IHHR HOSPITALITY PRIVATE LIMITED,NEW DELHI V. THE ACIT, CIRCLE 12(1), DELHI, NEW DELHI

ITA 443/DEL/2025

AI Insights

IHHR Hospitality Pvt. Ltd. appealed against the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer concerning disallowances made under various sections of the Income Tax Act, 1961 for the Assessment Year 2017-18. The main issues revolved around the disallowance of expenses under Section 14A, disallowance for delayed payment of employees' contributions under Section 36(1)(va), and disallowance of interest on an unsecured loan to its subsidiary under Section 36(1)(iii). The Tribunal found that the disallowances under Sections 14A and 36(1)(iii) were not justified based on precedents and the absence of exempt income or interest-bearing loans, respectively.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717826 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 24-01-2025
• Other Referred Cases: Principal Commissioner of Income-tax Vs. Oil Industry Development Board [2019] 103 taxmann.com 326 (SC), Reliance Industries Ltd 102 Taxmman.com 52 (SC), Pr CIT Vs. ECT Investment Holdings Pvt. Ltd 117 Taxmann.com 123, Principal Commissioner of Income Tax v. Gaursons Realty (P.) Ltd.* [2020] 120 taxmann.com 259 (Delhi), Principal Commissioner of Income-tax v. Reebok India Company [2018] 98 taxmann.com 413 (Delhi)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: WRITTEN ADJOURNMENT APPLICATION
• Assessee Lawyers: RANJAN CHOPRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

