DY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(4), KOLKATA, KOLKATA V. ADARSH HEIGHTS PVT LTD, KOLKATA

ITA 1867/KOL/2024

AI Insights

The case revolves around the appeal by the Deputy Commissioner of Income Tax, Central Circle-1(4), Kolkata against Adarsh Heights Pvt. Ltd. concerning the assessment year 2017-2018. The primary issue was the disallowance of interest on loans which were allegedly used for non-business purposes, specifically loans given to Chalice Real Estate LLP, a firm in which Adarsh Heights Pvt. Ltd. held a 98% partnership. The Assessing Officer had added back the interest to the income of Adarsh Heights Pvt. Ltd. for AY 2017-18, which was contested. The CIT(A) reversed this decision, leading to the Revenue's appeal to the ITAT. The ITAT upheld the CIT(A)'s decision, referencing the Supreme Court's judgment in Hero Cycle (P) Ltd. vs. CIT, which clarified that such investments are considered business purposes if they further the business of the subsidiary in which the assessee has a significant stake.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775223 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Appeal Filed On: 02-09-2024
• Other Referred Cases: Hero Cycle (P) Ltd. vs. CIT(Central)
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Condonation of delay; Assessment record; Notional interest

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA SHRI GEORGE MATHAN, JUDICIAL MEMBER SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No. 1867/Kol/2024 (Assessment Year 2018-2019) Dy. Commissioner of Income Tax, Central Circle-1(4), Kolkata, 110 Shantipally, Aayakar Bhawan, Poorva, 3rd Floor, Kolkata - 700107 ……..…...…………….... Appellant vs. Adarsh Heights Pvt. Ltd., 6C, Gulmohar Co-operative- Society Limited, Middleton Street, Kolkata- 700071 [PAN: AAJCA3954F] ……..…...…………….... Respondent Appearances by: Assessee represented by : Akshay Ringasia, Advocate Department represented by : Mangtinlen Haokip, Sr. DR Date of concluding the hearing : 28.08.2025 Date of pronouncing the order : 03.09.2025 O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER 1. The Registry of ITAT has informed that this appeal is delayed by 44 days. The Revenue has filed a petition for condonation of delay as under: “1. The appellant/petitioner states that being aggrieved by and dissatisfied with the impugned order of the Lal. CITIA)-20/11126/2017-18 for the A/Y. 2017-18 in the case of Adarsh Heights Pvt Ltd., an appeal has been preferred before this Hon'ble ITAT, Kolkata under section 253 of the IT Act 1961. 2. The appellant/petitioner states that the impugned order passed by the Ld. CIT(A)-20, Kolkata on 17.05.2024 was received by the Office of the Pr Commissioner of Income Tax Central-1, Kolkata on 17.05.2024. Your petition states that according to the Income Tax Department, the last date of filing the appeal expired on 17.07.2024 3. Your petitioner states that there are sufficient reasons/causes for condonation the delay in filing the Appeal under Section 253 of the Income Tax Act 1961 which are as follows:- Printed from counselvise.com 2 ITA No. 1867/Kol/2024 Adarsh Heights Pvt. Ltd. 4. After receiving the said impugned order and upon completion of the due departmental procedure, the Income Tax Office (Tech.). Pr. CIT Central-1. Kolkata dated 17.05.2024 requested the Dy. Commissioner of Income Tax Central Circle-1(4), Kolkata to prepare Appeal Scrutiny Report (ASR) and to send the same to the Pr. Commissioner of Income Tax, Central-1, Kolkata alongwith the Assessment records in order to examine the issue of filing appeal under Section 253 of the IT Act 1961 and this office received the same on 25.06.2024 and ASR was submitted by this office on 18.07.2024. 5. The ASR is submitted by the Office of the Addl. Commissioner of Income Tax Central, Range-1, Kolkata on 10.07.2024 for onward transmission to the office of the Pr. CIT Central-1, Kolkata for his kind perusal and taking necessary action. 6. The office of the Pr. Commissioner of Income Tax, Central-1, Kolkata on 20.08.2024 vide letter No. Pr. CITO-1/Tech/Kol./ASR/Tech./2024-25/3988 dated 20.08.2024 accorded his kind approval for filing 2nd appeal under section 253 before the Hon'ble ITAT, Kolkata. The details procedure are furnished below:- 1 Calling for ASR by Ld. Pr. CIT Central-1, Kolkata office letter dated 25.06.2024 2 Letter received by the AO 25.06.2024 3 ASR furnished by AO before the Addl. CIT Central Range-1, Kolkata 18.07.2024 4 Add. CIT furnished to the O/o Pr. CIT Central-1, Kolkata 10.07.2024 5 Pr. CIT Central-1 Kolkata approval received 20.08.2024 7. In the aforesaid facts and circumstances the appellant/petition most humbly submits that due to unavoidable situation and circumstances, which were beyond the control of your petitioner, there is a delay in filing the instant appeal. It is humbly requested that such delay is unintentional and such delay may kindly be condoned by the Hon'ble ITAT, Kolkata and the instant appeal may be heard and the appeal be registered. 