DCIT, CIRCLE- 19(1), NEW DELHI V. RELIGARE HOUSING DEVELOPMENT FINANCE CORPORATION LTD., NEW DELHI

ITA 3510/DEL/2024

AI Insights

The case involves appeals by the Deputy Commissioner of Income Tax (DCIT) against Religare Housing Development Finance Corporation Ltd. concerning the disallowance of deductions claimed under section 36(1)(vii) and section 36(1)(viii) of the Income Tax Act for the assessment years 2017-18 and 2018-19. The primary issue was the incorrect allocation of expenses which allegedly inflated profits from the housing loan segment to avail higher deductions. The Tribunal noted that similar issues had been previously decided in favor of the assessee in earlier years and directed the AO to follow the established method of apportioning interest expenses based on the turnover of eligible and non-eligible businesses.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47274 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2017-2018
• Other Referred Cases: ITAs No.6433/Del/2017, ITAs No.7679/Del/2017, ITA No.8651/Del/2019
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANINDER KAUR
• Assessee Lawyers: SOMYA JAIN
• Section: 250

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F : NEW DELHI BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ITA No.3510 & 4146/Del/2024 Assessment Years: 2017-18 & 2018-19 DCIT, Circle – 19(1), New Delhi. Vs Religare Housing Development Finance Corporation Ltd., 2nd Floor, Rajlok Building, 24, Nehru Place, New Delhi – 110 019 PAN: AAACM6533D (Appellant) (Respondent) Assessee by : Ms Somya Jain, Advocate Revenue by : Dr. Maninder Kaur, Sr. DR Date of Hearing : 07.04.2025 Date of Pronouncement : 07.04.2025 ORDER PER ANNAPURNA GUPTA, AM: The present appeals have been filed by the same Assessee against orders passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi (hereinafter referred to as CIT(A)) under section 250 of the Income Tax Act 1961(hereinafter referred to as “Act”) pertaining to Assessment Years 2017-18 & 2018-19. 2. The grounds raised are as under:- ITAs No.3510 & 4146/Del/2024 2 A.Y. 2017-18 \"1. Whether, on the facts and in the circumstances of the case and in law the Ld.CIT(A) has erred in not appreciating that the assessee, during the assessment proceedings, was not able to provide any explanation in respect of wrong allocation of expenses in order to inflate the profit from the housing loan segment in order to avail the deduction u/s 36(l)(vii) of the Act and accordingly, in deleting the disallowance of Rs.3,27,24,467/-.\" 2. \"The appellant craves to be allowed to add any fresh ground(s) of appeal and or deleted or amend any of the ground(s) of appeal,\" A.Y. 2018-19: 1 (i) 1. \"Whether in facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the assessee, during the assessment proceedings, was not able to provide any explanation in respect of wrong allocation of expenses in order to inflate the profit from the housing loan segment in order to avail the deduction u/s 36(1 )(viii) of the Act and accordingly, in deleting the disallowance of Rs. 1,63,02,825/-\" (ii) \"Whether the Ld. CIT(A) has erred in not following the decision of Hon'ble ITAT in assessee's own case vide order dated 29/06/2021 wherein the case was remitted back to the file of AO for re-computation of amount of deduction u/s 36(1)(viii) of the Act on the basis of turnover of eligible and ineligible business.\" (iii) \"The appellant craves to be allowed to add any fresh ground(s) of appeal and or deleted or amend any of the ground(s) of appeal.\". 3. There was a common ground on the issue involved in the assessee’s appeal pertaining to the allocation of expenses to the business of the assessee eligible for claiming deduction of its provides on account of reserves created in terms of provisions of section 36(1)(vii) of the Act. The ld. counsel for the assessee, at the outset itself stated that the issue was covered in favour of the assessee by the orders of the ITAT in the preceding years i.e., AY 2013-14, 2014-15 and 2016-17, copies of the orders in ITAs ITAs No.3510 & 4146/Del/2024 3 No.6433/Del/2017, 7679/Del/2017 and ITA No.8651/Del/2019 were placed before us. The ld. DR fairly agreed with the same. 4. A perusal of the orders of the authorities below reveal that the assessee is engaged in the business of housing finance which includes housing loans as well as loans against property. The assessee had claimed deduction on account of special reserves created from its profits of the eligible business of housing finance in terms of the provisions of section 36(1)(viii) of the Act which provided for allowance of such reserves created for an amount not exceeding 20% of the profit derived from the eligible business computed under the head ‘Profits and gains of business and profession.’ The AO found that while computing the profits of the eligible business, the allocation of interest expenses incurred in the entire business of the assessee which included both eligible and non-eligible activities was not appropriate. He found that the assessee could have allocated interest expenses to its eligible business approximating 55% of the income earned therefrom. From the same he adduced that the assessee had inflated its profits from the eligible business in order to claim higher deduction on account of creation of special reserves in terms of the provisions of section 36(1)(viii) of the Act. The AO accordingly disallowed the entire deduction claimed by the assessee u/s 36(1)(viii) of the Act. The ld.CIT(A) further noting that identical issue had been decided by the ITAT in favour of the assessee in ITAs No.3510 & 4146/Del/2024 4 preceding years, allowed the assessee appeal following the said orders of the ITAT. 5. We have gone through the orders of the ITAT in the preceding year and we have noted from the said orders that in the facts of the said case, the assessee had allocated interest expenditure to its eligible business on the basis of and in the ratio of the loans outstanding as at the end of the year in relation to eligible and non-eligible business. The ld.CIT(A), however, had held this basis to be incorrect and had directed the allocation of interest expenditure to be on the basis of turnover of income from the eligible and non-eligible business. This basis directed by the ld.CIT(A) to be adopted for apportionment of interest expense to the eligible and non-eligible business was, we have noted, confirmed by the ITAT in the preceding years. In the impugned years before us, i.e., both the years, there is no finding of fact as to the basis which was adopted by the assessee for apportioning its interest expense to the eligible and non-eligible business. The ld.CIT(A), without recording this finding of fact had allowed the assessee’s basis of apportionment of interest expenditure following the orders of the ITAT in the preceding years. In the light of the same, though we agree with the ld.CIT(A) that the issue stands adjudicated in favour of the assessee rejecting the AO’s disallowance of the entire deduction claimed by the assessee u/s 36(1)(vii) of the Act, however, following the decision of the ITAT in the preceding year, we direct the AO to ITAs No.3510 & 4146/Del/2024 5 ensure that the profits of the eligible business considered for the computation of special reserves as per section 36(1)(viii) of the Act is computed after the apportionment of interest expenditure on the basis of the turnover of the assessee of its eligible and non-eligible. 6. With the above directions, we dismiss both the appeals of the Department. Order pronounced in the open court on 07.04.2025. Sd/- Sd/- (MADHUMITA ROY) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07th April, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "