1. The ITAT Mumbai held that interest received by the property developer, on temporary deposits of surplus money out of advances received by from intending purchases was business incomes and not income from other sources.
2. The ruling was made by a division bench comprising of members Shri Saktijit Dey, JM And Shri Manoj Kumar Aggarwal, AM in the case of DCIT Vs M/S. Asian Infra Projects Private Limited. The assessee is engaged in the business of real estate, was assessed and during assessment proceedings, it was revealed that the assessee did not carry out any business activity of real estate.
3. However, the assessee reflected interest income of Rs.144.41 Lacs which mainly consisted of interest on loans and interest on Income Tax Refund. The said income was offered as business income and against interest income, the assessee claimed administrative and other expenses as well as interest expenditure.
4. As per the observations of Ld. AO, the loans obtained by the assessee appeared to have been diverted to directors/sister concerns. The assessee paid interest of 12% to a couple of lenders and interest of 16% to one lender whereas it was receiving interest of 12% on its own lending. It was noted that the assessee was not a financing company and it had no license of money lending and therefore, the interest income was assessable under the head income from other sources as against business income offered by the assessee. Consequently, interest expenditure was not allowed as deduction either u/s 36(1)(iii) or u/s 57 of the Act.
5. The Ld. CIT(A) was directed Ld. AO to treat the interest income as business incomes and allow interest expenditure against the same. Aggrieved by aforesaid adjudication, the revenue has filed this appeal.
6.The court held that Ld. CIT(A) has decided the issue in the right perspective. It is quite evident that the business of the assessee was already set-up since the assessee had already reflected income from the real estate business during AY 2008-09. The assessee has obtained unsecured loans and which has substantially been advanced to directors & others to make-up for the accumulated losses incurred by the assessee over the years. Therefore, there was a complete nexus between the borrowings and lending made by the assessee. This being the case, the interest expenditure having direct nexus with interest income was clearly allowable to the assessee.