8. Your petition states that the last date to file this appeal was 17.07.2024 and as such, there is a total delay of 44 days in filing the instant appeal. 9. This application is made bonafide and for the interest of justice. Under the above facts and circumstances the appellant/petitioner most humbly prays that your Lordship may graciously be pleased to pass the following orders:- a. Delay 44 days in preferring the instant appeal be condoned and the aforesaid appeal be registered and restored to file and be heard on merit. b. Such other or further order or orders and/or direction or directions be given as this Hon'ble ITAT may be deem fit and proper. Printed from counselvise.com 3 ITA No. 1867/Kol/2024 Adarsh Heights Pvt. Ltd. And for the act of kindness your petition as in duty bound shall ever pray.” 1.1 Considering the reasons mentioned in the said petition for condonation of the delay, the delay is hereby condoned and the appeal is admitted for adjudication. 2. This appeal arises from order dated 17.05.2024, passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Commissioner of Income Tax (Appeals), Kolkata - 20 [hereafter “the Ld. CIT(A)]. 1.1 In this case, the main point of contention has been dealt with by the Ld.AO in para 4 at page 2 of his order as under: “4. During the scrutiny asst for Ay 2017-18, Assessee is seen to have taken loan funds from State Bank of India by way of two term loans paid on 24/3/2017. The assessee has utilized part of these loan funds for payment to Chalice Real Estate LLP. Assessee was asked to produce the bank statements and copy of CWIP of the said party, which it failed in doing except for stating vide letter that it is a strategic investment and that there is no diversion for non- business purposes. No business purpose has been attested in diversion of Term Loan funds. No Interest is seen charged from the said party. Assessee being a 98% partner in the said LLP, the transaction is not seen to have any arm's length. The assessee's free funds are already Invested in assets. No returns from an unknown Investment is shown. It is not even known where the funds that can be traced to the door of bank loan funds, have been applied, business purpose with full details. In the situation, the relatable interest was added back in AY 2017-18, not proved as wholly exclusively for business purpose, not matched by relatable revenue, the investment being in an LLP. The issue being relevant in AY 2018-19 as well, on the issue of Interest relevant to Chalice LLP, assessee has submitted as below \"Interest relevant to Chalice LLP Rs. 338594.00 being notional interest for non- business purpose: In this respect we would like to state before your good self that the Chalice LLP is a Limited Liability partnership Firm in which your assessee company is a partner with 98% capital contribution. The same is clearly visible from the Note no 7 of the audited balance sheet. Giving a loan to partnership firm in which the assessee itself is a partner cannot be held as non- business purpose. The loan so given is in the nature of quasi-capital and always for the business purpose. Further, how this interest of Rs. 3,38,594.00 has been derived could also be not understood. Your honor would like to understand that no income on notional basis can be taxed unless otherwise the same is provided specifically in the Income Tax Act 1961. Hence the notional interest should not be disallowed assuming that the loan is given for non-business purpose.\" In regard to the above contention, it is stated that what is proposed to be taxed in this case is not an income on notional basis; rather what is proposed is to disallow a part of the interest expenses debited in the P/L a/c as relevant to Printed from counselvise.com 4 ITA No. 1867/Kol/2024 Adarsh Heights Pvt. Ltd. loans taken from banks that is relatable to the loans channelized toward purposes not proved as wholly and exclusively for business purposes or allowable u/s 36 or not matched by relatable revenue, the investment being in an LLP. Assessee has a balance of term loans from banks of Rs 1760306573/- as at the end of the year (an increase of Rs 223975006/-), a finance cost of Rs 170108847/-. Investments in Chalice Real Estate LLP as on 31/3/2018 stand at Rs 528606612/-. The proportionate disallowance works out to Rs. 51082386/-.” 