1. OS ITXA 1306 16.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1306 OF 2016 Pr. Commissioner of Income Tax - 15 .. Appellant Versus M/s. Chhaganlal Khmiji & Co Pvt Ltd .. Respondent ................... Mr. Suresh Kumar for Appellant ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : FEBRUARY 22, 2019. P.C.: 1. This appeal under Section 260 of Income Tax Act, 1961 ("the Act" for short), challenges order dated 23.9.2015 passed by Income Tax Appellate Tribunal ( Tribunal for short). 2. This appeal relates to Assessment Year 2010-11. 3. Revenue has urged following questions of law for our consideration:- a). Whether on facts and in circumstances of case and in law, Tribunal is correct in holding that interest is to be 1 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc treated as business income as against income from other sources? b). Whether on facts and circumstances of case and in law, Tribunal is correct in law in holding that interest expense amounting to Rs. 2,31,96,641/- for investment in shares of PPL and for construction activities and not to carry interest to WIP? c). Whether on facts and circumstances of case and in law, Tribunal is correct in law in holding that provisions of Section 14A is not applicable as no income had earned which is exempt under I.T. Act? d). Whether on facts and circumstances of case and in law, Tribunal is correct in law in holding that interest of Rs. 1,45,40,727/- of money borrowed for premium paid on preference shares is not covered by provisions of Section 14A? 4. We note that question No. (b) is aspect of Question No. (a) and question No. (d) is aspect of question No. (c). Therefore, we club question Nos. (a) and (b) for consideration and also question Nos. (c) and (d) for consideration. 5. Regarding Question No. (a) & (b) :- 5.1 respondent is company engaged in construction of commercial and residential complexes and also in investment including lending / advancing money. 2 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc During course of scrutiny assessment proceedings, Assessing Officer treated interest income of Rs. 3.65 crore earned by assessee as income from other source not as business income which was claimed by respondent. It also disallowed claim of interest expenditure as business expenditure to extent of Rs. 2.31 crore and even held that it cannot be allowed as deduction under Section 57 of Act, while determining income from other source. 5.2 Being aggrieved, respondent filed appeal to Commissioner of Income Tax [Appeals] ("CIT(A)" for short). By order dated 4.10.2013, CIT(A), on examination of records, found interest earned is to be taxed as business income. It also held that interest expended is to be allowed as business expenditure. 5.3 Being aggrieved with order dated 4.10.2013, Revenue filed appeal to Tribunal. By impugned order, Tribunal found on examination of record that respondent was engaged in business of construction as well as lending of money. impugned 3 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc order records fact that even if no interest income has been earned, interest paid has to be allowed as revenue expenditure. This as it found facts has incurred to carry on business. So also it held that interest income earned has to be termed as business income in present facts. This as its activity of lending money was separate activity of business besides construction. Accordingly, appeal of Revenue was dismissed. 5.4 We find both CIT(A) and Tribunal on examination of records found that respondent was engaged in construction activities as well as in activity of lending money. mere fact that respondent did not earn any income on its investment made, interest expenditure would not cease to be expenditure incurred for business. concurrent finding of fact by CIT (A) and Tribunal cannot be found fault with. Accordingly, question as proposed does not give rise to any substantial question of law. Thus, two questions are not entertained. 4 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc 6. Regarding Question No. (c) & (d) : 6.1 In its computation of income, respondent had worked out suo motu disallowance of Rs. 1.28 lacs under Section 14A of Act. Assessing Officer did not accept same and and on application of Section 14A read with 8D of Income Tax Rules ("Rules" for short) disallowed sum of Rs. 3.14 crore. This essentially on ground of interest paid towards purchase of preference shares in group company M/s. PPL. 6.2 Being aggrieved by, respondent filed appeal to CIT(A). By order dated 4.10.2013, CIT(A) confirmed disallowance made by Assessing Officer under Section 14A of Act. 6.3 Being aggrieved, respondent filed appeal before Tribunal. By impugned order, Tribunal held that no disallowance is warranted under Section 14A of Act as assessee is not in receipt of any exempt income during subject assessment year 2010-11. impugned order of Tribunal inter alia placed reliance 5 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc upon decision of this Court in CIT Vs. Delite Enterprises1, decision of Gujrat High Court in case of CIT Vs. Corrtech Energy (P) Ltd2 and decision of Allahabad High Court in case of CIT Vs. M/s Shivam Motors Pvt. Ltd.3. Therefore, allowed respondent assessee's appeal. 6.4 Mr. Suresh Kumar submits that after decision of Apex Court in case of Maxopp Investment Ltd Vs. CIT, New Delhi4, disallowance under Section 14A of Act would have to be done even if assessee is not in receipt of any income for said assessment year. 6.5 We closely perused decision of Apex Court in Maxopp Investemnt Ltd (supra). We note that Apex Court was not directly concerned with issue arising here. However, it does make observation at para 32 thereof that "Axiomatically, it is that expenditure alone which has been incurred in relation to income which is includible in total income that has to be disallowed." . In fact, 1 Income Tax Appeal No. 110 of 2009 dated 25.6.2012 2 372 ITR 97 3 2014 TIOL 754 4 [2018] 91 taxmann.com 154(SC) 6 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc Supreme Court in Principal CIT Vs. Chettinad Logistics (P) Ltd5 dismissed Revenu's SLP from order of Madras High Court in CIT Vs. Chettinad Logistics (P) Ltd holding that Section 14A of Act cannot be invoked where no exempt income is earned by assessee. It is relevant to note that decision of Apex Court in Chettinad Logistics (P) Ltd (supra) was rendered on 2.7.2018 i.e much after its decision in Maxopp Investment Ltd (supra) on 12.2.2018. Thus, reliance on Maxopp Investment Ltd (supra) on part of Revenue is not correct. Therefore, no fault can be found in impugned order to extent it holds that where no exempt income is earned in subject assessment year, occasion to disallow any expenditure under Section 14A could not arise. 6.6 In above view, as this question also stands concluded by decision of this Court, question as proposed does not give rise to any substantial question of law. Thus, not entertained. 5 2018 (257) Taxman 2 (SC) 7 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: 1. OS ITXA 1306 16.doc 7. Accordingly, Income Tax Appeal is dismissed. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ] 8 of 8 ::: Uploaded on - 26/02/2019 ::: Downloaded on - 27/02/2019 11:29:43 ::: Pr. Commissioner of Income-tax - 15 v. Chhaganlal Khmiji & Co Pvt Ltd