT VIZ. PROJECT AT VILE PARLE PREMNAGAR CHS (PROP) LOCATED AT IRLA T ANK PLOT S.V. ROAD VILE PARLE (WEST) MUMBAI 400 058 . THE LOAN WAS RAISED FROM DHFL AGAINST HYPOTHECATION OF THE AFORE SAID PROJECT PROPERTY WHICH AS STATED BY THE ASSESSEE IS OWNED BY M/S SIGTIA CONSTRUCTION PVT. LTD. OUT OF THE LOAN OF RS. 184 CRORES RAISED BY THE ASSESSEE FROM DHFL AN AMOUNT AGGREGATING TO RS. 183 81 00 000/ - WAS ADVANCED TO TWO OF ITS ASSOCIATE CONCERNS VIZ. (I) M/S SAHANA CONSTRUCTION PVT. LTD : RS. 179 81 00 000/ - ; AND (II) M/S SIGTIA CONSTRUCTION PVT. LTD. : RS. 4 00 00 000/ - . AS PER TH E BALANCE SHEET FOR THE YEAR ENDE D 31.03.2011 THE AMOUNT RECEIVABLE BY THE ASSES S EE FROM THE AFOREMENTIONED TWO ASSOCIATE CONCERNS WAS REFLECTED IN ITS BOOKS OF ACCOUNT S AS UNDER: - S.NO. LOANS AND ADVANCES TO RELATED PARTIES AMOUNT 1 . M/S SAHANA CONSTRUCTION PVT. LTD. RS. 183 64 70 757 / - (DR.) ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 4 2 . M/S SIGTIA CONSTRUCTION PVT. LTD. RS. 4 08 26 126/ - (DR.) TOTAL RS. 187 72 96 883/ - (DR.) (III) FURTHER THE ASSESSEE HAD AS ON 10.02.2011 ENTERED INTO A MEMORANDUM OF UNDERSTANDING (FOR SHORT MOU) WITH M/S SIGTIA CONSTRUC TION PVT. LTD. FOR JOINTLY COMMENCING THE CONSTRUCTION OF THE LATTERS REDEVELOPMENT PROJECT AT VILE PARLE PREMNAGAR CHS (PROP) AT IRLA T ANK PLOT S.V. ROAD VILE PARLE (WEST) MUMBAI 400 058 . AS IS DISCERNIBLE FROM THE MOU THE ASSESSEE COMPANY HA D SHOWN ITS INTEREST TO BEC O ME A JOINT VENTURE PARTNER AND THEREIN PARTICIPATE IN THE CONSTRUCTION OF THE AFORESAID PROJEC T OF ITS ASSOCIATE CONCERN. AS PER THE TERMS OF THE MOU IN CASE THE AFORESAID ASSOCIATE CONCERN FAILED TO OBTAIN THE PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE FOR THE BUILDING S TO BE CONSTRUCTED ON THE SAID LAND BEFORE 30.04.2012 THEN THE MOU COULD BE RESCINDED BY THE ASSESSEE. ALSO THE ASSOCI ATE CONCERN I.E. M/S SIGTIA CONSTRUCTION PVT. LTD. WAS TO OBTAIN THE NECESSARY PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE FROM THE APPROPRIAT E AUTHORITIES BEFORE 30.04.2012. AFTER THE AFORESAID PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE IN RESPECT OF THE BUILDINGS TO BE CONSTRUCTED IN THE SAID PROJECT WOULD BE OBTAINED BY THE AFOREMENTIONED ASSOCIATE CONCERN THAT A FORMAL JOINT VENTURE AGREEMENT WAS TO BE ENTERED INTO BY THE ASSESSEE WITH IT. AS CAN BE GATHERED FROM THE MO U IT WAS ONLY AFTER THE FORMAL JOINT VENTURE AGREEMENT WOULD BE ENTERED INTO BETWEEN THE ASSESSEE AND ITS AFOREMENTIONED ASSOCIATE CONCERN THAT THE TERMS AND CONDITIONS AS PER WHICH THE BUSINESS OF DEVELOPMENT CONSTRUCTION AND MARKETING OF THE BUILDIN GS IN THE SAID PROJECT WAS TO BE UNDERTAKEN WERE TO BE DECIDED. ALSO THE ASSESSEE PRIOR TO THE EXECUTION OF THE FORMAL MOU WAS TO PAY TO ITS ASSOCIATE CONCERN I.E. M/S SIGTIA CONSTRUCTION PVT. LTD. AN AMOUNT UPTO RS.50 CRORES OVER A PERIOD OF TIME AS AN D WHEN THE SAME WAS REQUIRED BY THE LATTER . IN CASE OF CANCELLATION OF MOU BECAUSE OF FAILURE ON THE PART OF M/S SIGTIA CONSTRUCTION PVT. LTD. TO OBTAIN THE REQUISITE APPROVALS WITHIN THE AGREED TIME FRAME THE ASSESSEE AS PER THE TERMS OF THE MOU WAS ENTITLED TO CHARGE INTEREST @16.25% FROM THE DATE THE MONEY WAS ADVANCED TO M/S SIGTIA CONSTRUCTION PVT. LTD. ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 5 (IV) DURING THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2011 - 12 THE ASSESSEE HAD EARNED INTEREST AGGREGATING TO RS. 4 35 52 093/ - ON THE MONEY ADVANCED T O THE AFORESAID TWO CONCERNS VIZ. (I). M/S SAHANA CONSTRUCTION PVT. LTD. : RS. 4 26 34 175/ - ; AND (II). M/S SIGTIA CONSTRUCTION PVT. LTD. : RS. 9 17 918/ - THE ASSESSEE AFTER SETTING OFF THE INTEREST OF RS. 4 14 20 434/ - THAT WAS PAID TO DHFL AGAINST THE INTEREST INCOME OF RS. 4 35 52 093/ - HAD FILED ITS RETURN OF INCOME FOR A.Y. 2011 - 12 DECLARING ITS TOTAL INCOME AT RS. 64 355/ - UNDER THE HEAD INCOME FROM BUSINESS . RETURN OF INCOME FILED BY THE ASSESSEE WAS SUMMARILY ACCEPTED VIDE INTIMATION UNDER SEC. 143(1) DATED 07.01.2012. 4 (I) FURTHER T HE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION I.E A.Y. 2012 - 13 HAD ON 13.10.2011 ALSO ENTERED INTO A MOU WITH ITS ANOTHER ASSOCIATE CONCERN I.E. M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. FOR JOINTLY COMMENC ING CONSTRUCTION OF THE LATTERS SRA PROJECT AT SEWREE MUMBAI . AS PER THE TERMS OF THE MOU THE ASSOCIATE CONCERN I.E. M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. WAS TO OBTAIN ALL PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE FROM THE APPROPRIATE AUTHORITIES BEFORE 30.06.2012 . AS IS DISCERNIBLE FROM THE MOU A FTER THE AFORESAID ASSOCIATE CONCERN WOULD OBTAIN ALL PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE IN RESPECT OF THE BUILDINGS TO BE CONSTRUCTED IN THE SAID PROJECT THAT A FORMAL JOINT VENTURE AGREEMENT WAS TO BE ENTERED INTO BY THE ASSESSEE WITH IT AS PER WHICH THE TERMS AND CONDITIONS OF DEVELOPMENT CONSTRUCTION AND MARKETING OF THE BUILDINGS IN THE SAID PROJECT WERE TO BE DECIDED AMONGST THEM. ALSO AN AMOUNT OF RS.60 C RORES WAS TO BE PAID BY THE ASSESSEE TO ITS AFORESAID ASSOCIATE CONCERN PRIOR TO EXECUTION OF A FORMAL MOU. FURTHER IN CASE THE ASSOCIATE CONCERN I.E M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. FAILED TO OBTAIN THE PERMISSIONS INCLUDING THE COMMENCEMENT CERTIFICATE FOR THE BUILDING S TO BE CONSTRUCTED IN THE SAID PROJECT BEFORE 30.06.2012 THEN THE ASSESSEE COULD CANCEL THE MOU AND WOULD BE ENTITLED TO SEEK REFUND OF THE AMOUNT ADVANCED ALONG WITH INTEREST FROM THE DATE THE MONEY WAS GIVEN BY IT TO THE SAI D ASSOCIATE CONCERN . (II) AS OBSERVED BY US HEREINABOVE THE ASSESSEE IN F.Y 2011 - 12 HAD PROVIDED EARNEST MONEY DEPOSIT S AGAINST ITS CAPITAL ASSETS COMMITMENT FOR ENTERING INTO JOINT VENTURE AGREEMENT S FOR DEVELOPMENT OF THE RESPECTIVE PROJECTS OF ITS ASSOCIATE CONCERNS VIZ. (I) ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 6 M/S SIGTIA CONSTRUCTION PVT. LTD. : RS. 40 17 97 248/ - ; AND (II) M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. : RS. 53 94 65 000/ - . FURTHER THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION ALSO ADVANCED INTEREST BEARI NG LOANS AGGREGATING TO RS. 85 35 75 400/ - TO ITS ASSOCIATE CONCERNS AS UNDER: - SR. NO. PARTICULARS AMOUNT 1. M/S DARSHAN DEVELOPERS PVT. LTD. RS. 3 30 00 000/ - 2. M/S ONE UP DEVELOPERS PVT. LTD. RS. 5 75 000/ - 3. M/S SAHANA DWELLERS PVT. LTD. RS. 75 00 00 000/ - 4. M/S SHREE VRUNDA ENTERPRISE RS. 7 00 00 000/ - 5. M/S PAWANSUT REALTORS PVT. LTD. RS. 400/ - TOTAL RS 85 35 75 400/ - (III) THE ASSESSEE HAD DURING THE YEAR I.E. F.Y. 2011 - 12 ALSO RAISED AN INTEREST BEARING LOAN OF RS. 1 7 2 9 2 6 728/ - FROM ITS ASSOCIATE CONCERN I.E. M/S SKYLARK BUILDCON PVT. LTD. (IV) THAT DURING THE YEAR UNDER CONSIDERATION I.E. F.Y. 2011 - 12 THE ASSESSEE HAD PAID INTEREST AGGREGATING TO RS. 30 47 50 567/ - ON THE INTEREST BEARING LOANS RAISED BY IT FROM VIZ. (I). DHF L :RS. 29 90 00 000/ - ; AND (II). M/S SKYLARK BUILDC ON PVT. LTD. : RS. 57 50 567/ - . OUT OF THE AFORE SAID AMOUNT OF INTEREST EXPENDITURE A SUM OF RS. 4 34 10 584/ - WHICH WAS ATTRIBUTABLE TO THE AMOUNT GIVEN BY THE ASSESSEE BY WAY OF EARNEST MONEY DEPOSITS TOWARDS ITS CAPITAL ASSET COMMITMENT TO M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. AND M/S SIGTIA CONSTRUCTION PVT. LTD. WAS CAPITALIZED. INSOFAR THE BALANCE INTEREST OF RS. 26 13 39 983/ - WAS CONCERNED THE SAME WAS CLAIMED BY THE ASSESSEE AS A N EXPENDI TURE AGAINST THE INTEREST INCOME OF RS. 26 37 87 842/ - THAT WAS RECEIVED ON THE AFORESAID INTEREST BEARING LOANS WHICH WERE ADVANCED TO ITS VARIOUS ASSOCIATE CONCERNS. ACCORDINGLY THE ASSESSEE AFTER CLAIMING SET OFF OF THE INTEREST EXPENDITURE OF RS. 26 13 39 383/ - AND CERTAIN O THER EXPENSES OF RS. 17 2 3 648 / - AND AMORTIZATION EXPENSE OF RS. 1 640/ - AS AGAINST THE INTEREST INCOME OF RS. 26 37 87 842/ - HAD FILED ITS RETURN OF INCOME FOR A.Y. 2012 - 13 ON 30.09.2012 DECLARING AN INCOME OF RS. 23 68 010/ - UNDER THE HEAD INCOME FROM BUSINESS . ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 7 5 . DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD CREDITED THE INTEREST INCOME OF RS. 26 37 87 842/ - IN ITS PROFIT AND LOSS ACCOUNT F OR THE YEAR UNDER CONSIDERATION. IT WAS OBSERVED BY THE A.O THAT OUT OF THE LOAN OF RS. 184 CRORES THAT WAS RAISED BY THE ASSESSEE FROM DHFL AN AMOUNT OF RS. 94 12 62 248/ - WAS ADVANCED AGAINST CAPITAL ASSET COMMITMENT TO TWO ASSOCIATE CONCERNS VIZ. (I) M/ S SIGTIA CONSTRUCTION PVT. LTD. : RS. 40 17 97 248/ - ; AND (II) M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD.: RS. 53 94 65 000/ - WHILE FOR OUT OF THE BALANCE AN AMOUNT OF RS. 85 35 75 400/ - WAS GIVEN DURING THE YEAR AS INTEREST BEARING LOANS AND ADVANCES T O ITS VARIOUS ASSOCIATE CONCERNS. FURTHER IT WAS NOTICED BY THE A.O THAT THE BORROWING COST OF RS. 4 34 10 584/ - I.E. INTEREST EXPENDITURE ATTRIBUTABLE TO THE SUM OF RS. 94 12 62 248/ - THAT WAS GIVEN BY THE ASSESSEE TO ITS ASSOCIATE CONCERNS VIZ. (I). M/S SAHANA BUILDERS & DEVELOPERS PVT. LTD. ; AND (II). M/S SIGTIA CONSTRUCTION PVT. LTD. TOWARDS ITS CAPITAL ASSET COMMITMENT WAS CAPITALIZED . ON A PERUSAL OF THE DOCUMENTS AND THE COPY OF THE APPLICATION FILED BY THE ASSESSEE WITH DHFL FOR SANCTIONING OF THE LOAN IT WAS OBSERVED BY T H E A.O THAT THE ASSESSEE HAD APPLIED FOR A LOAN OF RS. 184 CRORES AT AN INTEREST R ATE OF 16.25% PER ANNUM FOR THE RESIDENTIAL CUM COMMERCIAL PR OJECT AT VILE PARLE PREMNAGAR CHS LTD. (PROPOSED) AT IRLA TANK PLOT S.V. ROAD VILE PARLE (WEST) MUMBAI 400 058. A LSO AS OBSERVED BY THE A.O THE PROJECT PROPERTY SITUATED AT S.V ROAD VILE PARLE (WEST) MUMBAI - 400 058 WAS FURNISHED AS THE PRIMARY SE CURITY FOR AVAILING OF THE AFORESAID LOAN BY THE ASSESSEE FROM DHFL. ON BEING CONFRONTED WITH THE AFORESAID FACTS AS WERE DISCERNIBLE FROM A PERUSAL OF THE LOAN APPLICATION FORM IT WAS SUBMITTED BY THE ASSESSEE THAT THE INTEREST EXPEN DITURE PERTAINING TO THE AMOUNTS WHICH WERE UTILIZED FOR THE RESPECTIVE PROJECTS WAS CAPITALIZED AND NOT CLAIMED AS AN EXPENSE IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION . APART THERE FROM IT WAS BROUGHT TO THE NOTICE OF THE A.O THAT THE LOAN WAS RAISED FOR THE P ROJECT OF M/S SIGTIA CONSTRUCTION PVT. LTD. AND THE SAID PROJECT PROPERTY I.E LAND WAS GIVEN A S A SECURITY FOR FACILITATING AVAILING OF THE SAID LOAN . IT WAS FURTHER CLARIFIED BY THE ASSESSEE THAT THERE WERE NO PROJECTS IN ITS HANDS TILL DATE. 6 . THE A.O AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE ASSESSEE IN THE BACKDROP OF T HE MATERIAL AVAILABLE ON RECORD WAS OF THE VIEW THAT AS THE LOAN WAS SANCTIONED BY DHFL FOR ITS BUSINESS PURPOSES I.E. FOR THE PURPOSE OF PROJECT CONSTRUCTION THEREFORE THE DEDUCTION FOR THE INTEREST PAID ON SUCH LOAN WOULD BE ALLOWABLE UNDER THE HEAD PROFIT AND ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 8 GAINS OF BUSINESS IN ACCORDANCE WITH SEC. 36(1)(III) OF THE ACT ONLY UPON STARTING OF THE BUSINESS AND TILL SUCH DATE IT WAS TO BE CAPITALIZED AS A PRE - OPERAT IVE EXPENSE . ACCORDINGLY THE A.O CALLED UPON THE ASSESSEE TO EXPL AIN AS TO WHY THE INTEREST INCOME OF RS. 26 37 87 842/ - MAY NOT BE TREATED AS ITS I NCOME FROM OTHER SOURCES AND THE EXPENSES INCLUDING INTEREST EXPENDITURE AGGREGATING TO AN AMOUNT OF RS. 30 64 74 215/ - BE NOT TREATED AS PRE - OPERATIVE EXPENSES AND THE SET OFF OF THE SAME BE DENIED IN ACCORDANCE WITH THE SCHEME OF TAXATION PROVIDED BY THE ACT. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE THAT IT DID NOT HAVE ANY PROJECTS IN HAND TIL L DATE AND HAD ONLY ENTERED INTO AGREEMENTS WITH TWO PARTIES VIZ. (I) M/S SIGTIA CONSTRUCTION PVT. LTD.; AND (II) M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. FOR FUTURE PROJECTS WHICH WERE ALSO SUBSEQUENTLY CANCELLED. