DCIT(CC)-8(3), MUMBAI V. LOKHANDWALA KATARIA CONSTRUCTION (PVT) LTD, MUMBAI

ITA 3878/MUM/2024

AI Insights

The case involves appeals by the Revenue against the orders of the Commissioner of Income-tax (Appeals) which had deleted the disallowances of interest claimed by the assessee, M/s Lokhandwala Kataria Construction (Pvt) Ltd., for the assessment years 2017-18 and 2018-19. The primary issue was whether the interest-free loans given to a sister concern were for the purpose of business. The Tribunal examined the facts, including the financial arrangements and the purpose of the loans, and concluded that the loans were not for business purposes, leading to the disallowance of the claimed interest.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474474 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: SA Builders vs. CIT, Hero Cycles Pvt. Ltd. vs. CIT, Chemosyn Ltd. vs. ACIT, CIT vs. Chemosyn Ltd.
• Laws Referred To: Income-tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM KRISHN KEDIA
• Assessee Lawyers: DHARMESH SHAH; DHAVAL SHAH
• Keywords: Business income; Depreciation; Sale consideration of property below Jantri Value; Commercial expediency; TDS; Unabsorbed depreciation
• Section: 143(3); 43CA; 28; 50C; 2(22)(e)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA Nos. 3879 & 3878/MUM/2024 Assessment Years: 2017-18 & 2018-19 DCIT, Central Circle-8(3), Room No. 656, 6th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. M/s Lokhandwala Kataria Construction (Pvt) Ltd., 72, Gandhi Nagar Off, Dainil Shivner Road, Worli, S.O. Mumbai-400018. PAN NO. AAACL 5105 A Appellant Respondent CO No. 193/MUM/2024 (Arising out of ITA No. 3878/MUM/2024 Assessment Year: 2018-19 M/s Lokhandwala Kataria Construction (Pvt) Ltd., 72, Gandhi Nagar Off, Dainil Shivner Road, Worli, S.O. Mumbai-400018. Vs. DCIT, Central Circle-8(3), Room No. 656, 6th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN NO. AAACL 5105 A Appellant Respondent Assessee by : Mr. Dharmesh Shah & Mr. Dhaval Shah Revenue by : Mr. Ram Krishn Kedia, Sr. DR Date of Hearing : 04/03/2025 Date of pronouncement : 18/03/2025 PER OM PRAKASH KANT, AM The captioned appeals by the Revenue for assessment year 2017-18 and 2018-19 are directed against two separate order passed by the Ld. Commissioner of Income Mumbai [in short ‘the Ld. CIT(A)’], whereas, the cross been filed by the assessee 2. As the common grounds have been raised in these appeals and cross objections, disposed off by way of this consolidated order for the sake of convenience. 3. Firstly, we take up the appeal of the Revenue for assessment year 2017-18. The sole ground as under: Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance of Interes 36(1)(iii) amounting to Rs facts brought out by the Assess disallowance of Interest claimed as expenditure should be made to the extent of Interest free loans given to Lo Pvt. Ltd. as the same is not incurred for the purpose 4. Briefly stated, return of income on 31.10.2017 declaring loss at Rs.8,50,91,969/ The return of income filed by the assessee was selected for scrutiny M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 ORDER PER OM PRAKASH KANT, AM The captioned appeals by the Revenue for assessment year 19 are directed against two separate order passed by the Ld. Commissioner of Income-tax (Appeals) Mumbai [in short ‘the Ld. CIT(A)’], whereas, the cross been filed by the assessee for assessment year 2018- As the common grounds have been raised in these appeals and cross objections, therefore, same were heard together and disposed off by way of this consolidated order for the sake of we take up the appeal of the Revenue for assessment sole ground raised by the Revenue Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance of Interes 36(1)(iii) amounting to Rs.8,85,77,454/- without appreciating the facts brought out by the Assessing Officer that the proportionate disallowance of Interest claimed as expenditure should be made to the extent of Interest free loans given to Lokhandwala Infrastructure d. as the same is not incurred for the purpose of facts of the case are that the assessee filed return of income on 31.10.2017 declaring loss at Rs.8,50,91,969/ The return of income filed by the assessee was selected for scrutiny M/s Lokhandwala Kataria Construction (Pvt) Ltd 2 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 The captioned appeals by the Revenue for assessment years 19 are directed against two separate orders tax (Appeals) – 50, Mumbai [in short ‘the Ld. CIT(A)’], whereas, the cross-objection has -19. As the common grounds have been raised in these appeals therefore, same were heard together and disposed off by way of this consolidated order for the sake of we take up the appeal of the Revenue for assessment raised by the Revenue is reproduced Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance of Interest u/s without appreciating the ing Officer that the proportionate disallowance of Interest claimed as expenditure should be made to khandwala Infrastructure of business? facts of the case are that the assessee filed return of income on 31.10.2017 declaring loss at Rs.8,50,91,969/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act disallowances were made. On further appeal, the Ld. CIT(A) on the issue of proportionate disallowance of the interest amounting to Rs.8,85,77,454/- allowed relief to the assessee. Aggrieved Revenue is in appeal before us by way of raising grounds as reproduced above. 5. Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 99. 5.1 The sole ground Rs.8,85,77,454/- out of interest paid progress (WIP) for the reason that assessee diverted interest bearing funds towards interest free advances to sister concern. facts qua the issue in dispute are that the assessee carrying out construction of residential tower namely located in Mumbai. The assessee received funding investment firm namely M/s amounting to Rs.100 crore in 2006. As part of the funding arrangement, entered into between assessee and TC5 interalia, that approval was required to be taken company from ‘TC5 M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 assessment and statutory notices under the Income ‘the Act’) were issued and complied with. In the completed u/s 143(3) of the Act certain additions/ disallowances were made. On further appeal, the Ld. CIT(A) on the issue of proportionate disallowance of the interest amounting to allowed relief to the assessee. Aggrieved Revenue is in appeal before us by way of raising grounds as Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 99. The sole ground of the appeal relates to disallowance of out of interest paid and debited to work in for the reason that assessee diverted interest bearing funds towards interest free advances to sister concern. e in dispute are that the assessee carrying out construction of residential tower namely located in Mumbai. The assessee received funding namely M/s Tricona Capital (Five) Ltd. (TC5) amounting to Rs.100 crores for construction of the aforesaid project in 2006. As part of the funding arrangement, an entered into between assessee and TC5 which contained conditions, that approval was required to be taken by the assessee TC5’ for any major business M/s Lokhandwala Kataria Construction (Pvt) Ltd 3 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 assessment and statutory notices under the Income-tax Act, 1961 ‘the Act’) were issued and complied with. In the certain additions/ disallowances were made. On further appeal, the Ld. CIT(A) on the issue of proportionate disallowance of the interest amounting to allowed relief to the assessee. Aggrieved, the Revenue is in appeal before us by way of raising grounds as Before us, the Ld. counsel for the assessee filed a Paper Book of the appeal relates to disallowance of and debited to work in for the reason that assessee diverted interest bearing funds towards interest free advances to sister concern. The brief e in dispute are that the assessee was engaged in carrying out construction of residential tower namely ‘Minerva’ located in Mumbai. The assessee received funding from a Tricona Capital (Five) Ltd. (TC5) s for construction of the aforesaid project agreement was which contained conditions, by the assessee business decisions. Subsequently, the assessee had taken term loan from Bank of Baroda for Rs.100 crores and Allahabad Bank for Rs.50 crores in 2014. Out of the said funds, the assessee carried out construction completing up to 51st getting Floor Space Index construction could not assessee submitted that i could not make payment of inst which resulted into account of the assessee converted into non performing assets (NPA) Baroda’ on 31.12.2015 and banks started legal action against the assessee. Under the circumstances, the assessee approached India Bulls Housing Finance Ltd. construction of project and repay the loan Allahabad Bank. For this purpose, the assessee sought approval from TC5 but same was denied and the said company sought exit from the project. After several discussion and communication between assessee and TC5, the assessee agreed for exit of the TC5 as shareholder from the assessee company so that assessee could take loan and construct the pending building shareholding of the TC5 by another sister Lokhandwala Infrastruction Pvt. Ltd. proceedings the AO found that the Rs.384.83 crores for construction of its real estate project from M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 assessee had taken term loan from Bank of Baroda for Rs.100 crores and Allahabad Bank for Rs.50 crores in 2014. Out of the said funds, the assessee carried out construction st floors in 2014, but there was Floor Space Index (FSI) for balance floors and hence the on could not be continued from 2014 onwards. assessee submitted that in view of the financial crunch faced could not make payment of installments for loans to the banks which resulted into account of the assessee converted into non (NPA) by the ‘Allahabad Bank on 31.12.2015 and banks started legal action against the assessee. Under the circumstances, the assessee approached India Bulls Housing Finance Ltd. to avail further loan for construction of project and repay the loan of Bank of Baroda and . For this purpose, the assessee sought approval from TC5 but same was denied and the said company sought exit from the project. After several discussion and communication between assessee and TC5, the assessee agreed for exit of the TC5 from the assessee company so that assessee could take loan and construct the pending building ng of the TC5 by another sister Lokhandwala Infrastruction Pvt. Ltd. During the assessment proceedings the AO found that the assessee availed loan of Rs.384.83 crores for construction of its real estate project from M/s Lokhandwala Kataria Construction (Pvt) Ltd 4 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 assessee had taken term loan from Bank of Baroda for Rs.100 crores and Allahabad Bank for Rs.50 crores in 2014. Out of the said funds, the assessee carried out construction there was some delay in (FSI) for balance floors and hence the from 2014 onwards. The n view of the financial crunch faced, it allments for loans to the banks which resulted into account of the assessee converted into non- Allahabad Bank’ and ‘Bank of on 31.12.2015 and banks started legal action against the assessee. Under the circumstances, the assessee approached M/s to avail further loan for of Bank of Baroda and . For this purpose, the assessee sought approval from TC5 but same was denied and the said company sought exit from the project. After several discussion and communication between assessee and TC5, the assessee agreed for exit of the TC5 from the assessee company so that assessee could take loan and construct the pending building and substitute concern M/s During the assessment assessee availed loan of Rs.384.83 crores for construction of its real estate project