2025:BHC-OS:13931-DB IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 584 OF 2003 Modi Business Centre Pvt. Ltd. ...Appellant -Versus-

DC (IT) Spl. Rg. 19, Bombay ...Respondent Mr. Bharat Raichandani with Bhagrai Sahu i/b. M/s. UBR Legal, for the Appellant-Assessee.

Mr. Arjun Gupta, for Respondent-Revenue.

CORAM : ALOK ARADHE, CJ. &

SANDEEP V. MARNE, J.

RESERVED ON : 14 AUGUST 2025 PRONOUNCED ON : 21 AUGUST 2025 JUDGMENT : (Per : Sandeep V. Marne, J.)

1) By this Appeal filed under Section 260-A of the Income Tax Act, 1961 (the Act) the Assessee has challenged order dated 28 January 2003 passed by the Income Tax Appellate Tribunal allowing the appeal filed by the Revenue and setting aside the order passed by the Commissioner of Income Tax (Appeals) and restoring the order passed by the Assessing Officer. The Appeal pertains to the Assessment Year

1992-93.

2) Brief facts, leading to filing of the Appeal are that the Assessee is a private limited company incorporated on 17 February 1992 under the provisions of the Companies Act, 1956 with the objective of constructing business centres, buildings, houses, premises, etc. and to let on lease the same, in addition to the business of financing. In respect of Assessment Year 1992-93, the Assessee filed return of income declaring income of Rs.5,966/- under the head “business”. Return was accompanied by profit and loss account which showed interest receipt of Rs.14,66,825/-, against which deduction of interest of Rs.13,37,225/- on fixed loan, guarantee commission of Rs.1,21,759/- and other sundry expenses were claimed and net profit of Rs.5,966/- was shown. The Assessee had borrowed money on interest from Citibank during the period from 18 February 1992 to 21 March 1992. It was the case of the Assessee before the Assessment Officer that loan from Citibank was not only for expenses for furnishing the building, but the loan agreement provided for disbursal of loan for the purpose of business of the borrower. According to the Assessee, while the main object of the incorporation of the Company was to let out premises on rent, Clause 65 of the Memorandum of Association (MoA) provided for other objects like business of financiers. The Assessee had utilized part of loan secured from Citibank for lending advances to its sister concerns. The Assessee had therefore set off the interest expenditure on monies borrowed from Citibank against the interest income from funds lend to sister concerns.

3) The Assessment Officer while completing the assessment under Section 143(3) of the Act, observed that the Assessee had secured loan of Rs.9,20,08,846/- from Citibank against equitable mortgage by deposit of title deeds of immovable properties belonging to companies under the same management and guaranteed by the Directors of the Assessee- Company. Out of the said loan, amount of Rs.12,62,963/- and Rs.8,15,147/- were incurred for capital advances and pre- operative expenses and the balance amount was advanced to various companies under the same management at interest varying from 21% to 22.5%. The Assessee had shown the interest received from its sister companies of Rs.14,66,825/- in its profit and loss account and claimed expenditure of Rs.13,37,225/- paid to Citibank towards interest on borrowed amount. The Assessing Officer held that the Assessee was not entitled to set off interest receipt against interest expenditure as interest receipt was assessable under head “other sources” without any deduction. It was further held by the Assessing Officer that business of the Assessee-Company had not commenced during the previous year since no rent had been received from Citibank, with whom Assessee had entered into agreement during the year for leasing out the business centres by name ‘Telicom Centre”. The Assessing Officer therefore proceeded to bring to tax the interest receipt of Rs.14,66,825/- as income of the Assessee from “other sources” without allowing any de