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE A.O THAT THE INTEREST PAID ON THE AMOUNT WHICH WAS ADVANCED TO THE AFOREMENTIONED TWO PARTIES WAS ALREADY CAPITALIZED. IT WAS THE CLAIM OF THE ASSESSEE THAT AS THE INTEREST RECEIVED WAS A PART OF ITS BUSINESS HENCE THE SAME WAS TO BE TREATED AS ITS BUSINESS INCOME AND THE CORRESPONDING INTEREST PAID WAS TO BE ALLOWED AS A BUSINESS EXPENSE UNDER SEC. 36(1)(III) OF THE ACT. IN SUPPORT OF ITS AFORESAID CONTENTION IT WAS SUBMITTED BY THE ASSESSEE THAT A SIMILAR CLAIM OF SET OFF OF THE INTEREST EXPENSES AS AGAINST THE INTEREST RECEIVED THAT WAS SHOWN AS ITS BUSINESS INCOME WAS ACCEPTED BY THE REVENUE IN ITS CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2011 - 12. ALTERNATIVELY IT WAS SUBMITTED BY THE ASSESSEE THAT IF TH E INTEREST INCOME WAS TO BE CONSIDERED AS ITS INCOME FROM OTHER SOURCES THEN THE INTERES T PAID ON THE BORROWED FUNDS WAS TO BE ALLOWED UNDER SEC. 57(III) AS AN EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING OF SUCH INTEREST INCOME . 7. THE A.O AFTER PERUSING THE REPLY OF THE ASSESSEE WAS HOWEVER NOT PERSUADED TO ACCEPT THE CLAIM OF THE ASSESSEE FOR MULTIPLE REASONS VIZ. (I) THAT AS WAS DISCERNIBLE FROM T HE MATERIAL AVAILABLE ON RECORD THE ASSESSEE WHICH WAS ENGAGED IN THE BUSINESS OF CO NSTRUCTION WAS SANCTIONED A LOAN OF RS 184 01 00 000/ - FOR THE BUSINESS PURPOSE O F REDEVELOPMENT OF ITS COMMERCIAL - CUM - RESIDENTIAL PROJECT AT VILE PARLE MUMBAI; (II) THAT THE INTEREST ON THE AFORESAID BUSINESS LOAN ADVANCED TO THE ASSESSEE BY DHFL COULD ONLY HAVE BEEN ALLOWED AS A DEDUCTION UNDER SEC. 36(1)(III) WHILE COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS/PROFESSION ;(III) THAT AS THE REVENUE EARNING FROM THE PROJECT HAD YET NOT COMMENCED THEREFORE THE EXPENSES INCURRED B Y THE ASSESSEE ON THE PROJECT WERE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 9 TO BE CAPITALIZED AS PRE - OPERATIVE EXPENSES FOR WHICH DEDUCTION WOULD BE ALLOWED AS PER THE I.T. ACT AS AND WHEN INCOME REFERRED TO IN SEC. 28 WAS AVAILABLE FOR COMPUTATION UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS/PROFESSION AND TILL SUCH TIME THE BALANCE INTEREST EXPENSES OF RS. 26 13 39 983/ - AND OTHER EXPENSES WERE TO BE CAPITALIZED; (IV) THAT AS THE ASSESSEE WHICH WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION WAS NOT INTO THE BUSINESS OF MONEY LENDING OR FINANCING BUSINESS THEREFORE THE INTEREST INCOME OF RS. 26 37 87 842/ - EARNED ON THE AMOUNT GIVEN AS LOAN AND ADVANCE BY THE ASSESSEE TO ITS ASSOCIATE CONCERNS WAS TAXABLE UNDER THE RESIDUARY HEAD I.E. I NCOME FROM OTHER SOURCES ; (V) THAT THE ADVANCING OF THE BUSINESS LOAN RAISED BY THE ASSESSEE TO ITS ASSOCIATE CONCERNS WAS AKIN TO PARKING THE SURP LUS FUNDS TEMPORA RI LY IN SHORT TERM DEPOSITS FOR EARNING INTEREST INCOME WHICH WAS THUS TAXABLE UNDER THE RESIDUARY HEAD I.E. I NCOME FROM OTHER SOURCES; (VI) THAT THE INTEREST EXPENDITURE AND OTHER EXPENSES AGGREGATING TO RS. 26 30 65 271/ - WERE BUSINE SS EXPENSES WHICH WERE REQUIRED TO BE CAPITALIZED AS PRE - OPERATIVE EXPENSES TILL THE INCOME STARTS COMING FROM THE PROJECT ; (VII) THAT AS THE BUSINESS OF THE ASSESSEE HAD YET NOT STARTED THEREFORE THERE COULD BE NO COMPUTATION OF BUSINESS INCOME OR LOSS IN THE HANDS OF THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION; (VIII) THAT INTEREST EARNED BY AN ASSESSEE BEFORE PRODUCTION OR COMMENCEMENT WOULD BE ASSESS ED SEP ARATELY UNDER THE HEAD I NCOME FROM OTHER SOURCES ; (IX) THAT AS THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2011 - 12 WAS NOT SUBJECTED TO SCRUTINY ASSESSMENT HENCE ITS CLAIM THAT IN THE SAID YEAR THE SET OFF OF INTEREST EXPENDITURE AGAINST THE INTEREST INCOME WAS A LLOWED HAD NO WEIGHTAGE AND DID NOT MERIT ACCEPTANCE; AND (X) THAT THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE INTEREST EXPENDITURE UNDER SEC. 57(III) COULD NOT BE ACCEPTED AS THE SAME PERTAINED TO A LOAN WHICH HAVING BEEN RAISED FOR A BUSINESS PURPOSE COULD ONLY BE ALLOWED AS A D EDUCTION UNDER SEC. 36(1)(III) WHICH HOWEVER WOULD BE AVAILABLE ONLY AFTER THE BUSINESS HAS COMMENCED AND SOME INCOME AS REFERRED TO IN SEC. 28 WAS AVAILABLE . ACCORDINGLY THE A.O ON THE BASIS OF HIS AFORESAID DELIBERATIONS OBSERVED THAT THE INTEREST IN COME OF RS. 26 37 87 842/ - EARNED BY THE ASSESSEE FROM ITS NON - BUSINESS ADVANCES WAS TAXABLE UNDER THE HEAD I NCOME FROM OTHER SOURCES. INSOFAR THE INTEREST EXPENSES AND OTHER EXPENSE/AMORTISATION EXPENSES THAT WERE CHARGED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION WERE CONCERNED IT WAS OBSERVED BY THE A.O THAT THE SAME AS PER THE SCHEME OF TAXATION WOULD BE ALLOWABLE AS A DEDUCTION AS AND WHEN THE INCOME FROM THE PROJECT WOULD BE AVAILABLE FOR ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 10 COMPUTATION UNDER TH E HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION. ON THE BASIS OF HIS AFORESAID OBSERVATIONS THE A.O ASSESSED THE ENTIRE INTEREST INCOME OF RS. 26 37 87 842/ - AS THE INCOME OF THE ASSESSEE FROM OTHER SOURCES. 8 . AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE SAME . IT WAS OBSERVED BY THE CIT(A) THAT THE LOAN OF RS. 184 CRORES RAISED BY THE ASSESSEE FROM DHFL WAS MAINLY ADVANCED BY IT TO ITS ASSOCIATE CONCER N VIZ. M/S SAHANA CONSTRUCTION PVT. LTD. IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2011 - 12 . ACCORDINGLY IT WAS OBSERVED BY THE CIT(A) THAT THE LOAN RECEIVED BY THE ASSESSEE FROM DHFL FOR UNDERTAKING THE CONSTRUCTIO N ACTIVITY OF ITS PROJECT WAS NOT UTILIZED FOR ITS BUSINESS PURPOSE AND WAS RATHER DIVERTED BY WAY OF LOANS AND ADVANCES TO ITS ASSOCIATE CONCERN VIZ. M/S SAHANA CONSTRUCTION PVT. LTD. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT AS THE ASSESSEE WAS NOT EN GAGED IN THE BUSINESS OF MONEY LENDING OR FINANCING THEREFORE ITS CLAIM THAT THE INTEREST RECEIVED ON THE LOANS/ADVANCES GIVEN TO ITS ASSOCIATE CONCERN S WAS IN THE NORMAL COURSE OF ITS BUSINESS COULD NOT BE ACCEPTED. AS SUCH THE CIT(A) CONCURRED WITH TH E VIEW TAKEN BY THE A.O THAT THE INTEREST INCOME WAS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD I NCOME FROM OTHER SOURCES . INSOFAR THE CLAIM OF THE ASSESSEE FOR ALLOW ING OF DEDUCTION OF THE INTEREST EXPENDITURE OF RS. 26 13 39 983 / - UNDER SEC. 36(1)(III) WAS CONCERNED IT WAS OBSERVED BY THE CIT(A) THAT AS THE LOAN THAT WAS RAISED BY THE ASSESSEE FROM DHFL WAS NOT UTILIZED FOR ITS BUSINESS PURPOSE HENCE THE INTEREST PAID ON SUCH LOAN WAS RIGHTLY HELD BY THE A.O AS NOT DEDUCT I BLE U NDER SEC. 36(1)(III). FURTHER IT WAS OBSERVED BY THE CIT(A) THAT AS THE ASSESSEE HAD NOT COMMENCED THE CONSTRUCTION ACTIVITY DURING THE YEAR TH EREFORE TILL THE COMPLETION OF THE PROJECT MAY BE PARTIALLY THE INTEREST P AID COULD NOT BE HELD AS DEDUCTI BLE UNDER SEC. 36(1)(III). IN FACT IT WAS OBSERVED BY HIM THAT AS THE ASSESSEE HAD NOT MADE THE INTEREST PAYMENT ON CAPITAL BORROWING FOR THE PURPOSE OF ITS BUSINESS THEREFORE THE INTEREST PAID ON THE SAME WOULD NOT BE DEDUCT I BLE UNDER SEC. 36(1)(III) . FURTHER IT WAS OBSERVED BY THE CIT(A) THAT AS PER THE PROVISO TO SEC. 36(1)(III) AS THE INTEREST PAID IN RESPECT OF CAPITAL BORROW ED FOR ACQUIRING AN ASSET WHETHER CAPITALIZED IN BOOKS OF ACCOUNT OR NOT WAS NOT TO BE ALLOWED AS A DEDUCTION FOR THE P ERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE THEREFORE THE INTEREST ON THE LOAN OF RS. 184 ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 11 CRORES BORROWED BY THE ASSESSEE FROM DHFL FOR UNDERTAKING TH E CONSTRUCTION ACTIVITIES WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SEC. 36(1)(III) TILL THE CONSTRUCTION ACTIVITY OF THE PROJECT WAS COMPLETED. IT WAS OBSERVED BY THE CIT(A) THAT AS THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING OR FINANCING THEREFORE ITS CLAIM THAT INTEREST PAID AND RECEIVED ON THE LOANS AND ADVANCES GIVEN TO THE ASSOCIATE CONCERNS W AS IN THE NORMAL COURSE OF ITS BUSINESS DID NOT MERIT ACCEP TANCE . AS SUCH IT WAS OBSERVED BY THE CIT(A) THAT THOUGH THE ASSESSEE HAD EARNED INTEREST INCOME HOWEVER AS THE RECEIPT OF THE SAME WAS NEITHER IN CONFORMITY WITH ITS NATURE OF BUSINESS NOR THE PURPOSE FOR WHICH IT HAD RAISED THE LOAN FROM DHFL THEREF ORE THE INTEREST INCOME OF RS. 26 37 87 842/ - COULD NOT BE HELD TO BE THE BUSINESS INCOME OF THE ASSESSEE . AS REGARDS THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR ALLOWABILITY OF DEDUCTION OF THE INTEREST EXPENDITURE OF RS. 26 13 39 983/ - UNDER SEC. 57(III ) AGAINST THE INTEREST INCOME OF RS. 26 37 87 842/ - ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES IT WAS OBSERVED BY THE CIT(A) THAT ONLY THOSE EXPENDITURE S WHICH WERE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME WERE TO BE ALLOWED AS A DEDUCTION. ACCORDINGLY IT WAS OBSERVED BY HIM THAT THE SCOPE FOR ALLOWABILITY OF EXPENSES AS A DEDUCTION UNDER SEC. 57(III) WAS VERY NARROW IN COMPARISON TO THE DEDUCTIONS ELIGIBLE UNDE R SEC. 37(1) . IT WAS OBSERVED BY THE CIT(A) THAT AS THE ASSESSEE AFTER RAIS ING THE LOAN OF RS. 184 CRORES FROM DHFL FOR UNDERTAKING THE CONSTRUCTION ACTIVITIES OF ITS BUSINESS AS A BUILDER AND DEVELOPER HAD HOWEVER UTILIZ ED THE SAID BORROWED FUNDS FOR PROVIDING INTEREST BEARING LOANS AND ADVANCES TO ITS ASSOCIATE CONCERNS THEREFORE THE INTEREST PAID ON THE LOAN RAISED FROM DHFL COULD NOT BE HELD TO HAVE BEEN LAID OUT OR EXPENDED FOR EARNING THE INTEREST INCOME. ACCORDINGLY IT WAS OBSERVED BY THE CIT( A) THAT AS THERE WAS NO DIRECT NEXUS BETWEEN THE AMOUNTS BORROWED BY THE ASSESSEE FROM DHFL AND THE SUM ADVANCED TO THE ASSOCIATE CONCERNS THEREFORE THE INTEREST PAID TO DHFL WAS NOT ELIGIBLE FOR DEDUCTION UNDER SEC. 57(III) FOR EARNING OF INTEREST INCOM E ON THE LOANS AND ADVANCES THAT WERE GIVEN BY THE ASSESSEE TO ITS ASSOCIATE CONCERNS. IN FACT IT WAS OBSERVED BY THE CIT(A) THAT AS A SCRUTINY OF THE MOVEMENT OF FUNDS REVEALED THAT THERE WAS ONLY A ROTATION OF THE FUNDS FROM ONE ASSOCIATE COMPANY TO ANOTHER WHICH INCLUDED THE INTEREST BEARING LOANS GIVEN AND ALSO NON - INTEREST BEARING LOANS/ADVANCES/CAPITAL ADVANCES THEREFORE THE INTEREST PAID ON THE LOAN RAISED BY THE ASSESSEE FROM DHFL COULD NOT BE HELD AS HAVING A NEXUS WITH THE LOANS/ADVANCES ON WHICH INTEREST INCOME HAD BEEN EARNED. IT WAS OBSERVED BY THE CIT(A) THAT THE INTEREST OF ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 12 RS.26 13 39 983/ - PAID BY THE ASSESSEE TO DHFL COULD NOT BE HELD AS LAID OUT OR EXPENDED FOR THE PURPOSE OF EAR NING THE INTEREST INCOME. FURTHER IT WAS OBSERVED BY THE CIT(A) THAT THOUGH THE ASSESSEE HAD CLAIMED TO HAVE CAPITALIZED INTEREST OF RS. 4.34 CRORES WHICH WAS AROUND 4.61% PER ANNUM ON THE AMOUNT OF RS. 94.12 CRORES THAT WAS GIVEN BY THE ASSESSEE TO TWO OF ITS ASSOCIATE CONCERNS TOWARDS CAPITAL COMMITMENT HOWEVER THE INTEREST THAT WAS PAID ON THE LOAN RAISED FROM DHFL WAS @ 16.25% PER ANNUM. ACCORDINGLY IT WAS OBSERVED BY THE CIT(A) THAT THE DISPARITY IN THE INTE REST THAT WAS CAPITALIZED AND THAT WHICH WAS PAID BY THE ASSESSEE TO DHFL REVEALED THAT THE ASSESSEE HAD ALSO NOT CORRECTLY CAPITALIZED THE INTEREST EXPENDITURE IN ITS BOOKS OF ACCOUNTS . IT WAS ALSO OBSERVED BY THE CIT(A) THAT AS THE ASSESSEE HAD NOT FU RNISHED THE PARTY WISE DETAILS OF THE INTEREST INCOME THEREFORE IT WAS NOT PROVED AS TO WHETHER THE INTEREST HAD BEEN RECEIVED BY THE ASSESSEE AGAINST THE ENTIRE LOAN FUND OF RS. 184 CRORES THAT WAS BORROWED FROM DHFL . ACCORDINGLY THE CIT(A) ON THE BASI S OF HIS AFORESAID OBSERVATIONS HAD CONCLUDED THAT THE INTEREST OF RS. 26 13 39 983/ - PAID BY THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SEC. 36(1)(III) AND ALSO SEC. 57(III) OF THE ACT. APART THERE FROM THE CIT( A) ALSO UPHELD THE VIEW TAKEN BY THE A.O IN TREATING THE INTEREST INCOME OF RS. 26 37 87 842/ - AS THE I NCOME OF THE ASSESSEE FROM OTHER SOURCES . RESULTANTLY THE APPEAL FILED BY THE ASSESSEE WAS DISMISSED. 