from India Bull Housing Finance Ltd. Out of total amount, an amount of Rs.107.5 crore has been forwarded as interest free loan to its group concern i.e. Lokhandwala of the assessee from TC5 and thereby allowing the exit TC5. The Assessing Officer has disallowed the interest payment to India Bulls Housing Finance Ltd corresponding to the advance of Rs.107.5 crores to Lokhanwala Infr loan. According to the Assessing Officer, it was a diversion of the funds for non-business purposes and therefore, the interest corresponding to the advance to Lokhandwala Infrastructure Pvt. Ltd. was liable to be d But according to the Ld. CIT(A) said advance was for the purpose of the business need and survival of the company so that construction of the pending building could be completed. According to the Ld. CIT(A), the delay in getting further funds was adding to the interest cost of pending loans as well as legal action against the company. The Ld. CIT(A) also relied on the Court in the case of SA Builders 288 ITR 1 free loan were advanced for commercial expediency fund, then interest on borrowed fund is 6. We have carefully considered the rival submissions and perused the material available on record case laws relied upon by the assessee: M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 Bull Housing Finance Ltd. Out of total amount, an amount of been forwarded as interest free loan to its group concern i.e. Lokhandwala Infrastructure Pvt. Ltd for buying shares of the assessee from TC5 and thereby allowing the exit TC5. The Assessing Officer has disallowed the interest payment to India Bulls Housing Finance Ltd corresponding to the advance of Rs.107.5 Lokhanwala Infrastructure Pvt. Ltd. as an interest free loan. According to the Assessing Officer, it was a diversion of the business purposes and therefore, the interest corresponding to the advance to Lokhandwala Infrastructure Pvt. Ltd. was liable to be disallowed invoking section 36(1)(iii) of the Act. But according to the Ld. CIT(A) said advance was for the purpose of the business need and survival of the company so that construction of the pending building could be completed. According to the Ld. , the delay in getting further funds was adding to the interest cost of pending loans as well as legal action against the company. The Ld. CIT(A) also relied on the decision of the Hon’ble Supreme SA Builders 288 ITR 1 to support that free loan were advanced for commercial expediency fund, then interest on borrowed fund is allowable expenditure. We have carefully considered the rival submissions and perused the material available on record including the following case laws relied upon by the assessee: M/s Lokhandwala Kataria Construction (Pvt) Ltd 5 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 Bull Housing Finance Ltd. Out of total amount, an amount of been forwarded as interest free loan to its group for buying shares of the assessee from TC5 and thereby allowing the exit TC5. The Assessing Officer has disallowed the interest payment to India Bulls Housing Finance Ltd corresponding to the advance of Rs.107.5 astructure Pvt. Ltd. as an interest free loan. According to the Assessing Officer, it was a diversion of the business purposes and therefore, the interest corresponding to the advance to Lokhandwala Infrastructure Pvt. isallowed invoking section 36(1)(iii) of the Act. But according to the Ld. CIT(A) said advance was for the purpose of the business need and survival of the company so that construction of the pending building could be completed. According to the Ld. , the delay in getting further funds was adding to the interest cost of pending loans as well as legal action against the company. decision of the Hon’ble Supreme to support that interest out of borrowed allowable expenditure. We have carefully considered the rival submissions and including the following  Decision of Hon'ble Supreme Court in the case of S.A. Builder Ltd. v. CIT [(288 ITR 1]  Decision of Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. v. CIT [379 ITR 347]  Decision of H Chemosyn Ltd. N. ACIT [139 ITD 68]  Decision of Hon'ble Bombay High Court in the case of CIT v. Chemosyn Ltd. 6.1 It is an undisputed fact that the assessee obtained an interest bearing loan of ₹384.83 cro Ltd. (hereinafter referred to as ‘India Bulls’) construction and out of that interest free advance of Rs. 107.5 crores has been transferred to related concern namely M/s Lokhandwala Infrastructure Pvt states that the amount of interest paid in respect of ‘capital borrowed’ for the purposes of business or profession has to be allowed as a deduction for computing income under section 28 of the Act. The Hon’ble Supr (supra) held that the expression includes expenditure incurred voluntarily for ‘commercial expediency’ and it is immaterial if a third party also benefited thereby. Thus, the core issue for before us is whether the interest advanced by the assessee Lokhandwala Infrastructure Pvt. Ltd. qualifies as an act of ‘commercial expediency.’ M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 Decision of Hon'ble Supreme Court in the case of S.A. Builder Ltd. v. CIT [(288 ITR 1] Decision of Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. v. CIT [379 ITR 347] Decision of Hon'ble Mumbai Tribunal in the case of Chemosyn Ltd. N. ACIT [139 ITD 68] Decision of Hon'ble Bombay High Court in the case of CIT v. Chemosyn Ltd. [371 ITR 427] It is an undisputed fact that the assessee obtained an interest 384.83 crores from India Bulls Housing Finance Ltd. (hereinafter referred to as ‘India Bulls’) for the purpose of construction and out of that interest free advance of Rs. 107.5 crores has been transferred to related concern namely M/s Lokhandwala Infrastructure Pvt. Ltd. The section 36(1)(iii) of the Act states that the amount of interest paid in respect of ‘capital borrowed’ for the purposes of business or profession has to be allowed as a deduction for computing income under section 28 of the Act. The Hon’ble Supreme Court in the case of SA Builders (supra) held that the expression- for the purpose of business includes expenditure incurred voluntarily for ‘commercial expediency’ and it is immaterial if a third party also benefited he core issue for adjudication in the present case is whether the interest-free loan of advanced by the assessee—out of interest-bearing borrowings Lokhandwala Infrastructure Pvt. Ltd. qualifies as an act of ‘commercial expediency.’ M/s Lokhandwala Kataria Construction (Pvt) Ltd 6 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 Decision of Hon'ble Supreme Court in the case of S.A. Decision of Hon'ble Supreme Court in the case of Hero on'ble Mumbai Tribunal in the case of Decision of Hon'ble Bombay High Court in the case of It is an undisputed fact that the assessee obtained an interest- res from India Bulls Housing Finance for the purpose of construction and out of that interest free advance of Rs. 107.5 crores has been transferred to related concern namely M/s The section 36(1)(iii) of the Act states that the amount of interest paid in respect of ‘capital borrowed’ for the purposes of business or profession has to be allowed as a deduction for computing income under section 28 of eme Court in the case of SA Builders for the purpose of business includes expenditure incurred voluntarily for ‘commercial expediency’ and it is immaterial if a third party also benefited adjudication in the present case free loan of ₹107.5 crores bearing borrowings—to Lokhandwala Infrastructure Pvt. Ltd. qualifies as an act of 6.2 Upon examining the facts, we note that Lokhandwala Infrastructure Pvt. Ltd. is a related entity of the assessee. In our considered view, had Lokhandwala Infrastructure Pvt. Ltd. been genuinely interested in acquiring a stake in the assessee, it could have directly availed an interest India Bulls. There appears to be no justifiable reason for the assessee to route funds to Lokhandwala Infrastructure Pvt. Ltd. in this manner. However, if Lokhandwala Infrastructure Pvt. Ltd. had directly availed the loan, the interest expenditure would not have been allowable as the funds were utilized for capital investment. The contention of the assessee of extending interest free loan for substituting TC5 by Lokhandwala Infrastructure Pvt. Ltd as a shareholder was being a documentary evidence has been filed indicating of insufficient funds in the hands of Lokhandwala Infrastructure Pvt. Ltd of raising interest bearing funds from banks or market. circumstances of the case, it is evident that the substituting of the shareholding of TC5 through Lokhandwala Infrastructure Pvt. Ltd. was a mechanism devised by the assess deduction on the ₹107.5 crores loan, which otherwise would not have been permissible in the hands of Lokhandwala Infrastructure Pvt. Ltd. Furthermore, disallowed the interest corresponding M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 ining the facts, we note that Lokhandwala Infrastructure Pvt. Ltd. is a related entity of the assessee. In our considered view, had Lokhandwala Infrastructure Pvt. Ltd. been genuinely interested in acquiring a stake in the assessee, it could availed an interest-bearing loan of ₹107.5 crores from India Bulls. There appears to be no justifiable reason for the assessee to route funds to Lokhandwala Infrastructure Pvt. Ltd. in this manner. However, if Lokhandwala Infrastructure Pvt. Ltd. had tly availed the loan, the interest expenditure would not have been allowable as the funds were utilized for capital investment. The contention of the assessee of extending interest free loan for substituting TC5 by Lokhandwala Infrastructure Pvt. Ltd as a being a business need, is at all not convincing. documentary evidence has been filed indicating of insufficient funds Lokhandwala Infrastructure Pvt. Ltd of raising interest bearing funds from banks or market. circumstances of the case, it is evident that the substituting of the shareholding of TC5 through Lokhandwala Infrastructure Pvt. Ltd. was a mechanism devised by the assessee to claim an interest 107.5 crores loan, which otherwise would not have been permissible in the hands of Lokhandwala Infrastructure Pvt. Ltd. Furthermore, we note that the Assessing Officer has not disallowed the interest corresponding to the borrowings utilized by M/s Lokhandwala Kataria Construction (Pvt) Ltd 7 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 ining the facts, we note that Lokhandwala Infrastructure Pvt. Ltd. is a related entity of the assessee. In our considered view, had Lokhandwala Infrastructure Pvt. Ltd. been genuinely interested in acquiring a stake in the assessee, it could 107.5 crores from India Bulls. There appears to be no justifiable reason for the assessee to route funds to Lokhandwala Infrastructure Pvt. Ltd. in this manner. However, if Lokhandwala Infrastructure Pvt. Ltd. had tly availed the loan, the interest expenditure would not have been allowable as the funds were utilized for capital investment. The contention of the assessee of extending interest free loan for substituting TC5 by Lokhandwala Infrastructure Pvt. Ltd as a is at all not convincing. No documentary evidence has been filed indicating of insufficient funds Lokhandwala Infrastructure Pvt. Ltd or its inability of raising interest bearing funds from banks or market. From the circumstances of the case, it is evident that the substituting of the shareholding of TC5 through Lokhandwala Infrastructure Pvt. Ltd. ee to claim an interest 107.5 crores loan, which otherwise would not have been permissible in the hands of Lokhandwala Infrastructure the Assessing Officer has not to the borrowings utilized by the assessee for its construction business the purpose of business 6.3 In our considered opinion, the extension of an interest loan to Lokhandwala Infrastructure Pvt. Ltd. lacks commercial justification. The loan has been taken from India Bulls for the purpose of construction activity