2.1 This matter has been dealt with by the Ld. CIT(A), where relief has been given to the assessee, with the following findings: “I have duly considered these grounds of appeal, assessment order of the A.O. and the submission of the appellant on these grounds. The A.O. vide para 3 of the assessment order has disallowed the proportionate amount of interest claimed of Rs.5 10,82,386/- in the P & LA/c. stating the reason that the assessee has utilized the part of its loan fund received from State Bank of India for payment to Chalice Real Estate LLP, A Limited Liability Partnership (LLP) firm in which assessee is 98% partner. The A.O. found neither any returns from investment nor any business purpose in this investment. However, what the A.O. has missed out that the appellant has not given any interest free loan to its sister concern or subsidiary firm rather it has made an investment in its subsidiary concern where it has 98% ownership and the firm is engaged in the business of real estate development. The law on this issue is settled by the judgement of Hon'ble Supreme Court in the case of Hero Cycle (P) Ltd. vs. CIT(Central) in Civil Appeal No.514/2008, where the Hon'ble Apex Court has held that when the assessee has significant invest in the business of the subsidiary and utilizes even borrowed money for furthering its business no disallowance can be made un/s. 36(1)(iii) of the I.T. Act. Further, there is merit in the submission of the appellant that the copy of Ledger A/c. of Chalice Real Estate LLP and its balance sheet was duly provided to the A.O. in the assessment proceedings. The same documents are also furnished in the appellate proceedings for verification. Further, the appellant has stated that Chalice Real Estate LLP is a Limited Liability Partnership (LLP) firm in which the appellant company is a partner with 98% capital contribution. The appellant has rightly said that even the loan given to partnership firm in which the assessee itself is a partner can not be held as non-business purpose. Especially when the nature and line of business of both the entities are same. The amount so invested is in the nature of capital and always for the business purpose, The appellant has relied on the certain case laws pronounced by various Courts which dearly applies to the facts of the case. Considering the merits in the submission of the appellant and law pronounced by the Hon'ble Supreme Court in the case of Hero Cycle (P) Ltd. vs. CIT(Central) (supra), the addition made by the A.O. of Rs. 5,10,82,386/- on account of notional interest is deleted.” 2.2 The Revenue is aggrieved with this finding and has approached the ITAT with the following grounds: “1. That in the facts and in the law of the case, the Ld. CIT(A) erred in deleting the addition made by the AO amounting to Rs.5,10,82,386/- on account of interest disallowed on unsecured loan given to Chalice Real Estate LLP u/s.36(1)(iii) of the IT Act 1961 by holding it to be for purpose of business while income received by partnership firm is not taxable in the hands of the assessee Printed from counselvise.com 5 ITA No. 1867/Kol/2024 Adarsh Heights Pvt. Ltd. company. 2. That the appellant reserves its rights to substantiate, modify, delete supplement and/or alter the grounds at any time of the appeal proceedings.” 3. Before us, the Ld. AR argued that M/s Chalice Real Estate LLP was 98% owned by the assessee. It was submitted that the impugned transaction did not represent any loan being given to a sister concern, where the assessee had 98% ownership. The Ld. AR read out the relevant portions from the Ld. CIT(A) order at page 8 (supra) and relied on the same. 3.1 The Ld. DR, on the other hand, relied on the finding of Ld. AO. 4. We have carefully considered the rival submissions and have gone through the orders of authorities below. A careful perusal of the findings of Ld. CIT(A) reveals that there is no error in the same and the case law of Hero Cycle (P) Ltd. reported in 379 ITR 347 (SC) has been correctly applied to the facts of this case. 5. In result, appeal of the Revenue is dismissed. Order pronounced on 03.09.2025 Sd/- Sd/- (George Mathan) (Sanjay Awasthi) Judicial Member Accountant Member Dated: 03.09.2025 AK, Sr. P.S. Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. CIT(DR) //True copy// By order Assistant Registrar, Kolkata Benches Printed from counselvise.com "