9 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE (FOR SHORT A.R ) FOR THE ASSESSEE TOOK US THROUGH THE FACTS OF THE CASE . IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEE HAD ENTERED INTO A MOU DATED 10.02.2011 AND 13.10.2011 WITH M/S SIGTIA CONSTRUCTION PVT. LTD. AND M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. RESPECTIVELY WHEREIN IT HAD EXPRESSED ITS INTEREST TO BECOME A JOINT VENTURE PARTNER IN THE RESPECTIVE REDEVELOPMENT PROJECTS OF THE SAID ASSOCIATE CONCERNS. IT WAS SUBMITTED BY THE LD. A.R THAT AS THE REQUISITE APPROVAL S FROM THE APPROPRIATE AUTHORITIES COULD NOT BE OBTAINED BY THE AFOREMENTIONED ASSOCIATE CONCERNS THEREFORE THE SAID RESPECTIVE MOUS WERE THEREAFTER CANCELLED AT THE I NSTANCE OF THE ASSESSEE VIDE ITS RESPECTIVE LETTER S DATED 03.05.2012 AND 05.07.2012 AND THE REFUND OF THE AMOUNTS ADVANCED TO THE SAID RESPECTIVE CONCERNS WAS SOUGHT BY IT . THE LD. A.R TAKING US THROUGH PAGE 10 OF THE ASSESS ES PAPER BOOK (FOR SHORT APB) SUBMITTED THAT THE ASSOCIATE CONCERN OF THE ASSESSEE VIZ. M/S SIG I TIA CONSTRUCTION PVT. LTD . WAS THE DEVELOPER OF THE REDEVELOPMENT ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 13 PROJECT AT VI LE PARLE PREM NAGAR CHS (PROP). IT WAS SUBMITTED BY THE LD. A.R THAT THE A SSESSEE HAD DURING THE YEAR UNDER CONSIDERATION GIVEN AN AMOUNT AGGREGATING TO RS. 94 12 62 248/ - TOWARDS ITS CAPITAL ASSETS COMMITMENT TO THE AFOREMENTIONED PARTIES VIZ.(I) M/S SIGTIA CONSTRUCTION PVT. LTD. : RS. 40 17 97 248/ - ; AND (II) M/S SAHANA BUILDE RS AND DEVELOPERS PVT. LTD. : RS. 53 94 65 000/ - WHILE FOR THE BALANCE AMOUNT WAS GIVEN AS INTEREST BEARING LOANS AND ADVANCES TO ITS VARIOUS OTHER ASSOCIATE CONCERNS . IT WAS SUBMITTED BY THE LD. A.R THAT TOTAL INCOME OF THE ASSESSEE COMPANY WAS FROM THE INTEREST RECEIVED ON THE AMOUNT S ADVANCED TO ITS ASSOCIATE CONCERNS. APART THERE FROM IT WAS SUBMITTED BY THE LD. A.R THAT 90 PERCENT OF THE ASSETS OF THE ASSESSEE COMPANY WERE ADVANCED AS LOANS AND ADV ANCES TO THE ASSOCIATE CONCERNS. THE LD. A.R IN ORDER TO FORTIFY HIS CLAIM THAT THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS RAISED BY THE ASSESSEE FROM DHFL AGAINST THE HYPOTHECATION OF THE PROJECT PROPERTY B E LONGED TO ITS ASSOCIATE CONCERN I.E. M/S SIGTIA CONSTRUCTION P VT. LTD. HAD DRAWN OUR ATTENTION TO THE LOAN APPLICATION FORM THAT WAS FILED WITH DHFL ( PAGE 10 OF APB). FURTHER THE LD. A.R ALSO DREW OUR ATTENTION TOWARDS THE RESPECTIVE AFFIDAVITS OF SH. DINESH NAIK DIRECTOR OF THE ASSESSEE COMPANY ( PAGE 33 OF APB) AND THAT OF SH. SHIV KUMAR SINGH DIRECTOR OF M/S SIGTIA CONSTRUCTION PVT. LTD. ( PAGE 36 OF APB) WHEREIN THE SAID RESPECTIVE PERSONS HAD DULY DEPOSED THAT M/S SIGTIA CONSTRUCTION PVT. LTD. WAS THE DEVELOPER OF THE AFORESAID REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) AND THE ASSESSEE COMPANY HAD NEITHER CARRIED OUT ANY PROJECT SINCE ITS INCORPORATION NOR WAS HAVING ANY PROJECT IN HAND TILL DATE . IN THE BACKDROP OF THE AFORESAID FACTS IT WAS VEHEMENTLY SUBMITTED BY THE LD. A.R THAT NOW WH EN THE AFOREMENTIONED REDEVELOPMENT PROJECT AT VILE PARLE PREM N AGAR CHS (PROP) DID NOT BELONG TO THE ASSESSEE THUS IT WAS BEYOND COMPREHENSION AS TO HOW THE LOWER AUTHORITIES HAD OBSERVED THAT THE INTEREST EXPENDITURE INCURRED ON THE LOAN RAISED BY THE ASSESSEE FROM DHFL WAS TO BE CAPITALIZED AS A PRE - OPERATIVE EXPENSE WHICH THEREAFTER WAS TO BE ALLOWED AS A DEDUCTION UNDER SEC. 36(1)(III) AFTER THERE WAS INFLOW OF REVENUE FROM THE SAID PROJECT. THE LD. A.R IN ORDER TO IMPRESS UPON US THAT THE INTEREST INCOME WAS RIGHTLY CLAIMED BY THE ASSESSEE AS ITS BUSINESS INCOME THEREIN TOOK US THOROUGH THE MEMORANDUM OF ASSOCIATION (FOR SHORT MOA) OF THE ASSESSEE COMPANY. THE LD. A.R TAKING US THROUG H CLAUSE 11 CLAUSE 30 AND CLAUSE 31 OF THE MOA SUBMITTED THAT THE ASSESSEE AS PER ITS OBJECT S COULD ENTER INTO ANY ARRANGEMENT FOR SHARING PROFITS UNION OF INTEREST CO - OPERATION JOINT V ENTURE OR RECIPROCAL CONCESSION WITH ANY PERSON FIRM OR ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 14 COMPAN Y CARRYING ON OR ENGAGED IN ANY BUSINESS OR TRANSACTION WHICH THE COMPANY IS AUTHORIZED TO CARRY ON. FURTHER THE LD. A.R TOOK US THROUGH CLAUSE 21 AND CLAUSE 22 OF THE MOA AS PER WHICH THE ASSESSEE AS PER THE SAID OBJECT S COULD NEGOTIATE LOANS AND LEND AND ADVANCE MONEY OR GIVE CREDIT TO SUCH PERSONS FIRMS COMPANIES AND OTHER ENTITIES AND ON SUCH TERMS WITH OR WITHOUT SECURITY AND/OR INTEREST AS MAY BE THOUGHT FIT AND PARTICULARLY TO CUSTOMERS OR OTHER PERSONS OR CORPORATION HAVING DEALING WITH THE COMPANY . IN THE BACKDROP OF THE AFORESAID OBJECTS OF THE ASSESSEE COMPANY IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEE IN THE COURSE OF ITS BUSINESS WAS VESTED WITH A RIGHT TO ENTER INTO A JOINT VENTURE AND ALSO ADVANCE INTEREST BEARING FUNDS TO THI RD PARTIES. APART THERE FROM IT WAS SUBMITTED BY THE LD. A.R THAT ON THE BASIS OF THE FACT THAT MORE THAN 90 PERCENT OF THE ASSETS OF THE ASSESSEE COMPANY WERE ADVANCED AS LOANS AND ADVANCES AND 100 PERCENT OF ITS INCOME WAS FROM THE INTEREST RECEIVED ON THE AMOUNTS ADVANCED TO ITS ASSOCIATE CONCERNS THEREFORE THE SAID SYSTEMATIC AND ORGANIZED ACTIVITY CARRIED OUT BY THE ASSES SEE FOR EARNING INTEREST INCOME FROM ITS VARIOUS ASSOCIATE CONCERN S AS AUTHORISED BY ITS MOA DID CLEARLY FALL WITHIN THE REALM OF ITS BUSINESS ACTIVITIES . IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R RELIED ON THE ORDER OF THE ITAT MUMBAI C BENCH IN THE CASE PREIMUS INVESTMENTS AND FINANCE LTD. VS. DCIT - 3(2) MUMBAI (ITA NO. 4879/MUM/2012 DATED 13.05.2015). THE LD. A.R FURTHER DRAWING SUPPORT FROM THE ORDER OF THE ITAT BENGALURU B BENCH IN THE CASE OF ITO VS. BANK NOTE PAPER MILL INDIA (P) LTD. (2016) 56 ITR (TRIB) 266 (BANG) SUBMITTED THAT THE TRIBUNAL RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC) AND CIT VS. KARNAL CO - OPERATIVE SUGAR MILLS LTD. (2000) 243 ITR 2 (SC) HAD OBSERVED THAT AS THE INTEREST INCOME EARNED BY THE ASSESSEE B Y TEMPORA RI LY PARKING THE SHARE CAPITAL MEANT FOR MEETING THE CAPITAL EXPENSES IN BANK DEPOSITS WAS INEXTRICABLY LINKED TO ITS CAPITAL EXPENDITURE THEREFORE IT WAS PROPER TO REDUCE SUCH INCOME FROM THE PRE - OPERATIVE EXPENSES RATHER THAN TREATING IT AS AN ITEM OF REVENUE. THE LD. A.R DRAWING SUPPORT FROM THE AFORESAID JUDICIAL PRONOUNCEMENTS SUBMITTED THAT IN CASE THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) WAS TO BE HELD AS THE PROJECT OF THE ASSESSEE THEN THE INTEREST INCOME RECEIVED ON THE AMOUNTS ADVANCED TO THE ASSOCIATE CONCERNS BEING INEXTRICABLY LINKED TO THE CAPITAL EXPENDITURE WAS THUS LIABLE TO BE REDUCED FROM THE PRE - OPERATIVE EXPENSES RATHER THAN TREATING THE SAME AS AN ITEM OF REVENUE IN THE HANDS OF THE ASSESSEE. AT THE SAME TIME IT WAS SUBMITTED BY THE LD. A.R THAT THE FACT AS IT SO REMAIN ED WAS THAT THERE WAS NO CAPITAL ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 15 ASSET IN THE HANDS OF THE ASSESSEE COMPANY. FURTHER THE LD. A.R RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. VS. CIT (1966) 60 ITR 52 (SC). THE LD. A.R TAKING US THROUGH THE AFORESAID JUDGMENT SUBMITTED THAT THE HONBLE APEX COURT HAD OBSERVED THAT THE PURPOSE FOR WHICH THE LOAN WAS RAISED BY AN ASSESSEE WOULD BE IRRELEVANT FOR DECIDING THE ALLOWABILITY OF PAYME NT OF INTEREST ON SUCH LOAN WHICH WOULD IN FACT BE DEPENDENT ON ITS ACTUAL USAGE DURING THE YEAR. ON THE BASIS OF THE AFORESAID OBSERVATIONS OF THE HONBLE APEX COURT IT WAS SUBMITTED BY THE LD. A.R THAT THOUGH THE ASSESSEE COMPANY HAD RAISED THE LOAN OF RS. 184 CRORES FROM DHFL FOR CONSTRUCTION OF THE REDEVELOPMENT PROJECT OF M/S SIGTIA CONSTRUCTION PVT. LTD. AT VILE PARLE PREM NAGAR CHS (PROP) HOWEVER THE SAID PURPOSE OF LOAN WAS IRRELEVANT FOR DECIDING THE ALLOWABILITY OF DEDUCTION OF THE INTEREST PAID ON THE SAID LOAN WHICH WAS UTILIZED FOR ADVANCING INTEREST BEARING LOANS AND ADVANCES TO THE ASSOCIATE CONCERNS. THE LD. A.R ALSO IN SUPPORT OF HIS CONTENTION THAT THE PURPOSE FOR WHICH LOAN WAS RAISED IS IRRELEVANT AND ALL THAT THE ASSESSEE HAS TO S HOW IS THAT THE BORROWED FUNDS WERE USED FOR ITS BUSINE SS PURPOSE IN THE RELEVANT YEAR THEREIN RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. SRISHTI SECURITIES PVT. LTD. (2010) 321 ITR 498 (BOM). ALSO RELIANCE WAS PLAC ED BY THE LD. A.R ON THE ORDER OF THE ITAT MUMBAI C BENCH IN THE CASE OF CHHAGANLAL KHIMJI & CO. PVT. LTD. VS. ACIT ( ITA NO. 7629/MUM/2013 DATED 23.09.2 015). FURTHER T HE LD. A.R RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. LOK HOLDINGS (2009) 308 ITR 356 (BOM). THE LD. A.R TAKING US THROUGH THE AFORESAID JUDGMENT SUBMITTED THAT IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT WHERE THE ASSESSEE COMPANY WHICH WAS ENGAGED IN A CONSTR UCTION BUSINESS HAD DEPOSITED MONEY RECEIVED IN THE COURSE OF SUCH BUSINESS WITH THE BANK THE INTEREST INCOME EARNED ON SUCH BANK DEPOSITS OR AMOUNTS GIVEN BY WAY OF TEMPORARY LOANS FOR THE TIME BEING THE SAME WERE NOT REQUIRED FOR CONSTRUCTION PURPOSE WO ULD BE THE BUSINESS INCOME OF THE ASSESSEE AND CANNOT BE ASSESSED AS ITS INCOME FROM OTHER SOURCES. THE LD. A.R ALSO RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. PHIL CORPORATION LTD. & ANR (2011) 202 TAXMAN 368 (BOM). IT WAS SUBMITTED BY THE LD. A.R THAT IN THE AFORESAID CASE THE INTEREST PAID ON THE OVERDRAFT ACCOUNT IN RESPECT OF THE FUNDS WHICH WERE UTILIZED FOR MAKING INVESTMENT IN SHARES OF A SUBSIDIARY COMPANY TO ACQUIRE CONTROL OVER THE SAID SUBSIDIARY WAS HELD A S ALLOWABLE UNDER SEC. 36(1)(III) OF THE A CT . IT WAS SUBMITTED BY THE LD. A.R THAT NOW WHEN 100 PERCENT OF THE INCOME OF THE ASSESSEE COMPANY WAS FROM THE INTEREST RECEIVED ON THE LOANS ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 16 AND ADVANCES GIVEN TO ITS ASSOCIATE CONCERNS AND 90 PERCENT OF THE TOTAL FUNDS HAD BEEN PLOUGHED IN SUCH ADVANCING OF INTEREST BEARING LOANS THEREFORE IT COULD SAFELY BE CONCLUDED THAT THE ASSESSEE WAS INVOLVED IN MONEY LENDING BUSINESS . IN SUPPORT OF HIS AFORESAID CONTENTION TH E LD. A.R RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. JAYANT H. MODI (2015) 232 TAXMAN 337 (BOM). THE LD. A.R TAKING US THROUGH THE F ACTS OF THE AFOREMENTIONED CASE SUBMITTED THAT IN THE CASE BEFORE THE HONBLE HIGH C OURT 70 PERCENT OF THE INCOME OF THE COMPANY WAS DERIVED FROM INTEREST ON LOANS ADVANCED AND 32 PERCENT OF ITS TOTAL FUNDS WERE PLOUGHED IN THE MONEY LENDING BUSINESS . IT WAS SUBMITTED BY THE LD. A.R THAT THE HONBLE HIGH COURT IN THE BACKDROP OF THE AFORE SAID FACTS HAD OBSERVED THAT THOUGH THE MAIN OBJECT OF THE ASSESSEE BEFORE THEM WAS TO CARRY ON THE BUSINESS OF A SHARE AND STOCK BROKER BUT ITS MEMORANDUM OF ASSOCIATION ALLOWED IT TO INTER ALIA CARRY ON THE BUSINESS OF LENDING OR ADVANCING OF MONEY. ACCORDINGLY IT WAS SUBMITTED BY THE LD. A.R THAT AS SUBSTANTIAL PART OF THE COMPANIES BUSINESS CONSISTE D OF MONEY LENDING THUS DESPITE THE FACT THAT THE MAIN OBJECT OF THE ASSESSEE BEFORE THEM WAS TO CARRY ON THE BUSINESS AS THAT OF A SHARE AND STOCK B ROKER THE HONBLE HIGH COURT IN THE AFORESAID CASE HAD OBSERVED THAT IT COULD SAFELY BE CONCLUDED THAT THE SUBSTANTIAL PART OF THE COMPANIES BUSINESS CONSISTED OF MONEY LENDING BUSINESS. IT WAS SUBMITTED BY THE LD. A.R THAT ON THE AFORESAID BASIS THE HONBLE HIGH COURT HAD CONCLUDED THAT AS THE ASSESSEE BEFORE THEM WAS CARRYING ON MONEY LENDING BUSINESS THEREFORE THE LOAN ADVANCED BY THE COMPANY TO ITS SHAREHOLDER COULD NOT BE TAXED AS DEEMED DIVIDEND UNDER SEC. 2(22)(E). ALSO RELIANCE WAS PLACED BY THE LD. A.R ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. PARLE PLASTICS LTD. & ANR. (2011) 332 ITR 63 (BOM). THE LD. A.R TAKING US THROUGH THE FACTS INVOLVED IN THE CASE BEFORE THE HONBLE HIGH COURT SUBMITTED THAT AS 42 PER CENT OF THE TOTAL ASSETS OF THE COMPANY AS ON 31.03.1996 AND 39 PERCENT OF ITS TOTAL ASSETS ON 31.03.1997 WERE DEPLOYED IN LOANS AND ADVANCES AND THE ASSESSEE COMPANY EXCEPT FOR INTEREST INCOME HAD SUFFERED LOSSES THEREFORE IN THE BACKDROP OF THE SAID F ACTS IT WAS CONCLUDED BY THE HONBLE HIGH COURT THAT THE COMPANY WAS SUBSTANTIALLY INVOLVED IN MONEY LENDING BUSINESS. 