and not for the purpose of loan to related concern. Moreover, the assessee has not filed any evidence to show that any attempt were made for substitution of shareholding of TC5 by than transferring the said shareholding to by way of providing interest free loan. incurring an interest liability towards India Bulls, there is no rationale for not charging interest on the loan extended to a related concern. The loan from a private limited liability company to its share holder also deemed to be shareholder company subject to the other conditions provid under section 2(22)(e) of the Act. assessee are distinguishable on facts. Builders(supra), the loan was granted to sister concern as measure of commercial expediency but in the case expediency has been established. (supra), loan was granted to additional margin to meet working capital M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 the assessee for its construction business being same incurred for the purpose of business. In our considered opinion, the extension of an interest loan to Lokhandwala Infrastructure Pvt. Ltd. lacks commercial The loan has been taken from India Bulls for the purpose of construction activity and not for the purpose of loan to Moreover, the assessee has not filed any evidence to show that any attempt were made for substitution of ing of TC5 by way of an open offer to public at large rather than transferring the said shareholding to a related entity that too by way of providing interest free loan. When the assessee is incurring an interest liability towards India Bulls, there is no rationale for not charging interest on the loan extended to a related The loan from a private limited liability company to its share holder also deemed to be a dividend in the hands of the shareholder company subject to the other conditions provid under section 2(22)(e) of the Act. The cases laws relied upon by the distinguishable on facts. In the case of SA Builders(supra), the loan was granted to sister concern as measure of commercial expediency but in the case no such commercial expediency has been established. In the case of Hero Cycles P Ltd (supra), loan was granted to subsidiary company for additional margin to meet working capital for meeting any cash M/s Lokhandwala Kataria Construction (Pvt) Ltd 8 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 being same incurred for In our considered opinion, the extension of an interest-free loan to Lokhandwala Infrastructure Pvt. Ltd. lacks commercial The loan has been taken from India Bulls for the purpose of construction activity and not for the purpose of loan to Moreover, the assessee has not filed any evidence to show that any attempt were made for substitution of an open offer to public at large rather related entity that too When the assessee is incurring an interest liability towards India Bulls, there is no rationale for not charging interest on the loan extended to a related The loan from a private limited liability company to its dividend in the hands of the shareholder company subject to the other conditions provided cases laws relied upon by the In the case of SA Builders(supra), the loan was granted to sister concern as measure no such commercial In the case of Hero Cycles P Ltd company for providing for meeting any cash loses. Accordingly, we reject the assessee’s contention and set aside the order of the Learned CIT(A) on the ground of appeal of the Revenue is accordingly allowed. 7. Now, we take up the appeal of the Revenue for assessment year 2018-19. The relevant ground is reproduced as under: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting he disallowance of Interest u/s 36(1)(üi) amounting to Rs. 6,53,00,710/ the facts brough proportionate disallowance of Interest claimed as expenditure should be made to the extent of Interest free loans given to Lokhandwala Infrastructure Put. Ltd. as the same is not incurred for the purpose 8. The ground raised being identical to the grounds raised in assessment year 2017 mutandis. 9. The cross-objection raised by the assessee are reproduced as under : 1. The Ld. CIT(A) has erred in law and in facts action of Ld. 13,77,35,740/ hands of the appellant which is invalid and bad in the eyes of law. 2. The Ld. CIT(A) has erred in law and addition made u/s 43CA of the Act of Rs. 23,55,014/ invalid and bad in the M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 Accordingly, we reject the assessee’s contention and set aside the order of the Learned CIT(A) on the issue in dispute. The ground of appeal of the Revenue is accordingly allowed. Now, we take up the appeal of the Revenue for assessment he relevant ground is reproduced as under: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting he disallowance of Interest u/s 36(1)(üi) amounting to Rs. 6,53,00,710/- without appreciating the facts brought out by the Assessing Officer that the proportionate disallowance of Interest claimed as expenditure should be made to the extent of Interest free loans given to Lokhandwala Infrastructure Put. Ltd. as the same is not incurred for the purpose of business? The ground raised being identical to the grounds raised in assessment year 2017-18 and therefore, same is decided mutatis objection raised by the assessee are reproduced as 1. The Ld. CIT(A) has erred in law and in facts in confirming the AO in reducing the proportionate expenditure of Rs. 13,77,35,740/- u/s 40(a) (ia) of the Act from closing WIP in the hands of the appellant which is invalid and bad in the eyes of law. 2. The Ld. CIT(A) has erred in law and in facts in confirming the addition made u/s 43CA of the Act of Rs. 23,55,014/ invalid and bad in the eyes of law. M/s Lokhandwala Kataria Construction (Pvt) Ltd 9 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 Accordingly, we reject the assessee’s contention and set issue in dispute. The ground of appeal of the Revenue is accordingly allowed. Now, we take up the appeal of the Revenue for assessment he relevant ground is reproduced as under: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting he disallowance of Interest without appreciating t out by the Assessing Officer that the proportionate disallowance of Interest claimed as expenditure should be made to the extent of Interest free loans given to Lokhandwala Infrastructure Put. Ltd. as the same is not incurred The ground raised being identical to the grounds raised in 18 and therefore, same is decided mutatis objection raised by the assessee are reproduced as in confirming the AO in reducing the proportionate expenditure of Rs. u/s 40(a) (ia) of the Act from closing WIP in the hands of the appellant which is invalid and bad in the eyes of law. in facts in confirming the addition made u/s 43CA of the Act of Rs. 23,55,014/- which is 10. The ground No. 1 of the cross behalf of the assessee and therefore, same is dismissed as infructuous. 11. As far as ground No. 2 is concerned, the Ld. counsel for the assessee submitted that addition made u/s 43C amounting to Rs.23,55,014/ and therefore, said addition is not justified. the stamp duty value and sale consideration of stock real estate property sold by an assessee is liable to be assessed as business income of the assessee. assessee referred to the decision of the C Tribunal in the case of Wadhawana Housing and Infrastructure Company v. ACIT in ITA No. 3148/Mum/2022 dated 20.04.2023, wherein the section 43 nature and accordingly tolerance limit of 10% would apply in the case of the assessee reproduced as under: “8. Considered the submissions made by the Ld. DR and material placed on record, we observe from the record that t between stamp duty value and agreement value having a difference of 4.88% only. We further observe from the grounds of appeal raised by the assessee that assessee has made a plea referring to Finance Act, 2018 section with effect from 01.04.2019, the value adopted or assessed by stamp duty authority does not exceed 105% of the consideration received as a result of transfer then it is deemed to be full ITA.NO. Housing and Infrastructure Company value of consideration. As M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 The ground No. 1 of the cross-objection was not pressed on behalf of the assessee and therefore, same is dismissed as As far as ground No. 2 is concerned, the Ld. counsel for the assessee submitted that addition made u/s 43C amounting to Rs.23,55,014/- is within the tolerance limit of ± 10% and therefore, said addition is not justified. The differenc the stamp duty value and sale consideration of stock real estate property sold by an assessee is liable to be assessed as business income of the assessee. Before us, the Ld. counsel for the assessee referred to the decision of the Co-ordinate Bench of the Tribunal in the case of Wadhawana Housing and Infrastructure Company v. ACIT in ITA No. 3148/Mum/2022 dated 20.04.2023, wherein the section 43CA has been held to be retrospective in and accordingly tolerance limit of 10% would apply in the case of the assessee. The relevant finding of the Tribunal is reproduced as under: 8. Considered the submissions made by the Ld. DR and material placed on record, we observe from the record that the difference between stamp duty value and agreement value having a difference of 4.88% only. We further observe from the grounds of appeal raised by the assessee that assessee has made a plea Finance Act, 2018, which has made an amendment in section with effect from 01.04.2019, the value adopted or assessed by stamp duty authority does not exceed 105% of the consideration received as a result of transfer then it is deemed to be full ITA.NO. 3148/MUM/2022 (A.Y: 2018-19) Wadhwana Housing and Infrastructure Company value of consideration. As M/s Lokhandwala Kataria Construction (Pvt) Ltd 10 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 objection was not pressed on behalf of the assessee and therefore, same is dismissed as As far as ground No. 2 is concerned, the Ld. counsel for the assessee submitted that addition made u/s 43CA of the Act tolerance limit of ± 10% The difference between the stamp duty value and sale consideration of stock –in –trade of real estate property sold by an assessee is liable to be assessed as Before us, the Ld. counsel for the ordinate Bench of the Tribunal in the case of Wadhawana Housing and Infrastructure Company v. ACIT in ITA No. 3148/Mum/2022 dated 20.04.2023, has been held to be retrospective in and accordingly tolerance limit of 10% would apply in the . The relevant finding of the Tribunal is 8. Considered the submissions made by the Ld. DR and material he difference between stamp duty value and agreement value having a difference of 4.88% only. We further observe from the grounds of appeal raised by the assessee that assessee has made a plea , which has made an amendment in section with effect from 01.04.2019, the value adopted or assessed by stamp duty authority does not exceed 105% of the consideration received as a result of transfer then it is deemed to 19) Wadhwana Housing and Infrastructure Company value of consideration. As per the ground raised, we observe that assessee has claimed that the amendment made to section 43CA are retrospective in nature. On similar proposition, the Shri Harish H Gandhi v. ACIT adjudicated that the amendment made to section 43CA is retrospective in nature in consonance with th to section 51C below: - \"3.3. ......... But we find that there is a proviso introduced by the Finance Act which was later amended by the applicable from A.Y.2021 difference between the stamp duty val sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made. We find that this amendment has been held to be retrospective in operation in the case of 123 taxmann.com 252 wherein it was held that amendment made in scheme to proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which section 50C therefore, having retrospective applicability thereon. The language of provisions of Section 50C are exactly pari materia with provisions of though the aforesaid decision was rendered in the context of Section 50C provisions of is available in respectively following the aforesaid decision of this Tribunal, we hold that the difference of Rs.4,42, added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA made in the instant case the ld. AO is hereby directed to delete the addition of Rs.4,42,460/ the grounds raised by the assessee are allowed.