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Horizon Infrastructure Ltd. vs. ACIT

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1 year 2 months ago #3945 by mamta
Section - 10(2)(iii), 14A, 36(iii), 37(1), 8D(2)(ii), 36(1)(iii)
Order Date - 15-11-2017
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - Horizon Infrastructure Ltd.
Respondent - ACIT
Justice - G.S. PANNU AM & AMARJIT SINGH JM
Citation - 1117Taxpundit142
Appeal No. - ITA NO. 356/MUM/2015
Asstt. Year - 2010-11

Order

PER : G.S. PANNU, AM

The captioned appeal by the assessee is directed against the order of the CIT(A)-41, Mumbai dated 29.10.2014, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 26.3.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2. In its appeal, assessee has raised the following Grounds of appeal:-

“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax - (Appeals) [CIT(A)] has erred in upholding the views of the Assessing Officer (AO) by confirming the interest disallowance made of Rs.6,58,14,482/-.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the views of the AO by Confirming the disallowance made of Rs.1,01,25,000/- in respect of loan processing charges.

3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in computing disallowance u/s.14A of the Income Tax Act at Rs.89,57,903/- as against NIL considered by the appellant. The learned CIT(A) has further erred in considering the interest portion already disallowed of Rs.6,58,14,482/- u/s.36(iii)/37(1) of the Income Tax Act, while considering interest for the purposes of Rule 8D(2)(ii) r.w.s. 14A of the Income Tax Act. The AO has computed the disallowance u/s.14A at Rs.1,98,62,048/-.”

3. In brief, the relevant facts are that the appellant is a company incorporated under he provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of development of infrastructure projects. In an assessment finalised u/s 143(3) of the Act dated 26.3.2013, the total income was determined at Rs.16,53,00,190/- as against returned income of Rs.6,64,36,950/- after making certain additions/disallowances. The assessee’s appeal against such
additions/disallowances was partly allowed by the CIT(A) and not being satisfied with the order of CIT(A), assessee is in further appeal before us on the aforestated Grounds of appeal.

4. Insofar as the issue in Ground of appeal nos. 1 and 2 are concerned, the same relate to borrowing of Rs.200 crores made by the assessee during the year from Central Bank of India. In the course of assessment proceedings, the Assessing Officer required the assessee to explain the purpose for which the loan was utilised so as to justify the deduction of interest expenditure of Rs.15,07,16,855/-. Based on the details furnished by the assessee, it was noticed that the loan funds were utilised to make interest bearing advances to two entities, namely Shri Bhakti Realtors Pvt. Ltd. (in short ‘Shri Bhakti’) and Mahakaleshwar Knowledge Infrastructure Pvt. Ltd. (in short ‘Mahakaleshwar’) amounting to Rs. 50 crores and Rs.150 crores respectively. Assessee also explained that the purpose of advancing the money to Shri Bhakti was for meeting the expenditure for initial development of the project of the assessee to develop an industrial cluster at Navi Mumbai in an industrial park spread over an area of 300 to 500 acres. With regard to the advances made to Mahakaleshwar, it was explained that the amount was paid as an initial advance for development of a state-ofthe-art knowledge corridor in Navi Mumbai region on an area of 500 acres of land (approx.). Before the Assessing Officer, assessee also furnished the respective agreements entered with the two entities as also the loan sanction letter of Central Bank of India. The respective copies of Account with the two entities were also furnished to the Assessing Officer and it was also pointed out that Mahakaleshwar had become a subsidiary of the assessee-company after the close of the instant financial year. The Assessing Officer noted that assesseecompany had charged interest on the advances made to the two entities at a rate lower than the rate at which interest was paid to the bank. The Assessing Officer noted that since there was a direct nexus between the funds borrowed from the bank and the advances made to
the two entities, the interest expenditure incurred on payment to the bank was allowable only to the extent it was recouped from the two entities. In this view of the matter, the Assessing Officer held that interest expenditure was allowable to the extent of Rs.8,49,02,373/-, which was the amount recovered from the two entities, as against assessee’s claim for deductibility of expenditure of Rs.15,07,16,855/- representing the interest paid to the bank. As a consequence, an addition of Rs.6,58,14,482/- was made to the returned income. At this point, we may also notice that the loan processing charges of Rs.1,01,25,000/- incurred by the assessee for the purpose of obtaining the aforesaid loan from the bank has also been disallowed by the Assessing Officer for the reasons taken by him to disallow a portion of the interest expenditure. Both these aspects were carried in appeal before the CIT(A), who has upheld the same. Before us, said issues have been agitated by the assessee by way of Ground of appeal nos. 1 & 2 respectively.

5. At the time of hearing, the learned representative for the assessee vehemently pointed out that the partial disallowance of interest expenditure by the lower authorities is unjustified. The learned representative explained that the lower authorities have made a disallowance of Rs.6,58,14,482/- out of the total expenditure of Rs.15,07,16,855/-, which is comprised of two parts, namely, firstly, the

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