10 . PER CONTRA THE LEARNED DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) SUBMITTED THAT A PER USAL OF THE FINANCIAL STATEMENT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION REVEALED THAT THE ASSESSEE HAD ITSELF CAPITALIZED A SUM OF RS. 4 34 10 584/ - TOWARDS ITS CAPITAL ASSETS ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 17 COMMITMENT. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE BUSINESS OF THE ASSESSEE HAD YET NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION THEREFORE THE LOWER AUTHORITIES HAD RIGHTLY CONCLUDED THAT THE CLAIM FOR DEDUCTION OF INTEREST OF RS. 26 13 39 983/ - PAID BY THE ASSESSEE TO DHFL AND ITS ASSOCIATE CONCERN VIZ. M/S SKYLARK BUILDCOM PVT. LTD. WAS NOT A LLOWABLE AS A DEDUCTION UNDER SEC. 36(1)(III). THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. THE LD. D.R FURTHER RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHE MICALS AND FERTILIZERS LTD. (1997) 227 ITR 172 (SC). IT WAS SUBMITTED BY THE LD. D.R THAT IN THE ABSENCE OF A DIRECT NEXUS BETWEEN THE INTEREST RECEIVED AND THE AMOUNTS BORROWED BY THE ASSESSEE FROM DHFL IT WAS RIGHTLY HELD BY THE LOWER AUTHORITIES THAT THE ASSESSEE WOULD ALSO NOT BE ELIGIBLE FOR CLAIM OF DEDUCTION OF THE INTE REST PAID ON THE AFORESAID LOANS UNDER SEC. 57(III) OF THE ACT. 11 . THE LD. A.R REBUTTING THE CONTENTIONS ADVANCED BY THE COUNSEL FOR THE REVENUE SUBMITTED THAT AS THE PAID UP CAPITAL OF THE ASSESSEE COMPANY WAS ONLY RS.1 LAC AND THE ONLY SOURCE OF FUNDS WERE THE BORROWED FUNDS THAT WERE RAISED FROM DHFL AND ITS ASSOCIATE CONCERN VIZ. M/S SKYLARK BUILDCON P. LTD. THEREFORE IT WAS INCORRECT ON THE PART OF THE REVENUE TO CLAIM THAT NO NEXUS BETWEEN THE INTEREST BEARING L OANS RAISED BY THE ASSESSEE AND THE INTEREST BEARING LOANS ADVANCED TO ITS ASSOCIATE CONCERNS WAS ESTABLISHED. I T WAS SUBMITTED BY THE LD. A .R THAT THE AMOUNT OF INTEREST EXPENDITURE OF RS. 4 34 10 584/ - PERTAIN ING TO THE AMOUNTS WHICH WERE GIVEN BY THE A SSESSEE TOWARDS ITS CAPITAL ASSET COMMITMENTS TO ITS ASSOCIATE CONCERNS VIZ. (I) M/S SIGTIA CONSTRUCTION PVT. LTD.: RS. 40 17 97 248/ - ; AND (II) M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. : RS. 53 94 65 000/ - WAS ALREADY CAPITALIZED IN IT S FINANCIAL STATEMENT S FOR THE YEAR UNDER CONSIDERATION. ALSO IT WAS AVERRED BY THE LD. A.R TAT AS THE ASSESSEE HAD RIGHTLY CAPITALISED THE INTEREST EXPENDITURE PERTAINING TO THE AMOUNT OF RS. 94 12 62 248/ - THAT WAS ADVANCED TO ITS ASSOCIATE CONCERNS TOWA RDS ITS CAPITAL ASSET COMMITMENT I.E FOR THE PERIOD FOR WHICH THE SAID AMOUNT WAS ADVANCED DURING THE YEAR THEREFORE THE CIT() WAS IN ERROR IN OBSERVING THAT THE QUANTIFICATION OF SUCH INTEREST EXPENDITURE WAS NOT PROPERLY DONE BY THE ASSESSEE @16.25% P. A I.E THE RATE OF INTEREST AT WHICH FUNDS WERE BORROWED FROM DHFL. ALSO IT WAS SUBMITTED BY THE LD. A.R THAT THE AFORESAID OBSERVATIONS AS REGARDS INFIRMITY IN INTEREST ATTRIBUTABLE TO THE FUNDS GIVEN TO THE ASSOCIATE CONCERNS TOWARDS ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 18 CAPITAL ASSET COMMIT MENT WERE DRAWN BY THE CIT(A) WITHOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 12 . WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AS WELL AS THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THEM . O UR INDULGENCE IN THE PRESENT APPEAL HAS BEEN SOUGHT BY THE ASSESSEE FOR ADJUDICATING THREE ISSUES VIZ. (I) THAT AS TO WHETHER THE INTEREST INCOME RECEIVED BY THE ASSESSEE ON THE AMOUNTS ADVANCED TO ITS ASSOCIATE CONCERNS IS TO BE ASSESSED AS ITS BUSINESS INCOME OR AS ITS INCOME UNDER THE HEAD O THER SOURCES ; (II) THAT AS TO WHETHER THE ASSESSEE WAS ELIGIBLE FOR CLAIM OF DEDUCTION OF THE INTEREST PAID ON THE AMOUNTS BORROWED FROM DHFL AND ITS ASS OCIATE CONCERN VIZ. M/S SKYLARK BUILDCON PVT. LTD. AS PER SEC. 36(1)(III) UNDER THE HEAD INCOME FROM BUSINESS ; AND (III) ALTERNATIVELY IN CASE THE INTEREST INCOME RECEIVED ON THE AMOUNTS ADVANCED TO THE ASSOCIATE CONCERNS WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES THEN WHETHER THE ASSESSEE WAS ELIGIBLE FOR CLAIM OF DEDUCTION OF THE INTEREST PAID TO DHFL AND ITS ASSOCIATE CONCERN ON SUCH BORROWED FUNDS WHICH WERE INVESTED WITH ITS ASSOCIATE CONCERNS UNDER SEC. 57(III) OF THE ACT . 13 . AS IS DISCERNIBLE FROM THE MEMORANDUM OF ASSOCIATION (FOR SHORT MOA) THE ASSESSEE COMPANY WAS INCORPORATED ON 11.01.2010. THE MAIN OBJECT OF THE ASSESSEE COMPANY WAS TO CARRY ON THE BUSINESS OF A BUILDER DEVELOPER AND TRADING IN RESIDENTIAL COMMERCIAL AND INDUSTRIAL PROPERTIES IN INDIA AND ABROAD. AS CAN BE GATHERED FROM THE RECORDS THE ASSESSEE HAD NOT SET UP ITS BUSINESS EITHER DURING THE YEAR UNDER CONSIDERATION OR IN THE SUBSEQUENT YEARS AS ARE THERE BEFORE US . WE SHALL FIRST DEAL WITH THE CONTENTIONS OF THE LD. A.R ON THE BASIS OF WHICH HE HAD TRIED TO IMPRESS UPON US THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. IT IS AVERRED BY THE LD. A.R THAT AS THE ASSESSEE IN PURSUANCE OF ITS OBJECTS HAD PROVIDED INTEREST BEARING LOANS TO ITS ASSOCIATE CONCERNS THEREFORE IT CAN SAFELY BE CONCLUDED THAT IT HAD COMMENCED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE SAID CLAIM OF THE LD. A.R. AS OBSERVED BY US HEREINABOVE THE MAIN OBJECT OF THE ASSESSEE COMPANY WAS TO CARRY ON THE BUSINESS OF A BUILDER DEVELOPER AND TRADING IN RESIDENTIAL COMMERCIAL AND INDUSTRIAL PROPERTIES IN INDIA AND ABROAD. ADMITTEDLY A S PER THE INCIDENTAL OBJECTS ENVISAGED IN CLAUSE 21 AND CLAUSE 22 OF THE MOA THE ASSESSEE COULD NEGOTIATE LOANS AND LEND AND ADVANCE MONEY OR GIVE CREDIT TO SUCH ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 19 PERSONS FIRMS COMPANIES AND OTHER ENTITIES ON SUCH TERMS WITH OR WITHOUT SECURITY AND/OR INTEREST AS MAY BE THOUGHT FIT AND PARTICULARLY TO CUSTOMERS OR OTHER PERSONS OR CORPORATIONS HAVING DEALING WITH THE ASSESSEE COMPANY. IN OUR CONSIDERED VIEW THE INCIDENTAL OBJECTS OF A COMPANY WOULD COME INTO PLAY ONLY FOR THE PURPOSE OF ATTAINMENT OF ITS MAIN OBJECT AND CANNOT EXIST ON A STANDALONE BASIS. IN OTHER WORDS INCIDENTAL OBJECTS CANNOT BE DIVORCED FROM THE MAIN OBJECT OF THE COMPANY AND CONSIDERED IN ISOLATION . AS IN THE CASE BEFORE US THE ASSESSEE COM PANY HAD NOT YET COMMENCED ITS BUSINESS OF A BUILDER DEVELOPER AND TRADING IN RESIDENTIAL COMMERCIAL AND INDUSTRIAL PROPERTIES AS PROVIDED IN ITS MAIN OBJECT THEREFORE WE ARE NOT INCLINED TO ACCEPT THE CLAIM OF THE LD. A.R THAT THE BUSINESS OF THE ASSE SSEE WAS TO BE TAKEN AS HAVING BEEN COMMENCED. ACCORDINGLY WE REJECT THE CLAIM OF THE LD. A.R THAT THE BUSINESS OF THE ASSESSEE HAD COMMENCED DURING THE YEAR UNDER CONSIDERATION. 14 . WE SHALL NOW ADVERT TO THE RELIANCE PLACED BY THE LD. A.R ON THE JUDGM ENTS OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. JAYANTH H. MODI (20 15 ) 232 TAXMAN 337 (BOM) AND CIT VS. PARLE PLASTICS LTD. & ANR. (2011) 332 ITR 63 (BOM) . LD. A.R BY DRAWING SUPPORT FROM THE AFORESAID JUD ICIAL PRONOUNCEMENTS HAD TRIED TO IMPRESS UPON US THAT AS THE TOTAL INCOME OF THE ASSESSEE DURING THE YEAR COMPRISED OF THE INTEREST INCOME RECEIVED FROM ITS ASSOCIATE CONCERNS AND 90% OF ITS TOTAL FUNDS HAD BEEN UTILISED FOR PROVIDING INTEREST BEARING ADVANCES TO ITS ASSOC IATE CONCERNS THEREFORE WITHOUT PREJUDICE TO THE FACT THAT THE MAIN OBJECT OF THE ASSESSEE WAS TO CARRY ON THE BUSINESS OF A BUILDER DEVELOPER AND TRADING IN RESIDENTIAL COMMERCIAL AND INDUSTRIAL PROPERTIES KEEPING IN VIEW THE FACT THAT THE MOA AL LOWED THE ASSESSEE TO INTER ALIA CARRY ON THE BUSINESS OF LENDING OR ADVANCING OF MONEY IT COULD SAFELY BE CONCLUDED THAT THE SUBSTANTIAL PART OF THE ASSESSES BUSINESS CONSISTED OF MONEY LENDING BUSINESS. IN SUM AND SUBSTANCE IT IS THE CLAIM OF THE LD. A .R THAT PURSUANT TO ASSESSING OF THE I NTEREST INCOME AS THE ASSESSES INCOME FROM THE BUSINESS OF MONEY LENDING THE INTEREST PAID ON THE BORROWED FUNDS WOULD BE ALLOWED AS A BUSINESS EXPENDITURE IN ITS HANDS . WE ARE UNABLE TO PERSUADE OURSELVES TO S UBSCRIBE TO THE AFORESAID CLAIM OF THE LD. A.R. AS OBSERVED BY US HEREINABOVE NOW WHEN THE ASSESSEE HAD NOT YET COMMENCED ITS BUSINESS OF A BUILDER DEVELOPER AND TRADING IN RESIDENTIAL COMMERCIAL AND INDUSTRIAL PROPERTIES AS PROVIDED IN ITS MAIN OBJECT THEREFORE ITS CLAIM THAT THE BUSINESS OF THE ASSESSEE WAS TO BE TAKEN AS HAVING BEEN COMMENCED FOR THE REASON THAT IT HAD EMBARKED UPON CERTAIN INCIDENTAL ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 20 OBJECTS ON A STANDALONE BASIS DE HORS ITS MAIN OBJECT DOES NOT MERIT ACCEPTANCE. INSOFAR THE AF ORESAID JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD. A.R ARE CONCERNED WE FIND THAT THE SAME ARE DISTINGUISHABLE ON FACTS. AS IS DISCERNIBLE FROM A PERUSAL OF THE RESPECTIVE JUDICI AL PRONOUNCEMENTS TH OSE WERE RENDERED IN RESPECT OF CONCERNS WHICH HAD ALREADY COMMENCED THEIR BUSINESS UNLIKE THE CASE BEFORE US WHEREIN THE BUSINESS HAD NOT YET COMMENCED . ACCORDINGLY WE ARE OF THE CONSIDERED VIEW THAT AS THE FACTS INVOLVED IN THE AFORESAID CASE LAWS BEFORE THE HONBLE HIGH COURT ARE DISTINGUISHABLE ON FA CTS THEREFORE THE SAME WOULD NOT ASSIST THE CASE OF THE ASSESSEE BEFORE US. 15 . WE SHALL NOW ADVERT TO THE CLAIM OF THE LD. A.R THAT THE I NTEREST INCOME RECEIVED BY THE ASSESSEE ON THE INTEREST BEARING FUNDS ADVANCED TO ITS ASSOCIATE CONCERNS WAS LIABLE TO BE REDUCED FROM TH E CAPITALIZED AMOUNT OF PRE - OPERATIVE EXPENSES (INCLUDING INTEREST PAID). IN ORDER TO DRIVE HOME HIS AFORESAID CONTENTION THE LD. A.R HAD DRAWN SUPPORT FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V S. BOK ARO STEEL LTD. (1999) 236 ITR 315 (SC) . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID CLAIM OF THE LD. A.R AND FIND THE SAME TO BE ABSOLUTELY MISCONCEIVED AND MISPLACED. IN THE CASE BEFORE THE HONBLE APEX COURT IN BOKARO STEEL LTD. (SUPRA) IT WAS OBSERVED THAT AS THE AMOUNTS RECEIVED BY THE ASSESSEE COMPANY PRIOR TO ITS COMMENCEMENT OF BUSINESS FROM VIZ. LETTING OUT QUARTERS TO EMPLOYEES OF CONTRACTORS WHO WERE ENGAGED IN CONSTRUCTION OF ASSESSES PLANT HIRE CHARGES FOR LETTING OUT PLANT AND MACHINERY TO CONTRACTORS INTEREST ON AMOUNTS ADVANCED TO THEM AND ROYALTY RECEIVED FROM THEM FOR ALLOWING EXCAVATION OF STONES ETC. WERE ALL INTRINSICALLY CONNECTED WITH THE CONSTRUCTION ACTIVITY THEREFORE THE SAME WERE IN THE NATURE OF CAPITAL RECEIPTS WHICH HAD GONE TO REDUCE THE COST OF CONSTRUCTION OF THE PROJECT AND WERE TO BE ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS THAT WERE CAPITALIZED AS PRE - OPERATIVE EXPENSE S . NOW IN THE CASE OF T HE ASSESSE E BEFORE US AS THE INTEREST INCOME RECEIVED BY THE ASSESSE FROM ITS ASSOCIATE CONCERNS IS IN NO WAY LINKED WITH ANY PROJECT OF THE ASSESSE THEREFORE THE SAID JUDGMENT WOULD NOT ASSIST ITS CASE. ACCORDINGLY THE AFORESAID CLAIM OF THE ASSESSEE IS REJECTED. 