\" 9. Respectfully following the above said decision, and in decision the Coordinate Bench adjudicate that amendment made M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 per the ground raised, we observe that assessee has claimed that the amendment made to section 43CA are retrospective in nature. On similar proposition, the Coordinate Bench in the case of the Shri Harish H Gandhi v. ACIT [(2022) (6) TMI 1277 - ITAT Mumbai] adjudicated that the amendment made to section 43CA is retrospective in nature in consonance with the amendments made section 51C of the Act, for the sake of clarity it is reproduced \"3.3. ......... But we find that there is a proviso introduced by Finance Act 2018 w.e.f. A.Y.2019-20 onwards and which was later amended by the Finance Act applicable from A.Y.2021-22, which states that if the difference between the stamp duty value and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made. We find that this amendment has been held to be retrospective in operation by the Co-ordinate Bench decision of this Tribunal in the case of Maria Fernandez Cheryl vs. ITO 123 taxmann.com 252 wherein it was held that amendment made in scheme to Section 50C(1) of the Act by inserting the proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which section 50C itself was introduced i.e. from 01/04/2003 and therefore, having retrospective applicability thereon. The language of provisions of Section 50C are exactly pari materia with provisions of Section 43CA of the Act. Hence, though the aforesaid decision was rendered in the context Section 50C of the Act, the same analogy would apply for provisions of Section 43CA of the Act also as similar proviso is available in Section 43CA of the Act also. Hence, respectively following the aforesaid decision of this Tribunal, we hold that the difference of Rs.4,42, added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA of the Act. Accordingly, the ld. AO is hereby directed to delete the addition of Rs.4,42,460/- made by him in the assessment. Accordingly, the grounds raised by the assessee are allowed.\" ctfully following the above said decision, and in the Coordinate Bench adjudicate that amendment made M/s Lokhandwala Kataria Construction (Pvt) Ltd 11 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 per the ground raised, we observe that assessee has claimed that the amendment made to section 43CA are retrospective in nature. Coordinate Bench in the case of the ITAT Mumbai] adjudicated that the amendment made to section 43CA is e amendments made of the Act, for the sake of clarity it is reproduced \"3.3. ......... But we find that there is a proviso introduced by 20 onwards and Finance Act 2020 22, which states that if the ue and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made. We find that this amendment has been held to be retrospective in ordinate Bench decision of this Tribunal Maria Fernandez Cheryl vs. ITO reported in 123 taxmann.com 252 wherein it was held that amendment of the Act by inserting the proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which itself was introduced i.e. from 01/04/2003 and therefore, having retrospective applicability thereon. The language of provisions of Section 50C are exactly pari the Act. Hence, though the aforesaid decision was rendered in the context of the Act, the same analogy would apply for of the Act also as similar proviso of the Act also. Hence, respectively following the aforesaid decision of this Tribunal, we hold that the difference of Rs.4,42,460/- added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso of the Act, no addition is required to be of the Act. Accordingly, the ld. AO is hereby directed to delete the addition of made by him in the assessment. Accordingly, the grounds raised by the assessee are allowed.\" ctfully following the above said decision, and in the above the Coordinate Bench adjudicate that amendment made to section 43CA is retrospective in nature. Accordingly, as per the proviso the pe section 43CA difference is 4.88% and the same outside the provisions of this section considering the fact the above discussion, we are inclined to allow the ground raised by the assessee. 10.1 Respectfully, following the Co we restore the issue in dispute to the file of the AO for verification of the claim of the assessee with law. The ground is accordingly allowed for statistical purpose. 11. The Ld. counsel for the assessee also in the cross-objection 1. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the quantum of interest u/s 36(1)(iii) of the Act of Rs. 6,53,00,710/ consumed in the assessment order is incorrect and bad in law. 2. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO ought to have allowed carry forward and set off of unabsorbed de earlier years against assessed income in the hands of the appellant. 3. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO has granted short credit of TDS of Rs. 12,87,281/- wh 12. We have heard rival submission on the issue of admissibility of the additional ground. The grounds raised being legal in nature and not requiring investigation of the fresh facts and therefore, same were admitted in view of the decision of Hon’ble Supreme Court in the case of NTPC Ltd. 229 ITR 283 (SC) M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 to section 43CA is retrospective in nature. Accordingly, as per the proviso the percentage up to 5% are outside the provisions of section 43CA of the Act. We observe that, the stamp duty value difference is 4.88% and the same outside the provisions of this section considering the fact the difference is less than 5%. From the above discussion, we are inclined to allow the ground raised by the assessee.” following the Co-ordinate Bench of the Tribunal, we restore the issue in dispute to the file of the AO for verification of the claim of the assessee for verification and allow in accordance with law. The ground is accordingly allowed for statistical purpose. The Ld. counsel for the assessee also filed addition objection, which are reproduced as under: On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the quantum of interest u/s 36(1)(iii) of the Act of Rs. 6,53,00,710/-disallowed and reduced from the cost of material consumed in the assessment order is incorrect and bad in law. 2. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO ought to have allowed carry forward and set off of unabsorbed depreciation of Rs. 2,19,59,912/ earlier years against assessed income in the hands of the 3. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO has granted short credit of TDS of Rs. which is invalid and bad in the eyes of We have heard rival submission on the issue of admissibility of the additional ground. The grounds raised being legal in nature and not requiring investigation of the fresh facts and therefore, same ted in view of the decision of Hon’ble Supreme Court in NTPC Ltd. 229 ITR 283 (SC). The ground No. 1 is M/s Lokhandwala Kataria Construction (Pvt) Ltd 12 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 to section 43CA is retrospective in nature. Accordingly, as per the rcentage up to 5% are outside the provisions of of the Act. We observe that, the stamp duty value difference is 4.88% and the same outside the provisions of this the difference is less than 5%. From the above discussion, we are inclined to allow the ground raised ordinate Bench of the Tribunal, , we restore the issue in dispute to the file of the AO for verification of for verification and allow in accordance with law. The ground is accordingly allowed for statistical purpose. . filed additional grounds which are reproduced as under: On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the quantum of interest u/s 36(1)(iii) of the Act of uced from the cost of material consumed in the assessment order is incorrect and bad in law. 2. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO ought to have allowed carry forward preciation of Rs. 2,19,59,912/- of earlier years against assessed income in the hands of the 3. On the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the Ld. AO has granted short credit of TDS of Rs. law. We have heard rival submission on the issue of admissibility of the additional ground. The grounds raised being legal in nature and not requiring investigation of the fresh facts and therefore, same ted in view of the decision of Hon’ble Supreme Court in The ground No. 1 is related to the ground raised in the appeal of the Revenue have already allowed in favour o the Revenue and therefore, this additional ground of the assessee is dismissed as infructuous. The additional ground No. 2 relates to verification and allowing the carry forward and set off of the unabsorbed depreciation of Rs.2,19,59,912/- of earlier years against. In ground No. 3, the assessee has agitated these issue are subject matter of the verification at the end of the Assessing Officer and therefore, we restore these two issues to the file of the Assessing Officer for verification and allow in accordance with law. The additional ground No. 2 & 3 are accordingly allow for statistical purpose. 13. In the result, both the appeals of the Revenue are allowed whereas cross-objection statistical purposes. Order pronounced in the open Court on Sd/- (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 18/03/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 related to the ground raised in the appeal of the Revenue have already allowed in favour o the Revenue and therefore, this nal ground of the assessee is dismissed as infructuous. The additional ground No. 2 relates to verification and allowing the carry forward and set off of the unabsorbed depreciation of of earlier years against. In ground No. 3, the agitated short for credit TDS of Rs.12,87,281/ subject matter of the verification at the end of the Assessing Officer and therefore, we restore these two issues to the file of the Assessing Officer for verification and allow in accordance The additional ground No. 2 & 3 are accordingly allow for statistical purpose. In the result, both the appeals of the Revenue are allowed objections of the assessee are partly allowed for statistical purposes. Order pronounced in the open Court on 18/03/2025. Sd/ RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : M/s Lokhandwala Kataria Construction (Pvt) Ltd 13 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 related to the ground raised in the appeal of the Revenue, which we have already allowed in favour o the Revenue and therefore, this nal ground of the assessee is dismissed as infructuous. The additional ground No. 2 relates to verification and allowing the carry forward and set off of the unabsorbed depreciation of of earlier years against. In ground No. 3, the short for credit TDS of Rs.12,87,281/-. Both subject matter of the verification at the end of the Assessing Officer and therefore, we restore these two issues to the file of the Assessing Officer for verification and allow in accordance The additional ground No. 2 & 3 are accordingly allowed In the result, both the appeals of the Revenue are allowed of the assessee are partly allowed for /03/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// M/s Lokhandwala Kataria Construction ITA Nos. 3879 & 3878 BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Lokhandwala Kataria Construction (Pvt) Ltd 14 ITA Nos. 3879 & 3878 & CO. 193/MUM/2024 BY ORDER, (Assistant Registrar) ITAT, Mumbai "