"1 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI [DELHI BENCH:“B” New Delhi] BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER I.T.A. No. 443/DEL/2025 (A.Y 2017-18) M/s IHHR Hospitality Private Limited, Co/ Hotel Four Points by Sheraton, 32/7, Plot No. 9, Samalka, NH-08, New Delhi PAN: AAACI9385B Vs ACIT Circle-12(1) Delhi Appellant Respondent Assessee by Shri Ranjan Chopra, CA Revenue by Written adjournment application Date of Hearing 24/07/2025 Date of Pronouncement 13/08/2025 ORDER PER YOGESH KUMAR, U.S. JM: The present appeal is filed by the Assessee against the order of Commissioner of Income Tax (Appeals)-ADDL/JCIT(A) Bhubaneswar (‘Ld. CIT(A)’ for short), Delhi dated 18/11/2024 for the Assessment Year 2017-18. 2. The grounds of Appeal are as under:- “1. That the Order of learned CIT (A) sustaining the order of the learned Assessing Officer is bad in law and on facts and is liable to be set-aside. 2. That the learned CIT(A) has erred in law and on facts in upholding the disallowance of expenses made under Section 14A of the Income Tax Act, 1961 r.w. Rule 8D, amounting to Rs. 36,15,330/- by the AО. 2. That the learned CIT(A) has erred in law and on facts in upholding the disallowance of a sum of Rs. 15,80,202/- made under Section 36(1)(va) of the Income Tax Act, 1961by the AO on account of delayed payment of employees contribution to ESI/PF. Printed from counselvise.com 2 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT 3. That the AO as well as learned CIT(A) have erred in law and on facts in disallowing a sum of Rs. 3,37,72,042/- u/s 36(1)(iii) of the Income Tax Act, 1961 on account of interest on unsecured loan given to its subsidiary namely M/s IHHR Hospitality (Andhra) Private Limited inspite of the fact that Hon'ble ITAT has passed order in the favour of the appellant company on the same ground for the Assessment Year 2015-16.” 3. Ground No. 1 of the Assessee is general in nature which requires no adjudication. 4. The Ground No.2 is regarding disallowance of expenses made u/s 14A of the Income Tax Act, 1961 ('Act' for short) read with Rule 8D of the Rule amounting to Rs. 36,15,330/-. 5. The Ld. Counsel for the Assessee submitted that the Assessee has been regularly assessed for over last 10 years since 2005 and no disallowance was ever made u/s 14A of the Act in any of the completed assessments. The Ld. Counsel further submitted that the Assessee had not earned any dividend income which was claimed as exempt income. The Ld. Assessee's Representative has taken us through the computation of income as well as financial statement to substantiate his claim. Further submitted that there was also no finding in the assessment order that any expenditure was earned to earn exempt income, therefore, submitted that in view of settled principals of law, the disallowance made by the A.O. u/s 14A of the Act to the tune of Rs. 36,15,330/- upheld by the Ld. CIT(A) deserves to be deleted. Printed from counselvise.com 3 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT 6. Per contra, the Ld. Ld. Departmental Representative relying on the orders of the Lower Authorities, sought for dismissal of Ground No. 2. 7. Heard and perused. The Assessee has not earned any dividend income which was claimed as exempt income and the said factual aspect can be corroborated from the computation of income as well as financial statement of the Assessee. There is no findings of the A.O. that any expenditure incurred to earn exempt income. Considering the above facts, we find no reason to upheld the addition made u/s 14A of the Act, which has been sustained by the Ld. CIT(A).By relying on the principal laid down in the case of Principal Commissioner of Income-tax Vs. Oil Industry Development Board [2019] 103 taxmann.com 326 (SC)/[2019] 103 taxmann.com 326(S.C) /[2019] 262 taxman 102 (S.C) [08-02-2019], We allow Ground No. 2 of the Assessee by deleting the disallowance. 8. The Assessee has not pressed the repeated Ground No. 2 i.e. regarding disallowance of Rs. 15,80,202/- made u/s 36(1)(va) of the Act made on account of belated payment of Employees Contribution to ESI & PF. Accordingly, the repeated Ground No. 2 is hereby dismissed. Printed from counselvise.com 4 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT 9. Ground No. 3 is regarding disallowance of Rs. 3,37,72,042/- u/s 36(1)(iii) of the Act on account of interest on unsecured loan given to the subsidiary namely M/s IHHR Hospitality (P) Ltd. The Ld. Counsel for the Assessee submitted that the said issue of disallowance made on interest on account of unsecured loan is covered in Assessee’s own case for Assessment Year 2015-16, wherein the Co-ordinate Bench of the Tribunal in ITA No. 3109/Del/2018 deleted the said disallowance, therefore, sought for allowing the Ground No. 3. 10. Per contra, the Ld. Departmental Representative relying on the findings of the Lower Authorities, sought for dismissal of the Ground No. 3 of the Assessee. 11. We have heard both the parties and perused the material available on record. The Co-ordinate Bench of the Tribunal for Assessment Year 2015-16 in ITA No. 3109/Del/2018 vide order dated 04/06/2024 held as under:- “8. As regards ground no.2 i.e. disallowing interest of Rs.5,40,62,940/- u/s 36(1)(iii), at the outset, ld. Counsel for the assessee submitted that this issue is covered by the decision of ITAT in the assessee's own case in ITA No.4991/Del/2018 in AY 2015-16 vide order dated 22.11.2021. 9. Upon careful consideration, we find that this issue is covered by the aforesaid decision of ITAT in assessee's own case. We may gainfully refer to the decision of the ITAT as under :- \"9. The fact shows that assessee is engaged in the business of hospitality. It entered into a memorandum of agreement with Govt. of Andhra Pradesh for setting up hospitality business in Hyderabad. A special purpose vehicle was formed in the name of IIHR Hospitality ( Andra) Pvt Ltd. Printed from counselvise.com 5 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT AndharpradeshGovt Allotted land to the assessee and in lieu of that share capital was issued. The assessee has given advance to the subsidiary company as on 31.03.2014 of Rs. 51.54 crores which gone up to Rs. 71.07 crores as on 31.03.2015. The assessee company has not charged any interest on loan to its subsidiary, however, it has paid interest of Rs. 33,54,98,000/- on borrowed funds. The fact shows that the assessee company entered into a joint venture agreement that the Andhra Pradesh Govt in 2005 and incorporated a special purpose vehicle to which advances were given for a hotel at Hyderabad. The govt of Andhra Pradesh provided a land of 14.94 acres at Hyderabad and got share in the above company. The assessee company raised its share capital and put money into subsidiary company as interest free unsecured loans due to equity cap of 26% in favour of Andhra Pradesh Govt. The assessee company received share capital of Rs. 75 crores out of which 22.65 crores was given to the subsidiary company. On looking at the balance sheet of the assessee company it is placed at page No. 80 of the paper book, assessee has share capital and reserve and surplus of Rs. 32,791 lakhs and has advance Rs.7101 lakhs to its subsidiary company as on 31.03.2015.Therefore, even on the simple matrix it is apparent that the assessee has huge interest free funds available with it in the form of share capital and reserve and surplus which is more than the amount of interest free loan to the subsidiary company. Thus there cannot be any disallowance u/s 36 91) 9iii) of the Act. Therefore, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in case of Reliance Industries Ltd 102 Taxmman.com 52 (SC). Even otherwise the assessee has shown that it has given a loan to its subsidiary company in terms of memorandum agreement entered into with Andhra Pradesh Govt. for setting up hotel at Hyderabad. The business of the assessee as well as its subsidiary are also exactly same i.e. hospitality business. Thus the advances are also driven by business exigency. 10. The assessee submitted that the issue is squarely covers in favour of the assessee by the decision of the Hon'ble Bombay High Court in Pr CIT Vs. ECT Investment Holdings Pvt. Ltd 117 Taxmann.com 123 wherein, the claim of the assessee was allowed. 11. Hon Delhi High court in Principal Commissioner of Income Tax v. Gaursons Realty (P.) Ltd.* [2020] 120 taxmann.com 259 (Delhi) has held that Where assessee, real estate company, had advanced loan to sister company for purpose of acquisition of land and to acquire a controlling stake in sister Printed from counselvise.com 6 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT concern which was also engaged in real estate business, deduction claimed by assessee under section 36(1)(iii) could not be disallowed on account of said advance of loan. 12. Honourable Delhi high court in Principal Commissioner of Income-tax v. Reebok India Company [2018] 98 taxmann.com 413 (Delhi) where in it has been held that Money borrowed by assessee even when advanced to its subsidiary for some business purpose would qualify for deduction of interest paid on such borrowings 13. In view of above facts were direct the ld AO to delete the disallowances of interest expenditure on two counts. i. The assessee has interest free advance available with it more than the amount of interest free advance given ii. The subsidiary and the assessee are engaged in the same business, the assessee entered into joint venture agreement for setting up hotel at Hyderabad therefore, there is a business exigencies shows by the assessee. Accordingly, we allow ground No. 1 of the appeal.\" Since the facts in the assessee's own case for the aforesaid assessment year case are similar to the present assessment year, following the aforesaid coordinate Bench, we delete the addition and allow this ground.:” 12. By respectfully following the order of the Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2014-15, we allow the Ground No. 3 of the Assessee by deleting the disallowance of Rs. 3,37,72,042/- made u/s 36(1)(iii) of the Act. 13. In the result, Appeal of the Assessee is partly allowed. Order pronounced in the open court on 13th August, 2025 Sd/- Sd/- (MANISH AGARWAL) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 13.08.2025 R.N, Sr.P.S* Printed from counselvise.com 7 ITA No. 443/Del/2025 IHHR Hospitality Pvt. Ltd. Vs. ACIT Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTR ITAT, NEW DELHI Printed from counselvise.com "