16 . IN THE BACKDROP OF THE FACT THAT THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION WE SHALL NOW ADVERT TO THE OBSERVATIONS OF THE LOWER AUTHORITIES VIZ. (I) THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE ON THE AMOUNTS ADVANCED TO ITS ASSOCIATE CONCERNS IS LIABLE TO BE ASSESSED AS ITS INCOME FROM O THER SOURCES AND NOT AS ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 21 BUSINESS INCOME ; AND (II) THAT AS THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED THEREFORE THE INTEREST PAID BY TH E ASSESSEE TO DHFL AND M/S SKYLARK BUILDCON PRIVATE LIMITED WOULD NOT BE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SEC. 36(1)(III) OF THE ACT. AS THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED DURING THE YEAR THEREFORE IN OUR CONSIDERED VIEW THE INTEREST INC OME RECEIVED BY THE ASSESSEE FROM ITS ASSOCIATE CONCERNS HAS RIGHTLY BEEN HELD TO BE LIABLE TO BE ASSESSED UNDER THE HEAD O THER SOURCES. BEFORE ADVERTING ANY FURTHER AND ANSWERING THE SECOND ISSUE WE MAY HEREIN OBSERVE THAT CERTAIN ISSUES HAVING A STRON G BEARING ON THE ADJUDICATION OF THE SAME WOULD REQUIRE TO BE ADDRESSED FIRST. AS IS DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES THEY HAD PROCE E DED WITH AN OBSERVATION THAT THE ASSESSEE HAD RAISED THE LOAN FROM DHFL FOR ITS PROJECT VIZ. REDEVELOPMENT OF VILE PARLE PREM N AGAR CHS LTD. (PROP OSED ) AT IRLA TANK PLOT S.V ROAD VILE PARLE (WEST) MUMBAI. IN FACT WE FIND THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O HAD U/S 133(6) PROCURED THE LOAN APPLICATION FORM FROM DHFL. ON A PERUSAL OF THE LOAN APPLICATION FORM IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE APPLICANT HAD APPLIED FOR A PROJECT/MORTGAGE LOAN OF RS. 184 CRORES AT THE INTER E ST RATE OF 16.25% PER ANNUM FOR THE PROJECT I.E REDEVELOPMENT OF VILE PARLE PREMNAGAR CHS LTD. (PROPOSED) AT IRLA TANK PLOT S.V ROAD VILE PARLE (WEST) MUMBAI 400 058. ALSO THE CIT(A) IN HIS ORDER HAD ENDORSED THE VIEW TAKEN BY THE A.O AND HAD OBSERVED THAT THE LOAN WAS OBTAINED FOR THE AFORESAID PROJECT OF THE APPELLANT COMPRISING REDEVELO PMENT PROJECT AT VILE PARLE MUMBAI. IN FACT THE CIT(A) WHILE DECLINING TO ACCEPT THE CLAIM OF THE ASSESSEE THAT IT HAD NOT ACQUIRED ANY ASSET HAD OBSERVED THAT THE SAID CLAIM WAS NOT ACCEPTABLE SINCE THE ASSET CAN BE IN FORM OF TANGIBLE AND INTANGIBLE NATURE AND THE RIGHT TO SELL IS ALSO TO BE HELD AS AN ASSET . ACCORDINGLY IN THE BACKDROP OF THE OBSERVATION THAT THE ASSESSEE COMPANY HAD RAISED A LOAN FROM DHFL FOR ITS PROJECT THAT THE LOWER AUTHORITIES HAD THEREAFTER CONCLUDED THAT THE INTEREST PAID O N THE SAID LOAN WAS TO BE TREATED AS A PRE - OPERATIVE EXPENSE WHICH WAS TO BE CAPITALIZED AND WAS TO BE ALLOWED AS A DEDUCTION UNDER SEC. 36(1)(III) AFTER THERE WAS INFLOW OF REVENUE FROM THE SAID PROJECT . AS OBSERVED BY US HEREIN ABOVE IT WAS THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE LOAN WAS RAISED FOR THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP OSED ) WHICH BELONGED TO ITS ASSOCIATE CONCERN I.E. M/S SIG I TIA CONSTRUCTION PVT. LTD. IN OTHER WORDS IT HAS BEEN THE CLAIM OF THE ASSESSEE THAT M/S SIG I TIA CONSTRUCTION PVT. LTD. WAS THE DEVELOPER OF THE AFORESAID REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) AND THE ASSESSEE COMPANY HAD NEITHER CARRIED OUT ANY PROJECT SINCE ITS INCORPORATION ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 22 NOR WAS HAVING ANY PROJECT IN HAND TILL DATE. IN THE COURSE OF HEARING OF THE APPEAL THE LD. A.R HAD DRAWN OUR ATTENTION TO THE FACT THAT IT WAS SPECIFICALLY CLAIMED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES VIZ. (I). THAT THE LOAN WAS TAKEN BY THE AS SESSEE FO R THE PROJECT OF ITS ASSOCIATE CONCERN M/S S IGTIA CONSTRUCTION PVT. LTD. I.E REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) ; (II). THAT THE LOAN WAS TAKEN AGAINST THE SECURITY OF THE AFORESAID PROJECT PROPERTY OF M/S SIGTIA CONSTRUCTION PVT. LTD; (III). THAT THE ASSESSEE COMPANY HAD NO INTEREST AS A DEVELOPER AND/OR CONTRACTOR TILL DATE; AND (IV). THAT THE ASSESSEE COMPANY HAD NOT TAKEN AND/OR COMMENCED ANY PROJECT TILL DATE. IN ORDER TO SUBSTANTIATE HIS AFORESAID CLAIM T HE LD. A.R HAD DRAWN OUR ATTENTION TO PAGE 259 - 299 OF THE ASSESSES PAPER BOOK (FOR SHORT APB) I.E A LETTER DATED 01.07.2015 THAT WAS ADDRESSED BY THE ASSESSEE TO THE CIT(A).THE LD. A.R TOOK US THROUGH THE RELEVANT EXTRACT OF THE AFORESAID LETTER AT P AGE 260 OF THE APB WHEREIN THE AFORESAID FACT WAS CATEGORICALLY STATED BY THE ASSESSEE . ALSO THE LD. A.R HAD TAKEN US THROUGH A LETTER DATED 04.01.2016 THAT WAS FILED WITH THE CIT(A) ( PAGE 300 - 301 OF APB) WHEREIN THE AFORESAID FACT WAS REITERATED . LD . A.R HAD ALSO DRAWN OUR ATTENTION TO A SIMILAR CLAIM THAT WAS RAISED BY THE ASSESSEE VIDE ITS LETTERS/SUBMISSIONS FILED BEFORE THE A.O AND THE CIT(A) IN THE COURSE OF THE RESPECTIVE PROCEEDINGS FOR A.Y 2013 - 14 TO A.Y 2015 - 16 BEFORE THEM . WE ALSO FIND THAT IN ORDER TO SUBSTANTIATE THE FACT VIZ. (I). THAT M/S SIGTIA CONSTRUCTION PVT. LTD. WAS THE DEVELOPER OF THE AFORESAID REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) ; AND (II). THAT THAT THE ASSESSEE COMPANY HAD NEITHER CARRIED OUT ANY PR OJECT SINCE ITS I NCORPORATION AN A FFIDAVIT OF SH. DINESH NAIK DIRECTOR OF THE ASSESSEE COMPANY DATED 17.11.2017 ( PAGE 254 OF APB) WAS ALSO FURNISHED WITH THE A.O. FURTHER IN ORDER TO DISPEL ANY DOUBT AS REGARDS ITS AFORESAID CLAIM THE ASSESSEE HAS A LSO FILED BEFORE US A COPY OF THE AFFIDAVIT OF SH. DINESH NAIK DIRECTOR OF THE ASSESSEE COMPANY DATED 27.11.2018 ( PAGE 33 - 35 OF APB). ALSO AN AFFIDAVIT OF SH. SHIV KUMAR SINGH DIRECTOR OF M/S SIGTIA CONSTRUCTION PVT. LTD. DATED 30.11.2018 ( PAGE 36 - 38 OF APB) HAS BEEN FILED WITH US WHEREIN IT IS DEPOSED BY HIM THAT M/S SIGTIA CONSTRUCTION PVT. LTD. WAS THE DEVELOPER OF THE AFORESAID REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) . AS CAN BE GATHERED FROM A PERUSAL OF THE LOAN APPLICATION FORM IT IS AN ADMITTED FACT THAT THE LOAN WAS RAISED BY THE ASSESSEE FROM DHFL FOR THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP OSED ) ( AGAINST THE HYPOTHECATION OF THE LAND OF THE SAID PROJECT ) . ( PAGE 10 OF APB ). APART THERE FROM THE LETTER DATED 25.01.2017 OF THE DEPUTY CHIEF ENGINEER SLUM REHABILITATION AUTHORITY MUMBAI ( PAGE 10 - 23 OF APB) WHICH ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 23 IS ADDRESSED TO THE DEVELOPER OF REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP.) VIZ. M/S SIGITIA CONSTRUCTION PV T. LTD. ALSO INSPIRES SOME CONFIDENCE AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGED TO M/S SIGITIA CONSTRUCTION PVT. LTD. 17 . AS OBSERVED BY US HEREINABOVE IN CASE IF THE REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO M/S SIGTIA CONSTRUCTION PVT. LTD. THEN IN OUR CONSIDERED VIEW THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE INTEREST PAID BY THE ASSESSEE ON THE LOAN RAISED FOR THE AFORESAID PRO JECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) WAS TO BE TREATED AS PRE - OPERATIVE EXPENSE WHICH WAS TO BE CAPITALIZED AND THEREAFTER TO BE ALLOWED AS A DEDUCTION UNDER SEC. 36(1)(III) AFTER THERE WAS INFLOW OF REVENUE FROM THE SAID PR OJECT IN THE HANDS OF THE ASSESSEE WOULD SOUND ABSOLUTELY ILLOGICAL . IN CASE THE PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) DOES NOT BELONG TO THE ASSESSEE THEN IT IS BEYOND COMPREHENSION TO TREAT THE INTEREST EXPENDITURE AS A PRE - OPERATIVE EXPENSE WHICH IS THEREAFTER TO BE ALLOWED AS A DEDUCTION U/S 36(1)(III) TO THE ASSESSEE AFTER THERE WAS INFLOW OF REVENUE FROM THE SAID PROJECT. AT THE SAME TIME WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE THAT IT HAS NO INTEREST IN THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) CANNOT BE SUMMARILY ACCEPTED AND WOULD REQUIRE TO BE VERIFIED BY THE A.O. AT THIS STAGE WE MAY HEREIN OBSERVE THAT THOUGH THE AFORESAID CLAIM OF THE ASSESSEE WAS RAISED BEFORE THE LOWER AUTHORITIES HOWEVER THEY HAD FAILED TO ADDRESS THE ISSUE IN THE RIGHT PERSPECTIVE. AS OBSERVED BY US HEREINABOVE THE A.O AFTER PROCURING THE LOAN APPLICATION FORM FROM DHFL U/S 133(6) OF THE ACT HAD OBSERVED THAT THE ASSESSEE APPLICANT HAD APPLIED FOR A LOAN OF RS. 184 CRORES AT AN INTEREST RATE OF 16.25% PER ANNUM FOR THEIR PROJECT I.E REDEVELOPMENT OF VILE PARLE PREM N AGAR CHS LTD.(PROPOSED) AT IRLA TANK PLOT S.V ROAD VILE PARLE (WEST) MUMBAI 400 058 . ALS O THE CIT(A) IN HIS ORDER HAD ENDORSED THE VIEW TAKEN BY THE A.O AND HAD OBSERVED THAT THE LOAN WAS OBTAINED FOR THE PROJECT OF THE APPELLANT COMPRISING REDEVELOPMENT PROJECT AT VILE PARLE MUMBAI . IN FACT THE CIT(A) WHILE DECLINING TO ACCEPT THE CLAIM O F THE ASSESSEE THAT IT HAD NOT ACQUIRED ANY ASSET HAD OBSERVED THAT THE SAID CLAIM WAS NOT ACCEPTABLE SINCE THE ASSET CAN BE IN FORM OF TANGIBLE AND INTANGIBLE NATURE AND THE RIGHT TO SELL IS ALSO TO BE HELD AS AN ASSET. WE ARE NOT IMPRESSED WITH THE MAN NER IN WHICH THE SPECIFIC CLAIM OF THE ASSESSEE THAT THE PROJECT VIZ. REDEVELOPMENT PROJECT ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 24 AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS RAISED BY THE ASSESSEE BELONGED TO ITS ASSOCIATE CONCERN VIZ. M/S SIGTIA CONSTRUCTION PVT. LTD. HAD BEEN A DDRESSED BY BOTH THE LOWER AUTHORITIES. WE WOULD NOT HESITATE TO OBSERVE THAT BOTH THE LOWER AUTHORITIES HAD ADOPTED AN EVASIVE APPROACH IN RESPECT OF THE AFORESAID CLAIM OF THE ASSESSEE AS A RESULT WHEREOF THE SAID ASPECT WHICH HAS A MATERIAL BEARING ON THE ADJUDICATION OF THE CORE ISSUE HAD NOT BEEN APPRECIATED AND THEREIN ADJUDICATED IN THE RIGHT PERSPECTIVE. AS A MATTER OF FACT THE CONCLUSION DRAWN BY THE LOWER AUTHORITIES THAT THE INTEREST EXPENDITURE WAS TO BE CAPITALIZED AS A PRE - OPERATIVE EXPENSE WHICH WOULD THEREAFTER BE ALLOWED AS A DEDUCTION U/S 36(1)(III) TO THE ASSESSEE AFTER THERE WAS INFLOW OF REVENUE FROM THE SAID PROJECT WOULD BE BEYOND COMPREHENSION IF IT IS ESTABLISHED THAT THE PROJECT FOR WHICH LOAN WAS RAISED BY THE ASSESSEE VIZ. REDEVELOPMENT OF VILE PARLE PREMNAGAR CHS LTD.(PROPOSED) AT IRLA TANK PLOT S.V ROAD VILE PARLE (WEST) MUMBAI BELONGED TO M/S SIGTIA CONSTRUCTION PVT. LTD. I.E AN ASSOCIATE CONCERN OF THE ASSESSEE AND NOT TO THE ASSESSEE. WE ARE AFRAID THAT AS THE VIEW ARRIVED AT BY THE LOWER AUTHORITIES IS APPARENTLY NOTHING SHORT OF BEING BASED ON INCOMPLETE AND DISTORTED FACTS THEREFORE WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE SAME. 18. IT IS IN THE BACKDROP OF THE AFORESAID FACTS THAT WE SHALL N OW DELIBERATE ON THE RELIANCE PLACED BY THE LOWER AUTHORITIES ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 (SC) . WE MAY HEREIN OBSERVE THAT THE WAY THE LOWER AUTHORITI ES HAD P ROJECTED THE FACTS OF THE CASE IT APPEARED AT THE FIRST BLUSH THAT THE ISSUE THEREIN INVOLVED WAS SQUARELY COVERED BY THE AFORESAID JUDGMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). FOR A FAIR APPRECIATION WE SHALL BRIEFLY CULL OUT THE FACTS INVOLVED IN THE CASE BEFORE THE HONBLE APE COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). IN THE CASE BEFORE THE HONBLE APEX COURT THE ASSESSEE WHICH WAS ENGAGED I N THE BUSINESS OF INTER ALIA MANUFACTURING HEAVY CHEMICALS HAD FOR THE PURPOSE OF SETTING UP ITS FACTORIES TAKEN CERTAIN LOANS FROM VARIOUS BANKS AND FINANCIAL INSTITUTIONS . SOME PART OF THE SURPLUS FUNDS (OUT OF THE BORROWED FUNDS ) WHICH WERE NOT IMMEDIA TELY REQUIRED BY THE COMPANY WERE INVESTED IN SHORT TERM DEPOSITS WITH BANKS. INTEREST AMOUNTING TO RS. 2 92 440/ - WAS RECEIVED BY THE ASSESSE ON THE DEPOSITS LYING WITH THE BANK. AS THE COMPANY HAD INCURRED A SUM OF RS. 1 13 06 068/ - AS AND BY WAY OF INTE REST AND FINANCE CHARGES THE SAME WERE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 25 CAPITALISED ALONG WITH OTHER PRE - PRODUCTION EXPENSES. IT WAS THE CLAIM OF THE ASSESSEE THAT THE INTEREST INCOME (ON BANK DEPOSITS) OF RS. 2 92 440/ - SHOULD GO TO REDUCE THE PRE - PRODUCTION EXPENSES (INCLUDING INTEREST AND FINANCE CHARGES). IT IS IN THE BACKDROP OF THE AFORESAID FACTS THAT THE HONBLE APEX COURT HAD OBSERVED VIZ. (I). THAT THE QUESTION OF ADJUSTMENT OF INTEREST PAYABLE BY THE COMPANY AGAINST THE INTEREST EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT; (II). THAT THE EXPENDITURE WOULD HAVE BEEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSES BUSINESS HAD COMMENCED WHICH HOWEVER WAS NOT SO IN THE CASE BEFORE THEM; (III). THAT THE ASSESSEE WOULD BE ENTITLED TO CAPITALISE THE INTEREST PAYABLE BY IT; (IV). THAT THE ASSESSEE COULD NOT CLAIM THE ADJUSTMENT OF THE INTEREST EXPENDITURE AGAINST INTEREST INCOME ASSESSABLE UNDER SEC. 56 AND SEC. 57 OF THE ACT; (V). THAT SINCE THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED THEREFOR E IN SUCH A SITUATION THE EXPENDITURE INCURRED BY THE ASSESSEE FOR SETTING UP ITS BUSINESS CANNOT BE ALLOWED AS DEDUCTION UNDER SEC. 70 NOR COULD IT BE ADJUSTED UNDER SEC. 71 AGAINST ANY INCOME UNDER ANY OTHER HEAD; AND (VI). THAT ANY INCOME FROM NON - BU SINESS SOURCE CANNOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANTS AND MACHINERIES EVEN BEFORE THE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE. ACCORDINGLY IT WAS IN THE BACKDROP OF THE AFORESA ID FACTS WHEREIN THE ASSESSEE WHO HAD RAISED TERM LOANS FROM BANK FOR SETTING UP ITS FACTORIES AND HAD THEREAFTER EARNED INTEREST ON THE SURPLUS AMOUNT (OUT OF THE BORROWED FUNDS) THAT WERE NOT IMMEDIATELY REQUIRED BY IT AND HAD BEEN DEPOSIT ED WITH THE BANKS THAT THE HONBLE APEX COURT HAD CONCLUDED THAT THE I NTEREST RECEIVED WAS TO BE ASSESSED UNDER THE HEAD O THER SOURCES AND THE INTEREST PAID ON THE BORROWED FUNDS WAS TO BE CAPITALISED AS PRE - OPERATIVE EXPENSE. NOW IN THE CASE OF THE ASSESSEE BEFORE US IN CASE THE PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS RAISED FROM DHFL BELONGS TO THE ASSESSEE THEN IT WOULD STAND SQUARELY COVERED BY THE AFORESAID JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). BUT AS OBSERVED BY US HEREINABOVE IT IS THE CLAIM OF THE ASSESSEE THAT THE AFORESAID PROJECT BELONGS TO ITS ASSOCIATE CONCERN VIZ. M/S SIGITIA CONSTRUCTION PVT. LTD. IF THAT BE SO THEN WE ARE AFRAID THAT THE FACTS OF THE CASE WOULD BE DISTINGUISHABLE AS AGAINST THOSE WHICH WERE INVOLVED IN THE AFORESAID CASE BEFORE THE HONBLE SUPREME COURT. AS OBSERVED BY US HEREINABOVE FOR THE PURPOSE OF MAKING NECESSARY VERIFICATION AS TO WHETHER THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO M/S SIGITIA ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 26 CONSTRUCTION PVT. LTD. OR NOT WE ARE OF THE CONSIDERED VIEW THAT THE MATTER REQUIRES TO BE RESTORED TO THE FILE OF THE A.O . ACCORDING LY THE MATTER IS SET ASIDE TO THE FILE OF THE A.O WHO IS DIRECTED TO VERIFY AS TO WHETHER THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. OR TO THE ASSESSEE. IN ORDER TO MAKE NECESSARY VERIFICATIONS THE A.O SHALL CALL FOR THE RECORDS OF THE ASSESSEE AND M/S SIGITIA CONSTRUCTION PVT. LTD. ALSO NECESSARY VERIFICATIONS MAY BE CARRIED OUT BY THE A.O FROM DHFL ; SLUM REHABILITATION AUTHORITY MUMBAI; MUNICIPAL AUTHORITY OF GRE ATER MUMBAI ETC. . APART THEREFROM THE A.O IN THE COURSE OF THE SET ASIDE PROCEEDINGS WOULD REMAIN AT A LIBERTY TO MAKE ANY SUCH OTHER VERIFICATIONS AS HE MAY DEEM FIT. 19 . WE SHALL NOW ADVERT TO THE OBSERVATIONS OF THE LOWER AUTHORITIES AS REGARDS THE MAINTAINABILITY OF THE ALTERNATIVE CLAIM OF THE AS SESSEE THAT IN CASE THE INTEREST RECEIVED FROM THE ASSOCIATE CONCERNS WAS TO ASSESSED AS ITS INCOME UNDER THE HEAD OTHER S OURCES THEN DEDUCTION OF THE INTEREST PAID TO DHFL AND ITS ASSOCIATE CONCERN VIZ. M/S SKYLARK BUILDCON PVT. LTD. ON THE INTEREST BEARING FUNDS BORROWED FROM THEM WAS TO BE ALLOWED AS A DEDUCTION UNDER SEC. 57(III) OF THE ACT. TO SUM UP IT IS THE CLAIM OF THE ASSESSEE THAT THE INTEREST PAID ON THE BORROWED FUNDS HAS TO BE ADJUSTED AGAINST THE INTEREST RECEIVED ON THE INTEREST BEARING FUNDS WHICH WERE ADVANCED OUT OF THE BORROWED FUNDS TO ITS ASSOCIATE CONCERNS. ON A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES WE FIND THAT THE SAID ALTERNATIVE CLAIM OF THE ASSESSEE HAD BEEN REJECTED BY THEM. AS IS DISCERNIBLE FROM THE ORDER OF THE CIT(A) THE ALTERNATIVE CLAIM FOR DEDUCTION U/S 57(III) WAS DECLINED BY HIM FOR THE REASON VIZ. (I). THAT ONLY THOS E EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF SUCH INCOME WOULD BE ALLOWED AS A DEDUCTIBLE EXPENSE.; (II). THAT THE EXPENSE SHOULD HAVE BEEN INCURRED FOR T HE PURPOSE OF MAKING OR EARNING SUCH INCOME; (III). THAT AS THE ASSESSEE HAD RAISED THE LOAN FROM DHFL FOR UNDERTAKING THE CONSTRUCTION ACTIVITIES OF ITS BUSINESS AS BUILDERS AND DEVELOPERS THEREFORE THE INTEREST PAID ON SUCH LOAN FUNDS WHICH HAD BEEN U TILISED BY THE ASSESSEE FOR ADVANCING INTEREST BEARING LOANS TO ITS ASSOCIATE CONCERNS CANNOT BE SET OFF AGAINST THE INTEREST INCOME RECEIVED THEREFROM; AND (IV). THAT THE ASSESSEE HAD FAILED TO PROVE A DIRECT NEXUS BETWEEN THE BORROWINGS AND THE AMOUNT S ADVANCED TO THE ASSOCIATE CONCERNS . ALSO THE CIT(A) AFTER DELIBERATING ON THE FACTS OF THE CASE WAS OF THE VIEW THAT AS THERE WAS ONLY A RO T ATION OF FUNDS FROM ONE ASSOCIATE COMPANY TO ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 27 ANOTHER WHICH INCLUDES THE INTEREST BEARING LOANS GIVEN AND NON - IN TEREST BEARING LOANS/ADVANCES/CAPITAL ADVANCES THEREFORE THE INTEREST PAID ON LOAN TO DHFL CANNOT BE HELD AS HAVING A NEXUS WITH THE LOANS/ADVANCES ON WHICH INTEREST INCOME HAD BEEN EARNED BY THE ASSESSEE COMPANY. ACCORDINGLY THE CIT(A) WAS OF THE VIEW THAT AS THE ASSESSEE HAD FAILED TO ESTABLISH A NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS WITH THE INTEREST BEARING LOANS AND ADVANCES GIVEN TO THE ASSOCIATE CONCERNS THEREFORE FOR THE SAID REASON THE INTEREST PAID BY THE ASSESSEE TO DHF L O F RS. 2 6 13 39 983/ - COULD NOT BE ALLOWED AS A DEDUCTION U/S 57(III) OF THE ACT. APART THEREFROM IT WAS OBSERVED BY THE CIT(A) THAT THE AMOUNT OF INTEREST OF RS. 4 34 10 584/ - PERTAINING TO THE AMOUNTS WHICH WERE GIVEN BY THE ASSESSEE TOWARDS ITS CAPITAL ASSET COMMITMENT TO TWO OF ITS ASSOCIATE CONCERNS VIZ. (I). M/S SIGITIA CONSTRUCTION PVT. LTD : RS. 40 17 97 428/ - ; AND (II). M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD.: RS. 53 94 65 000/ - AND WAS CAPITALIZED IN ITS BOOKS OF ACCOUNTS WORKED OUT TO 4.61% P.A WHEREAS THE AMOUNT WAS BORROWED BY THE ASSESSEE FROM DHFL AT 16.25% P.A. ON THE BASIS OF HIS AFORESAID OBSERVATIONS IT WAS CONCLUDED BY THE CIT(A) THAT THE ASSES S EE HAD SUP P RESSED THE AMOUNT OF INTEREST RELATABLE TO THE AMOUNT GIVEN TO ITS ASSOCIATE CONC ERNS TOWARDS ITS CAPITAL ASSET COMMITMENT. 20 . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE PERTAINING TO THE ENTITLEMENT OF THE ASSESSEE TOWARDS ITS ALTERNATIVE CLAIM OF DEDUCTION OF INTEREST PAID TO DHFL AND ITS ASSOCIATE CONCERN VIZ. M/S SK YLARK BUILDCOM PVT. LTD . AS AGAINST THE I NTEREST RECEIVED ON THE AMOUNTS ADVANCED TO ITS ASSOCIATE CONCERNS . FOR A FAIR APPRECIATION OF OUR OBSERVATIONS THE SAME ARE BEING SEGREGATED INTO TWO PARTS AS UNDER: ( A). SITUATION 1 : I F ON THE BASIS OF VERIFICATIONS CARRIED OUT BY THE A.O IN THE COURSE OF THE SET ASIDE PROCEEDINGS IT EMERGES THAT THE PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO THE ASSESSEE THEN THE I NTEREST PAID ON THE LOAN RAISED FROM DHFL F OR THE SAID PROJECT WOULD BE CAPITALISED AS A PRE - OPERATIVE EXPENSE WHICH WOULD THEREAFTER BE ALLOWED AS A DEDUCTION U/S 36(1)(III) TO THE ASSESSEE AFTER THERE IS INFLOW OF REVENUE FROM THE SAID PROJECT. ALSO AS THE BUSINESS OF THE ASSE S SEE HAD NOT COMME NCED THEREFORE THE I NTEREST RECEIVED ON THE AMOUNTS ADVANCED TO THE ASSOCIATE CONCERNS (OUT OF THE BORROWED FUNDS) WOULD BE ASSESSED AS THE INCOME OF THE ASSESSEE UNDER THE HEAD O THER SOURCES. ACCORDINGLY ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 28 THE VIEW TAKEN BY THE LOWER AUTHORITIES AS R EGARDS CAPITALISING OF THE INTEREST PAID ON THE LOANS RAISED BY THE ASSESSEE FROM DHFL WOULD CONTINUE TO HOLD THE GROUND IN THE AFORESAID SITUATION . IN FACT O UR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172(SC) . ( B). SITUATION 2 : I F PURSUANT TO THE VERIFICATIONS CARRIED OUT BY THE A.O IN THE COURSE OF THE SET ASIDE PROCEEDINGS IT EMERGES THAT THE CLAIM OF THE ASSESSEE IS FOUND TO BE IN ORDER AND THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. THEN IN THE ABSENCE OF ANY SUCH PROJECT IN THE HANDS OF THE ASSESSEE THE I NTEREST PAID BY THE ASSESS EE ON THE LOAN RAISED FROM DHFL CANNOT BE CAPITALISED AS A PRE - OPERATIVE EXPENSE FOR BEING ALLOWED AS A DEDUCTION U/S 36(1)(III) TO THE ASSESSEE AFTER THERE IS INFLOW OF REVENUE FROM THE SAID PROJECT. IT IS IN CONTEXT OF THIS SITUATION THAT WE SHALL NOW DELIBERATE ON THE ALLOWABILITY OF THE ASSESSES ALTERNATIVE CLAIM FOR DEDUCTION U/S 57(III) OF THE INTEREST PAID TO DHFL AS AGAINST THE INTEREST RECEIVED FROM THE ASSOCIATE CONCERNS ON THE AMOUNTS ADVANCED TO THEM. 21. WE SHALL NOW PROCEED WITH OUR OBSERVATIONS WHICH AS STATED BY US HEREINABOVE WOULD BE APPLICABLE ONLY IF THE CASE OF THE ASSESSEE FALLS WITHIN THE REALM OF THE AFOREMENTIONED SITUATION 2 . AS OBSERVED HEREINABOVE THE ASSESSES CLAIM FOR DEDUCTION U/S 57(III) HAD BEEN DECLINED BY THE CIT(A) FOR TWO MAIN REASONS VIZ. (I). THAT AS THE ASSESSEE HAD RAISED THE LOAN FROM DHFL FOR UNDERTAKING THE CONSTRUCTION ACTIVITIES OF ITS BUSINESS AS BUILDERS AND DEVELOPERS THEREFORE THE INTEREST PAID ON SUCH LOAN FUNDS WHICH HAD BEEN UTILISED BY TH E ASSESSEE FOR ADVANCING INTEREST BEARING LOANS TO ITS ASSOCIATE CONCERNS CANNOT BE SET OFF AGAINST THE INTEREST INCOME RECEIVED THEREFROM; AND (II). THAT THE ASSESSEE HAD FAILED TO PROVE A DIRECT NEXUS BETWEEN THE BORROWINGS AND THE AMOUNTS ADVANCED TO THE ASSOCIATE CONCERNS. INSOFAR THE VIEW TAKEN BY THE CIT(A) THAT THE ASSESSEE HAD RAISED THE LOAN FROM DHFL FOR UNDERTAKING THE CONSTRUCTION ACTIVITIES OF ITS BUSINESS AS BUILDERS AND DEVELOPERS IS CONCERNED WE MAY HEREIN OBSERVE THAT THE SAID OBSERV ATION IS PRIMA FACIE MISCONCEIVED AND MISPLACED. A PERUSAL OF THE DHFL LOAN APPLICATION LETTER OF THE SLUM R EHABILITATION AUTHORITY DATED 25.01.2011 AND ALSO OTHER DOCUMENTS TO WHICH OUR ATTENTION HAS BEEN DRAWN BY THE LD. A.R IN THE COURSE OF HEARING OF THE APPEAL THOUGH NOT CONCLUSIVELY BUT PRIMA FACIE REVEALS THAT THE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 29 AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS RAISED BY THE ASSESSEE FROM DHFL BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. AND NO T TO THE ASSESSEE. BE THAT AS IT MAY FOR VERIFYING THE FACTUAL POSITION THE MATTER HAS BEEN RESTORED TO THE FILE OF THE A.O. AS OBSERVED BY US HEREINABOVE WE MAY HEREIN REITERATE FOR THE SAKE OF CLARI TY AND TO DISPEL ANY DOUBT THAT IN CASE IT EMERGES TH AT THE PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO THE ASSESSEE THEN THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE I NTEREST PAID TO DHFL ON THE LOAN RAISED WOULD HAVE TO BE CAPITALISED AS A PRE - OPERATIVE EXPENSE FOR BEING ALLOWED AS A DEDUCTION U/S 36(1)(III) TO THE ASSESSEE AFTER THERE IS INFLOW OF REVENUE FROM THE SAID PROJECT WOULD HOLD THE GROUND. BUT IF IN CASE I T EMERGES THAT THE PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. THEN THE OBSERVATION OF THE CIT(A) THAT THE ASSESSEE HAD RAISED THE LOAN FROM DHFL FOR UNDERTAKING THE CONSTRUCTION ACTIVITIES OF ITS BUSI NESS AS BUILDERS AND DEVELOPERS CANNOT BE SUSTAINED. 22 . WE MAY HEREIN OBSERVE THAT FOR ALLOWABILITY OF AN ASSESSES CLAIM FOR DEDUCTION OF AN EXPENDITURE U/S 57(III) WHAT WOULD BE RELEVANT IS NOT THE PURPOSE OF WHICH THE LOAN WAS RA ISED BUT IN FACT IF THE INCURRING OF THE EXPENDITURE CAN BE RELATED TO THE PURPOSE OF MAKING OR EARNING OF SUCH INCOME THEN THE EXPENDITURE SO INCURRED WOULD BE ALLOWABLE AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD OTHER SOU RCES. AN ANALOGY CAN BE DRAWN FROM THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. VS. CIT (1966) 60 ITR 52 (SC) FOR SUPPORT ING OUR AFORESAID VIEW THAT THE PURPOSE FOR WHICH A LOAN IS RAISED WOULD NOT BE RELEVANT BUT IT IS TH E PURPOSE FOR WHICH THE LOAN HAS ACTUALLY BEEN UTILISED THAT WOULD BE RELEVANT. NOW THIS TAKES US TO THE SECOND ASPECT I.E AS TO WHETHER IS THERE A NEXUS EXISTING BETWEEN THE INTEREST BEARING BORROWED FUNDS RAISED BY THE ASSESSEE FROM DHFL AND THE INTEREST BEARING AMOUNTS ADVANCED TO THE ASSOCIATE CONCERNS. WE MAY HEREIN OBSERVE THAT A PERUSAL OF THE BALANCE SHEET OF THE AS SESSEE COMPANY FOR THE IMMEDIATELY PRECEDING YEAR I.E F.Y 2010 - 11 ( PAGE 87 OF APB) REVEALS THAT THE ASSESSEE AS ON 31.03.2011 HAD A PAID UP SHARE CAPITAL OF RS. 1 00 000/ - ONLY. RATHER THE ASSESSEE DURING THE SAID PRECEDING YEAR I.E F.Y. 2010 - 11 HAD O UT OF THE LOAN OF RS. 184 CRORES THAT WAS RAISED FROM DHFL THEREIN ADVANCED AN AMOUNT AGGREGATING TO RS. 183 81 00 000/ - TO TWO OF ITS ASSOCIATE CONCERNS VIZ. (I) M/S SAHANA CONSTRUCTION PVT. LTD : RS. 179 81 00 000/ - ; AND (II) M/S SIGTIA CONSTRUCTION PVT. ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 30 LTD. :RS. 4 00 00 000/ - . AS PER THE BALANCE SHEET OF THE ASSESSEE ON 31.03.2012 THE ENTIRE AMOUNT OF LOAN OF RS. 184 CRORE RAISED BY THE ASSESSEE FROM DHFL WHICH IN TURN IN THE PRECEDING YEAR WAS MAINLY ADVANCED TO M/S SAHANA CONSTRUCTION PVT. LTD. WAS DISCLOSED AS REPAID. D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD GIVEN/ADVANCED AN AMOUNT AGGREGATING TO RS. 179 .47 CRORES VIZ. (I). ADVANCE AGAINST CAPITAL ASSET COMMITMENT : RS.94.12 CRORES; AND (II). INTEREST BEARING LOANS AND ADVANCES TO ASSOCIATE CONCERNS: RS. 85.35 CRORES. AS OBSERVED BY US HEREINABOVE THE INTEREST EXPENDITURE CORRELATING TO AMOUNT OF RS. 94.12 CRORES VIZ. GIVEN TOWARDS CAPITAL ASSET COMMITMENT TO ASSOCIATE CONCERNS VIZ. (I). M/S SIGITIA CONSTRUCTION PVT. LTD : RS. 40 1 7 97 428/ - ; AND (II). M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD.: RS. 53 94 65 000/ - WAS CAPITALIZED BY THE ASSESSEE. AS AGAINST THE INTEREST BEARING LOANS OF RS. 85 35 75 400/ - ADVANCED TO ITS ASSOCIATE CONCERNS THE ASSESSEE HAD RECEIVED INTEREST INCO ME OF RS. 26 37 87 842/ - . IN OUR CONSIDERED VIEW AS LONG AS IT IS ESTABLISHED THAT THE INTEREST PAID BY THE ASSESSEE ON THE LOANS RAISED FROM DHFL AS PER THE MANDATE OF SEC. 57(III) WAS AN EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF THE INTEREST INCOME FROM THE ASSOCIATE CONCERNS TO WHOM INTEREST BEARING LOANS WERE GIVEN THEN SUCH INTEREST PAID WOULD BE ELIGIBLE FOR DEDUCTION AGAINST THE INTEREST R ECEIVED BY THE ASSESSEE COMPANY. AS THE FACTUAL POSITION AS TO WHETHER THE ASSESSEE SATISFIES THE REQUISITE CONDITIONS ENVISAGED IN SEC. 57(III) THEREIN MAKING IT ELIGIBLE TO CLAIM DEDUCTION OF THE INTEREST PAID ON THE LOANS RAISED FROM TO DHFL AGAINST THE INTEREST INCOME RECEIVED FROM THE ASSOCIATE CONCERNS TO WHOM INTEREST BEARING LOANS WERE GIVEN CANNOT BE SAFELY GATHERED FROM THE RECORDS BEFORE US AND WOULD REQUIRE VERIFICATION THEREFORE THE MATTER IN ALL FAIRNESS IS RESTORED TO THE FILE OF THE A.O. AS OBSERVED BY US HEREINABOVE IF IN THE COURSE OF THE SET ASIDE PROCEEDINGS IT EMERGES THAT THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS RAISED BY THE ASSE SSEE FROM DHFL BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. AND NOT TO THE ASSESSEE THEN THE A.O SHALL VERIFY AS TO WHETHER THE REQUISITE CONDITIONS ENVISAGED IN SEC. 57(III) THEREIN MAKING THE ASSESSEE ELIGIBLE TO CLAIM DEDUCTION OF THE INTEREST PAID ON THE LOANS RAISED FROM TO DHFL AGAINST THE INTEREST INCOME RECEIVED FROM THE ASSOCIATE CONCERNS ARE SATISFIED OR NOT. NEEDLESS TO SAY THE A.O SHALL IN THE COURSE OF THE SET ASIDE PROCEEDINGS AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE WHO SHALL REMAIN AT A LIBERTY TO SUBSTANTIATE ITS CLA IM AS REGARDS ITS ELIGIBILITY TOWARDS CLAIM DEDUCTION UNDER SEC. ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 31 57(III) OF THE ACT. ALSO WE MAY HEREIN OBSERVE THAT AS THE VIEW TAKEN BY THE CIT(A) THAT THE ASSESSEE HAD SUPPRESSED THE QUANTUM OF INTEREST PAID THAT WAS RELATABLE TO THE AMOUNT OF RS. 94 12 62 248/ - GIVEN BY THE ASSESSEE TOWARDS ITS CAPITAL ASSET COMMITMENT TO ITS ASSOCIATE CONCERNS VIZ. (I) M/S SIGTIA CONSTRUCTION PVT. LTD. : RS. 40 17 97 248/ - ; AND (II) M/S SAHANA BUILDERS AND D EVELOPERS PVT. LTD. : RS. 53 94 65 000/ - HA D BEEN ARRIVED AT BY THE CIT(A) WITHOUT AFFORDING ANY OPPORTUNITY TO THE ASSESSEE TO REBUT THE SAME THEREFORE THE SAID ISSUE IS ALSO IN ALL FAIRNESS RESTORED TO THE FILE OF THE A.O FOR FRESH ADJUDICATION AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 23 . WE SHALL NOW ADVERT TO THE ENTITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION OF INTEREST PAID ON THE LOAN RAISED FROM ITS ASSOCIATE CONCERN VIZ. M/S SKYLARK BUILDCOM PRIVATE LIMITED. THE LD. A.R HA S FILED BEFORE US A CHART WHEREIN IT IS CLAIMED THAT THE INTEREST BEARING LOAN AGGREGATING TO RS. 17 29 27 728/ - RECEIVED FROM M/S SKYLARK BUILDCOM PRIVATE LIMITED WAS ADVANCED BY WAY OF INTEREST BEARING LOANS TO ITS ASSOCIATE CONCERNS DURING THE YEAR UNDER CONSIDERATION. AS THE CLAIM OF THE ASSESSEE REQUIRES TO BE VERIFIED IN THE BACKDROP OF THE FACTS PROJECTED IN THE CHART FILED BY THE ASSESSEE BEFORE US THEREFORE IN ALL FAIRNESS WE RESTORE THE MATTER TO THE FILE OF THE A.O. THE A.O IS D IRECTED TO VERIFY THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT THE AMOUNT RECEIVED BY IT AS INTEREST BEARING LOANS FROM M/S SKYLARK BUILDCOM PRIVATE LIMITED WAS UTILISED FOR PROVIDING INTEREST BEARING ADVANCES TO ITS ASSOCIATE CONCERNS. IN CASE THE AFORE SAID CLAIM OF THE ASSESSEE IS FOUND TO BE IN ORDER AND AS PER THE MANDATE OF SEC. 57(III) THEN THE A.O SHALL ALLOW DEDUCTION OF THE INTEREST PAID BY THE ASSESSEE TO M/S SKYLARK BUILDCOM PRIVATE LIMITED AGAINST THE CORRELATING INTEREST INCOME RECEIVED BY IT FROM ITS ASSOCIATE CONCERNS. NEEDLESS TO SAY THE ASSESSEE IN SUPPORT OF HIS AFORESAID CLAIM SHALL PROVIDE THE REQUISITE DOCUMENTS AS WOULD BE CALLED FOR BY THE A.O IN THE COURSE OF THE SET ASIDE PROCEEDINGS. 2 4 . WE SHALL NOW TAKE UP THE CLAIM OF THE ASSESSEE THAT THE CIT(A) HAS ERRED IN NOT ALLOWING THE ASSESSES CLAIM OF EXPENSES VIZ. (I). OTHER EXPENSES: RS. 17 23 648/ - ; AND (II). AMORTIZATION EXPENSES: RS. 1 640/ - AGAINST THE INTEREST RECEIVED. AS OBSERVED BY US HEREINABOVE AS THE SAID EXPENSES HAD NOT BEEN INCURRED BY THE ASSESSEE FOR EARNING OF INTEREST INCOME THEREFORE THE SAME WOULD NOT FALL WITHIN THE REALM OF THE DEDUCTIONS ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 32 ENVISAGED IN SEC. 57(III) OF THE ACT. ACC ORDINGLY FINDING NO INFIRMITY IN THE ORDER OF THE CIT(A) WE UPHOLD THE DISALLOWANCE OF THE AFORESAID EXPENSES. 25 . RESULTANTLY I N TERMS OF OUR AFORESAID OBSERVATIONS THE MATTER IS RESTORED TO THE FILE OF THE A.O . AS OBSERVED BY US HEREINABOVE THE A.O SHALL IN THE COURSE OF THE SET ASIDE PROCEEDINGS AFTER MAKING NECESSARY VERIFICATIONS AS HE MAY DEEM FIT THEREIN ADJUDICATE UPON FOUR ISSUES VIZ. (I). THAT AS TO WHETHER THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS ( PROP) BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. OR TO THE ASSESSEE; (II). THAT IF IN THE COURSE OF THE SET ASIDE PROCEEDINGS IT EMERGES THAT THE AFORESAID PROJECT VIZ. REDEVELOPMENT PROJECT AT VILE PARLE PREM NAGAR CHS (PROP) FOR WHICH LOAN WAS R AISED BY THE ASSESSEE FROM DHFL BELONGS TO M/S SIGITIA CONSTRUCTION PVT. LTD. AND NOT TO THE ASSESSEE THEN THE A.O SHALL VERIFY AS TO WHETHER THE CONDIT IONS ENVISAGED IN SEC. 57(III) MAKING THE ASSESSEE ELIGIBLE TO CLAIM DEDUCTION OF THE INTEREST PAID ON THE LOANS RAISED FROM TO DHFL AGAINST THE INTEREST INCOME RECEIVED FROM THE ASSOCIATE CONCERNS ARE SATISFIED OR NOT ; (III). THAT THE A.O SHALL VERIFY AS TO WHETHER THE ASSESSEE HAD RIGHTLY QUANTIFIED AND THEREIN CAPITALISED THE CORRELATING INTEREST RELATABLE TO THE AMOUNT OF RS. 94 12 62 248/ - THAT WAS GIVEN TOWARDS ITS CAPITAL ASSET COMMITMENT TO ITS ASSOCIATE CONCERNS I.E M/S SIGTIA CONSTRUCTION PVT. LTD. ( RS. 40 17 97 248/ - ) AND M/S SAHANA BUILDERS AND DEVELOPERS PVT. LTD. ( RS. 53 94 65 000/ - ); AND (IV). THAT THE A.O SHALL VERIFY THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT THE AMOUNT OF RS. 17 29 27 728/ - RECEIVED BY IT AS INTEREST BEARING LOANS FROM M/S SKYLARK BUILDCOM PRIVATE LIMITED WAS UTILISED FOR PROVIDING INTEREST BEARING ADVANCES TO ITS ASSOCIATE CONCERNS AND THUS IT WAS ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SEC. 57(III) OF THE INTEREST PAID ON THE SAID LOAN AS AGAINST THE INTEREST RECEIVED FROM THE ASSOCIATE CONCERNS OR NOT . ACCORDINGLY IN TERMS OF OUR AFORESAID OBSERVATIONS THE MATTER IS RESTORED TO THE FILE OF THE A.O FOR FRESH ADJUDICATION. 2 6 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSERVATIONS. A.Y. 2013 - 14 APPEAL NO. 318/MUM/2019 ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 33 2 7 . WE SHALL NOW ADVERT TO THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2013 - 14. THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT(A) FOR A.Y. 2013 - 14 BY RAISING THE FOLLOWING GROUNDS OF APPEAL BEFORE US : 1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE VERSION OF THE ASSESSING OFFICER THAT YOUR APPELLANT IS HAVING PROJECT IN HAND. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR TREATING THE WHOLE INTEREST INCOME OF RS. 29 92 92 585 / - AS INCOME OF YOUR APPELLANT AND WITHOUT GIVING ANY DEDUCTION OF THE EXPENSES INCURRED BY YOUR APPELLANT FOR EARNING SAID INTEREST. 3. T HAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN CAPITALIZING THE WHOLE EXPENDITURE AS PART OF WORK - IN - PROGRESS IN SPITE OF THE FACT THAT YOUR A PPELLANT HAS NO PROJECT IN ITS HAND AND NO EXPENDITURE WHICH IS REQUIRED TO BE INCURRED FOR CARRYING OUT CONSTRUCTION ACTIVITIES HAVE BEEN INCURRED TILL THE DATE OF FILING OF THIS APPEAL. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW A S WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE ENTIRE INTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS. 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING ANY EXPENDITURE AS BUSINESS EXPENDITURE INCLUDING CLAIM OF PAYMENT OF INTEREST U/S. 36(1)(III) OR U/S. 37(1) OF THE INCOME TAX ACT. 6. WITHOUT PREJUDICE OF ABOVE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S. 57(III) OF THE INCOME TAX ACT 1961 IN RESP ECT OF EXPENDITURE INCURRED IN EARNING THE INTEREST INCOME. 7. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE EVIDENCES FILED BY WAY OF AFFIDAVIT ALONG WITH NECESSARY DOCUMENTARY PROOFS WHILE DECIDING THE ABOVE MATTER. 8. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT L TD. 60 ITR 52 (SC) REFERRED TO BY YOUR APPELLANT WHICH HELD THAT INTEREST ON BORROWED MONEY BE ALLOWED ON THE BASIS OF ITS USAGES AND NOT ON THE BASIS OF OBJECT FOR WHICH THE MONEY IS BORROWED. ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 34 THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A.Y. 2013 - 14 ON 30.09.2013 DE CLARING ITS INCOME AT RS. 78 010/ - . A SSESSEE DURING THE YEAR UNDER CONSIDERATION HAD EARNED INTEREST INCOME AGGREGATING TO RS. 29 92 92 585/ - ON THE INTEREST BEARING LOANS WHICH WERE ADVANCED BY IT TO ITS VARIOUS ASSOCIATE CONCERNS. FURTHER DURING THE YEAR UNDER CONSIDERATION THE ASSES S EE HAD PAID INTEREST AMOUNTING TO RS. 30 32 32 756/ - ON THE INTEREST BEARING LOANS WHICH WERE RAISED BY IT FROM DHFL AND ITS ASSOCIATE CONCERN I.E. M/S SKYLARK BUILDCON (P VT .) LTD. AS THE ASSESSEE DURING THE YEAR HAD UTILIZED PART OF THE INTEREST BEARING FUNDS AMOUNTING TO RS. 15 42 00 000/ - FOR PURCHASE OF SHARES OF M/S MYTHILI PROPERTIES PVT. LTD. THEREFORE INTEREST EXPENDITURE OF RS. 42 00 000/ - ATTRIBUTABLE TO THE AMOUNT UTILIZED FOR MAKING INVESTMENT IN PURCHASE OF SHARES WAS CAPITALIZED BY THE ASSESSEE. ACCORDINGLY THE BALANCE AMOUNT OF INTEREST PAID AMOUNTING TO RS. 29 90 32 756/ - WAS CLAIMED BY THE ASSESSEE AS AN EXPENSE AGAINST THE INTEREST INCOME EARNED BY IT ON THE LOANS WHICH WERE ADVANCED TO ITS ASSOCIATE CONCERNS. 2 8 . THE A.O WHILE FRAMING THE ASSESSMENT BEING OF THE VIEW THAT THE INTEREST EXPENDITURE OF RS. 29 90 94 952/ - AND OTHER EXPENSES OF RS. 1 17 988/ - INCURRED BY THE ASSESSEE FORMED PART OF THE COST OF ITS PROJECT WHICH HAD Y ET NOT COMMENCED THEREFORE CAPITALIZED THE SAME AS A PART OF THE PROJECT COST . AS SUCH THE A.O ASSESSED THE INTEREST RECEIVED BY THE ASSESSEE AMOUNTING TO RS. 29 92 92 585/ - AS ITS INCOME FROM O THER SOURCES AND DECLINED THE CLAIM OF DEDUCTION OF THE INTEREST PAID ON LOANS AMOUNTING TO RS. 29 90 94 952/ - AND OTHER EXPENSES OF RS. 1 17 988/ - THAT WAS RAISED AGAINST THE INTEREST INCOME OF RS. 29 92 92 585/ - RECEIVED BY THE ASSESSEE. ACCORDINGLY THE A.O ASSESSED THE INCOME OF THE ASSESSEE AT RS. 29 92 92 585/ - AS AGAINST ITS RETURNED INCOME OF RS. 78 010/ - . 2 9 . AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HOWEVER THE CIT(A) OBSERVING THAT THE FACTS AND THE ISSUE INVOLVED IN THE APPEAL REMAINED THE SAME AS WERE THERE BEFORE HIM IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2012 - 13 UPHELD THE ORDER OF THE A.O AND DISMISSED THE APPEAL. 30 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US . WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 35 REMAINS THE SAME AS WERE THERE BEFORE US IN THE APPEAL OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING Y EAR I.E. A.Y. 2012 - 13 IN ITA NO. 317/MUM/2019 THEREFORE OUR ORDER THEREIN PASSED SHALL APPLY MUTATIS MUTANDIS FOR DISPOSAL OF THE PRESENT APPEAL OF THE ASSESSEE FOR A.Y. 2013 - 14 IN ITA NO. 318/MUM/2019 . 31 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED F OR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSERVATIONS. A.Y. 2014 - 15 APPEAL NO. 319/MUM/2019 32 . WE SHALL NOW ADVERT TO THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2014 - 15. THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT(A) FOR A.Y. 2014 - 15 BY RAISING THE FOLLOWING GROUNDS OF APPEAL BEFORE US : 1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE VERSION OF THE ASSESSING OFFICER THAT YOUR APPELLANT IS HAVING PROJECT I N HAND. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR TREATING THE WHOLE INTEREST INCOME OF RS. 26 87 37 245 / - AS INCOME OF YOUR APPELL ANT AND WITHOUT GIVING ANY DEDUCTION OF THE EXPENSES INCURRED BY YOUR APPELLANT FOR EARNING SAID INTEREST. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSE SSING OFFICER IN CAPITALIZING THE WHOLE EXPENDITURE AS PART OF WORK - IN - PROGRESS IN SPITE OF THE FACT THAT YOUR APPELLANT HAS NO PROJECT IN ITS HAND AND NO EXPENDITURE WHICH IS REQUIRED TO BE INCURRED FOR CARRYING OUT CONSTRUCTION ACTIVITIES HAVE BEEN INCUR RED TILL THE DATE OF FILING OF THIS APPEAL. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE ENTIRE INTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS. 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING ANY EXPENDITURE AS BUSINE SS EXPENDITURE INCLUDING CLAIM OF PAYMENT OF INTEREST U/S. 36(1)(III) OR U/S. 37(1) OF THE INCOME TAX ACT. 6. WITHOUT PREJUDICE OF ABOVE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMI NG THE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 36 ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S. 57(III) OF THE INCOME TAX ACT 1961 IN RESPECT OF EXPENDITURE INCURRED IN EARNING THE INTEREST INCOME. 7. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE EVIDENCES FILED BY WAY OF AFFIDAVIT ALONG WITH NECESSARY DOCUMENTARY PROOFS WHILE DECIDING THE ABOVE MATTER. 8. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUM STANCES OF THE CASE IN NOT CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. 60 ITR 52 (SC) REFERRED TO BY YOUR APPELLANT WHICH HELD THAT INTEREST ON BORROWED MONEY BE ALLOWED ON THE BASIS OF ITS USAGES AND NOT ON THE B ASIS OF OBJECT FOR WHICH THE MONEY IS BORROWED. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A.Y. 2014 - 15 ON 30.09.2014 DECLARING A LOSS OF RS. 1 51 050/ - . A SSESSEE DURING THE YEAR UNDER CONSIDERATION HAD EARNED INTEREST INCOME AGGREGATING TO RS. 26 84 76 642/ - ON THE INTEREST BEARING LOANS WHICH WERE ADVANCED BY IT TO ITS VARIOUS ASSOCIATE CONCERNS. FURTHER DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS. 26 87 26 798/ - ON THE INTEREST BEARI NG LOANS WHICH WERE RAISED BY IT FROM DHFL AND ITS ASSOCIATE CONCERN I.E. M/S SKYLARK BUILDCON (P.) LTD. ACCORDINGLY THE INTEREST OF RS. 26 87 26 798/ - PAID BY THE ASSESSEE WAS CLAIMED AS AN EXPENSE AGAINST THE INTEREST INCOME OF RS. 26 84 76 642/ - EARNED BY IT ON THE LOANS WHICH WERE ADVANCED TO ITS ASSOCIATE CONCERNS. 33 . THE A.O WHILE FRAMING THE ASSESSMENT WAS OF THE VIEW THAT AS THE INTEREST EXPENDITURE OF RS. 26 87 26 798/ - AND OTHER EXPENSES OF RS. 1 62 548 / - INCURRED BY THE ASSESSEE FORMED PART OF THE COST OF ITS PROJECT WHICH HAD YET NOT COMMENCED THEREFORE HE CAPITALIZED THE SAME AS A PART OF THE PROJECT COST. AS SUCH THE A.O ASSESSED THE INTEREST RECEIVED BY THE ASSESSEE AMOUNTING TO RS. 26 84 76 642/ - AS ITS INCOME FROM O THER SOURCES AND D ECLINED THE CLAIM OF DEDUCTION RAISED BY THE ASSESSEE OF THE INTEREST PAID ON LOANS AMOUNTING TO RS. 26 87 26 798/ - AND OTHER EXPENSES OF RS. 1 62 548 / - AGAINST THE INTEREST INCOME OF RS. 26 84 76 642/ - THAT WAS RECEIVED BY THE ASSESSEE. ACCORDINGLY THE A.O ASSESSED THE INCOME OF THE ASSESSEE AT RS. 26 84 76 642/ - AS AGAINST ITS RETURNED LOSS OF RS. 1 51 050 /. 34 . AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HOWEVER THE CIT( A) OBSERVING THAT THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINED THE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 37 SAME AS WERE THERE BEFORE HIM IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2012 - 13 THUS HE UPHELD THE ORDER OF THE A.O AND DISMISSED THE APPEAL. 35 . THE ASSESSEE BEING AGG RIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME AS WERE THERE BEFORE US IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2012 - 13 IN ITA NO. 317/MU M/2019 THEREFORE OUR ORDER THEREIN PASSED SHALL APPLY MUTATIS MUTANDIS FOR DISPOSAL OF THE PRESENT APPEAL OF THE ASSESSEE FOR A.Y. 201 4 - 1 5 IN ITA NO. 319/MUM/2019 . 36 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSERVATIONS. A.Y. 2015 - 16 APPEAL NO. 320/MUM/2019 37 . WE SHALL NOW ADVERT TO THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2015 - 16. THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT(A) FOR A.Y. 2015 - 16 BY RAISING THE FOLLOWING GROUNDS OF APPEAL BEFORE US: 1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE VERSION OF THE ASSESSING OFFICER THAT YOUR APPELLANT IS HAVING PROJECT IN HAND. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR TREATING THE WHOLE INTEREST INCOME OF RS. 29 92 92 585 / - AS INCOME OF YOUR APPELLANT AND WITHOUT GIVING ANY DEDUCTION OF THE EXP ENSES INCURRED BY YOUR APPELLANT FOR EARNING SAID INTEREST. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN CAPITALIZING THE WHOLE EXPENDI TURE AS PART OF WORK - IN - PROGRESS IN SPITE OF THE FACT THAT YOUR APPELLANT HAS NO PROJECT IN ITS HAND AND NO EXPENDITURE WHICH IS REQUIRED TO BE INCURRED FOR CARRYING OUT CONSTRUCTION ACTIVITIES HAVE BEEN INCURRED TILL THE DATE OF FILING OF THIS APPEAL. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE ENTIRE INTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSIN ESS. 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 38 OFFICER IN NOT ALLOWING ANY EXPENDITURE AS BUSINESS EXPENDITURE INCLUDING CLAIM OF PAYMENT OF INTEREST U/S. 36(1)(III) OR U/S. 37(1) OF THE INCOME TAX ACT. 6. WITHOUT PREJUDICE OF ABOVE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL A S UNDER THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION U/S. 57(III) OF THE INCOME TAX ACT 1961 IN RESPECT OF EXPENDITURE INCURRED IN EARNING THE INTEREST INCOME. 7. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE EVIDENCES FILED BY WAY OF AFFIDAVIT ALONG WITH NECESSARY DOCUMENTARY PROOFS WHILE DECIDING THE ABOVE MATTER. 8. THAT THE COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED IN LAW AS WELL AS UNDER THE CIRCUMSTANCES OF THE CASE IN NOT CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. 60 ITR 52 (SC) REFERRED TO BY YOUR APPELLANT WHICH HELD THAT INTEREST ON BORROWED MONEY BE AL LOWED ON THE BASIS OF ITS USAGES AND NOT ON THE BASIS OF OBJECT FOR WHICH THE MONEY IS BORROWED. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR A.Y. 2015 - 16 ON 30.09.2015 DECLARING A LOSS OF RS. 1 35 11 379/ - . THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD EARNED INTEREST AGGREGATING TO RS. 28 54 71 491 / - ON THE INTEREST BEARING LOANS WHICH WERE ADVANCED BY IT TO ITS VARIOUS ASSOCIATE CONCERNS. FURTHER DURING THE YEAR UNDER CONS IDERATION THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS. 29 85 08 798 / - ON THE INTEREST BEARING LOANS WHICH WERE RAISED BY IT FROM DHFL AND ITS ASSOCIATE CONCERN I.E. M/S SKYLARK BUILDCON (P VT .) LTD. ACCORDINGLY THE INTEREST OF RS. 29 85 08 798 / - PAID B Y THE ASSESSEE WAS CLAIMED AS AN EXPENSE AGAINST THE INTEREST INCOME OF RS. 28 54 71 491/ - THAT WAS EARNED BY IT ON THE LOANS WHICH WERE ADVANCED TO ITS ASSOCIATE CONCERNS. 38 . THE A.O WHILE FRAMING THE ASSESSMENT WAS OF THE VIEW THAT AS THE INTEREST EXPEN DITURE OF RS. 29 85 08 798 / - AND OTHER EXPENSES OF RS. 31 70 760 / - INCURRED BY THE ASSESSEE FORMED PART OF THE COST OF ITS PROJECT WHICH HAD YET NOT COMMENCED THEREFORE HE CAPITALIZED THE SAME AS A PART OF THE PROJECT COST. AS SUCH THE A.O ASSESSED THE INTEREST RECEIVED BY THE ASSESSEE AMOUNTING TO RS. 28 54 71 491 / - AS ITS INCOME FROM O THER SOURCES AND DECLINED ITS CLAIM OF DEDUCTION OF THE INTEREST PAID ON LOANS AMOUNTING TO RS. 29 85 08 798 / - AND OTHER EXPENSES OF RS. 31 70 760 / - AGAINST THE AFORESAID INTEREST INCOME OF RS. 28 54 71 491 / - . ACCORDINGLY THE ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 39 A.O ASSESSED THE INCOME OF THE ASSESSEE AT RS. 28 54 71 491 / - AS AGAINST ITS RETURNED LOSS OF RS. 1 35 11 379 / - 39 . AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). H OWEVER THE CIT(A) OBSERVING THAT THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINED THE SAME AS WERE THERE BEFORE HIM IN THE CASE OF THE ASSESSEE FOR A.Y. 2012 - 13 UPHELD THE ORDER OF THE A.O AND DISMISSED THE APPEAL. 40 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME AS WERE THERE BEFORE US IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2012 - 13 IN ITA NO. 3 17/MUM/2019 THEREFORE OUR ORDER THEREIN PASSED SHALL APPLY MUTATIS MUTANDIS FOR DISPOSAL OF THE PRESENT APPEAL OF THE ASSESSEE FOR A.Y. 201 5 - 1 6 VIZ. ITA NO. 320/MUM/2019. 41 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSERVATIONS. 42 . THE APPEALS OF THE ASSESSEE FOR A.Y(S) 2012 - 13 TO 2015 - 16 I.E. ITA NO. 317 TO 320/MUM/2019 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR AFORESAID OBSERVATIONS ORDER PRO NOUNCED IN THE OPEN COURT ON 08 / 1 1 /201 9 SD/ - SD/ - ( N. K . PRADHAN ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 08 . 1 1 .201 9 PS. ROHIT KUMAR ITA NO. 317 TO 320/MUM/2019 - A.Y 2012 - 13 TO 2015 - 16 M/S PAWANSUT DWELLERS PVT. LTD. VS. ITO 40 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI