ACIT, New Delhi V. M/s. Utech Developers Ltd., New Delhi

ITA 3736/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2243 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 23-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRITI SANKRATYAYEM
• Keywords: Business expenditure; Wholly owned subsidiary
• Section: 37(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.3736/DEL/2016 (ASSESSMENT YEAR 2009-10) ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-27, NEW DELHI. VS. M/S UTECH DEVELOPERS LTD. 305, 3 RD FLOOR, BHANOT CORNER PAMPOSH ENCLAVE, GREATER KAILASH-1, NEW DELHI-110 048 PAN AAACU 8713H (APPELLANT) (RESPONDENT) APPELLANT BY MS. KIRITI SANKRATYAYEM, SR. DR RESPONDENT BY SH. M.P. RASTOGI, ADV. DATE OF HEARING 08.04.2021 DATE OF PRONOUNCEMENT 30.06.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM IN THIS APPEAL, REVENUE IS AGGRIEVED BY THE OR DER DATED 23 RD MARCH, 2016 PASSED BY THE LD. COMMISSIONER OF INCOM E TAX (APPEALS)-XXIX, NEW DELHI {CIT (A)}. 2 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . 2.0 BRIEFLY STATED, RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND INFRASTRUCTURE DEVELOPMENT. FOR THE YEAR UNDER CONS IDERATION, A RETURN DECLARING TOTAL LOSS OF RS. 7.09 CRORES WAS FILED BY THE ASSESSEE. THE CASE WAS SELECTED FOR SCRUTINY AND SUB SEQUENTLY THE INCOME OF THE ASSESSEE WAS DETERMINED AT A LOSS OF RS.1.70 CRORES. IN THIS REGARD, IN THE ORDER OF ASSESSMENT THE ASSE SSING OFFICER (AO) HAS MADE FOLLOWING ADDITIONS / DISALLOWANCES: (I) DISALLOWANCE OF RS.2,73,209/- BEING 20% OF TOTAL TRAVELLING EXPENSES, AND (II) DISALLOWANCE OF RS.5,35,90,353/- OUT OF INTERES T EXPENSES 2.1 AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT (A) WHO FOUND SUBSTANTIAL MERIT IN THE CLAIMS MADE BY TH E ASSESSEE. THE APPEAL WAS ALLOWED ON BOTH THE ABOVE ISSUES. 2.2 NOW, THE REVENUE IS IN APPEAL BEFORE US AND HA S RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETI NG THE ADDITION 3 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . OF RS.2,73,209/- MADE ON ACCOUNT OF DISALLOWANCE OF 20% OF TOTAL TRAVELLING EXPENSES WITHOUT APPRECIATING THE FACT T HAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE GENUINENESS OF EXPENSES U/S 37(1) WHICH THE ASSESSEE FAILED TO DISCHARGE. 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,73,209/- MADE ON ACCOUNT OF DISALL OWANCE OF 20% OF TOTAL TRAVELLING EXPENSES WITHOUT APPRECIATI NG THE FACT THAT SIMILAR ADDITIONS WERE CONFIRMED BY LD. CIT (A ) IN EARLIER ASSESSMENT YEARS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETI NG THE ADDITION OF RS.5,35,90,353/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES MADE ON BORROWED FUNDS WITHOUT APPRECIATIN G THE FACT THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BET WEEN THE BORROWED FUNDS AND BUSINESS PURPOSES. 4. THAT THE ORDER OF THE CIT (A) IS PERVERSE, ERRON EOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, A LTER OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. 4 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . 3.0 IT IS SEEN THAT IN GROUNDS 1 & 2, THE DEPARTM ENT IS AGGRIEVED BY THE ACTION OF THE LD. CIT (A) IN DELET ING DISALLOWANCE OF RS.2,73,209/- MADE OUT OF TOTAL TRAVELLING EXPENSES . RELEVANT FACTS IN THIS REGARD ARE THAT DURING THE YEAR UNDER CONSI DERATION THE ASSESSEE HAD CLAIMED A DEDUCTION U/S 37(1) OF THE I NCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) ON ACCOUNT OF T RAVELLING EXPENSES OF RS13.66 LAKHS. DURING ASSESSMENT IT WAS CLAIMED T HAT THESE EXPENSES HAVE BEEN INCURRED ON TOUR AND TRAVELING O F OFFICERS AND EMPLOYEES OF THE COMPANY AND THE PURPOSE OF TRAVEL WAS MEETING PROSPECTIVE BUYERS, SELLERS, VISITS TO DIFFERENCE S ITES AND PROSPECTIVE MARKETS ETC. THE AO, HOWEVER, WAS UNIMPRESSED AND IN THE ORDER OF ASSESSMENT HE MADE A DISALLOWANCE OF 20% OF THE TOTAL EXPENSE INCURRED BY ASSESSEE ON TRAVEL BY OBSERVING AS UNDE R:- 3.2 THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS R EGARDING THE TRAVELLING AND CONVEYANCE EXPENSES TOGETHER WIT H JUSTIFICATION FOR THE BUSINESS PURPOSE. THE ASSESSE E HAS FILED THE DETAILS IN THIS REGARD. THE PURPOSE OF VISIT HAS NO T BEEN EXPLAINED. NEITHER IT HAS BEEN PROPERLY ESTABLISHED THAT THE PERSONS CONCERNED WHO TRAVELED ARE EMPLOYEES OF THE ASSESSEE COMPANY NOR ANY EVIDENCE REGARDING NATURE OF WORK O F THESE PERSONS HAS BEEN BROUGHT FORTH TO JUSTIFY THE BUSIN ESS NEEDS. AS 5 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . SUCH THESE EXPENSES ARE ALSO NOT PROPERLY JUSTIFIED IN THE HANDS OF THE ASSESSEE COMPANY. IN THE EARLIER ASSESSMENT YEAR ALSO DISALLOWANCE ON ACCOUNT OF TRAVELLING AND CONVEYANC E EXPENSES WERE MADE WHICH WERE CONFIRMED BY THE LD. CIT(A)-II I, NEW DELHI. 3.3 KEEPING IN VIEW THE FOREGOING DISCUSSION, AND C ONSIDERING THE GENUINE BUSINESS NEEDS OF THE ASSESSEE, IT IS H ELD THAT TRAVELLING EXPENSES CLAIMED DURING THE YEAR AMOUNTI NG TO RS.13,66,045/- LACS ARE QUITE EXCESSIVE. AFTER TAKI NG INTO CONSIDERATION ALL THE FACTS OF THE CASE AND THE CON TENTIONS PUT FORTH ON BEHALF OF THE ASSESSEE, IT IS CONSIDERED R EASONABLE TO DISALLOW THE CLAIM OF THE ASSESSEE UNDER THIS HEAD TO THE EXTENT OF RS.2.73 LACS (BEING 20% OF TOTAL TRAVELLING EXPE NSES). ACCORDINGLY, AN ADDITION OF RS.2,73,209 IS MADE ON THIS ACCOUNT TO THE TOTAL INCOME DECLARED BY THE ASSESSEE COMPAN Y. 3.1 BEFORE THE LD. CIT (A), IT WAS SUBMITTED BY THE ASSESSEE THAT DURING THE COURSE OF ASSESSMENT VIDE LETTER DA TED 14 TH NOVEMBER, 2011 THE ASSESSEE HAD SUBMITTED ALL THE R EQUISITE DETAILS BEFORE THE AO. IT WAS SUBMITTED THAT IN THE DETAILS FILED, THE ASSESSEE HAD CLEARLY MENTIONED THE NAMES OF PERSONS WHO HAD TRAVELLED, COST OF TICKETS, BOARDING AND LODGING EX PENSES, CONVEYANCE AND OTHER EXPENSES, PERIOD OF TRAVEL, PL ACES OF VISIT AND PURPOSE. IT WAS ALSO CLARIFIED BY THE ASSESSEE THAT THE EXPENSES 6 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . WERE INCURRED SOLELY ON TRAVELLING OF THE EMPLOYEES OF THE ASSESSEE CONCERN. THE LD. CIT (A) HAS RECORDED THE PURPOSE O F VISIT OF THE EMPLOYEES AT PAGES 6 & 7 OF THE IMPUGNED ORDER. FIN DING SUBSTANTIAL MERIT IN THE CLAIM MADE, THE LD. CIT (A ) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER:- I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE AP PELLANT AND HAVE CONSIDERED THE FACTS AND EVIDENCES ON RECO RD. I HAVE ALSO PERUSED THE CASE LAWS RELIED UPON BY THE APPEL LANT. IT HAS BEEN OBSERVED THAT THE ADDITION HAS BEEN MAD E ON ESTIMATE BASIS @ 20% OF THE TOTAL TRAVELLING EXPEND ITURE WHICH INCLUDES DOMESTIC AS WELL AS FOREIGN TRAVEL AND CON VEYANCE TO THE EMPLOYEES. THE AO HAS NOT PROVIDED ANY COGENT R EASONING OR WORKING, BASED ON WHICH SUCH DISALLOWANCES HAS B EEN MADE. DURING ASSESSMENT STAGE, THE APPELLANT HAD PR OVIDED THE SUBMISSIONS/DETAILS OF SUCH TRAVELLING EXPENDITURE, JUSTIFYING THE ALLOWABILITY OF THE SAME. THE ADDITION HAS BEEN MADE ON THE REASONING THAT APPELLANT FAILED TO EXPLAIN THE PURP OSE OF TRAVEL, NAME OF THE PERSONS WHO HAVE UNDERTAKEN THE TRAVEL AND NATURE OF WORK TO JUSTIFY THE BUSINESS NEED. FURTHE R, DISALLOWANCE IS ALSO MADE AS THE SAME WAS CONFIRMED BY THE CIT (A) IN THE EARLIER ASSESSMENT YEARS. IN THIS REGARD THE DETAILED SUBMISSION MADE DURING ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS WERE P ERUSED, AS 7 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . REPRODUCED EARLIER. THE APPELLANT COMPANY HAS PROVI DED THE NAME OF THE PERSONS WHO HAVE TRAVELLED WITH ITS JUS TIFICATIONS AND OTHER DETAILS AND SUBSTANTIATED ITS CLAIM REGAR DING SUCH TRAVELLING EXPENDITURE. OUT OF TOTAL TRAVELLING EXP ENSES OF RS.13,66,045/-, RS.4,92,629/- HAS BEEN SPENT AS DAI LY CONVEYANCE EXPENSES OF THE EMPLOYEES. REST OF THE E XPENDITURE OF RS.8,73,416/- HAS BEEN INCURRED IN DOMESTIC TRAV ELLING AND FOREIGN TRAVELLING BY THE EXECUTIVES OF THE APPELLA NT COMPANY. APPELLANT HAS DEMONSTRATED TO JUSTIFY THAT SUCH EXP ENDITURE HAS BEEN INCURRED IN THE REGULAR COURSE OF BUSINESS OF APPELLANT AND ALLOWABLE UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. IT IS ALSO OBSERVED FROM THE ORDER OF CIT (A), AS QUOT ED, THAT DURING EARLIER YEAR THE APPELLANT HAS MADE PAYMENTS TOWARD S THE CHARTERED PLANE AND CLAIMED EXPENDITURE. VARIOUS DE TAILS WERE ALSO NOT AVAILABLE DURING THAT PERIOD. HOWEVER, FOR THE YEAR UNDER CONSIDERATION THE DETAILS HAVE BEEN PROVIDED WITH THE NAME AND JUSTIFICATION OF SUCH TRAVELLING AND NO SU CH EXPENDITURE SHOWN TO HAVE INCURRED FOR PAYMENTS OF CHARTERED PLANE. FURTHER, THE APPELLANT IS A COMPANY AND THEREFORE A NY QUESTION RELATED TO PERSONAL EXPENDITURE OR NON BUSINESS EXP ENDITURE DOES NOT ARISE. IT IS ALSO NOTED THAT THERE IS NO B AR ON THE QUANTUM OF EXPENDITURE UNDER ANY HEAD, AS LONG AS I T IS INCURRED FOR THE PURPOSE OF BUSINESS, IN THE WISDOM OF THE APPELLANT. THEREFORE, IT IS NOT OPENED FOR THE AO T O CONSIDER ANY 8 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . SUCH EXPENDITURE AS EXCESSIVE, ESPECIALLY LOOKING T O THE FACTS AND CIRCUMSTANCES OF THIS CASE AND THE LAW AS RELIE D UPON IN VARIOUS JUDGMENTS. IN VIEW OF THE DISCUSSIONS IN THE FOREGOING PARAGRA PHS AND LOOKING TO THE CASE LAWS RELIED UPON BY THE APPELLA NT, WHICH IS FOUND APPLICABLE IN THE CASE OF APPELLANT, THE ADDI TION ON ACCOUNT OF TRAVELLING EXPENDITURE ON ESTIMATE BASIS IS DIRECTED TO BE DELETED. THE APPELLANT GETS A RELIEF OF RS.2,73, 209/-. THE APPEAL IS ALLOWED ON THIS GROUND. 3.2 BEFORE US, THE LD. DR HAS RELIED UPON THE ORD ER OF ASSESSMENT AND HAS SUBMITTED THAT THE LD. CIT (A) WA S NOT JUSTIFIED IN DELETING THE DISALLOWANCE. 3.3 ON THE OTHER HAND, THE LD. AR HAS VEHEMENTLY SUPPORTED THE IMPUGNED ORDER. 4.0 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE MATERIAL ON RECORD. THE LD. DR HAS NOT BROU GHT ON RECORD ANY JUSTIFIABLE REASON REQUIRING ANY INTERFERENCE WI TH THE CONCLUSIONS RECORDED BY THE LD CIT (A) IN THE IMPUG NED ORDER ON THIS ISSUE. AS NOTED ABOVE, THE ASSESSEE HAS FILED REQUISITE DETAILS OF TRAVEL EXPENSES NOT ONLY BEFORE THE AO BUT ALSO BEF ORE LD. CIT (A). WE FIND NO MERIT IN THE CASE OF THE AO FOR MAKING A N AD HOC 9 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . DISALLOWANCE @ 20%. THE AO HAS NOT EVEN HIGHLIGHTED OR POINTED OUT ANY DEFICIENCY IN THE DETAILS SUBMITTED BY THE ASSESSEE. CONSIDERING THIS, WE FIND NO REASON TO INTERFERE IN THE CONCLUSIONS RECORDED BY THE LD. CIT (A). GROUNDS 1 & 2 ARE HENC E DISMISSED. 5.0 IN GROUND NO.3, THE DEPARTMENT IS AGGRIEVED B Y THE ACTION OF LD. CIT (A) IN DELETING THE DISALLOWANCE OF RS.5,35,90,353/- MADE BY THE AO OUT OF INTEREST EXP ENSES. RELEVANT FACTS IN THIS REGARD ARE THAT DURING COURSE OF ASSE SSMENT IT WAS OBSERVED BY THE AO THAT ONE OF THE MAJOR ITEMS OF E XPENSE INCURRED AND CLAIMED AS DEDUCTION BY THE ASSESSEE WAS OF RS.5 ,35,90,353/- INCURRED AS EXPENSE ON LOAN TAKEN FROM ITS 100% HOL DING COMPANY M/S UFLEX LTD. IT WAS OBSERVED BY THE AO THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD OWN FUNDS AMOUNTING TO RS.10,85,97,807/- AND IT HAD TAKEN LOANS OF RS.116 CRORE ON WHICH IT HAD TO INCUR INTEREST EXPENSES OF MORE THAN RS. 5 CRORES. THE AO FURTHER OBSERVED THAT FROM A PERUSAL OF THE PROFIT & LOSS A/C OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, BUSINESS OPERATIONS WERE CONCEPTUALLY ABSENT. PREMISED THE ABOVE FACTS, THE AO MADE A 10 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . DISALLOWANCE OF RS.5,35,90,353/- OUT OF INTEREST EXP ENSE BY CONCLUDING AS UNDER :- FROM THE ASSESSEES SUBMISSIONS TWO IMPORTANT CONTE NTIONS ARE BROUGHT TO THE FORE. I. WHETHER, BY SIMPLY HOLDING ITS STOCK, THE ASSESS EE HAS CARRIED OUT ANY ACTIVITY WHICH WOULD MANDATE INCURR ING OF HUGE INTEREST EXPENSES ON BORROWED FUNDS. THE ANSWER IS IN THE NEGATIVE SINCE SIMPLY HOLDING BACK ITS STOCK WOULD REQUIRE MINIMAL, IF ANY, ACTIVITY ON THE PART OF THE ASSESS EE, WHOSE EXPENSES ANYWAY HAVE BEEN DEBITED TO THE P&L ACCOUN T IN THE FORM OF ADMINISTRATIVE EXPENSES AND HAVE BEEN ALL OWED. II. THE SECOND CONTENTION TO BE ADDRESSED IS WHETHE R BY INVESTING IN THE SHARES OF AKC DEVELOPERS AND Q-CEL L, THE ASSESSEE HAS CARRIED ON BUSINESS ACTIVITIES. THE AS SESSEE HAS TRIED TO PROVE THE SAME BY TAKING A POSITION THAT I T HAS INVESTED IN SUCH COMPANIES WHICH ALLEGEDLY PERFORM BUSINESS ACTIVITIES WHICH ARE SIMILAR TO THE OBJECTS OF THE ASSESSEE CO MPANY. THE CONTENTION OF THE ASSESSEE IS FAR-FETCHED TO SAY TH E LEAST. IN ANY MEMORANDUM OF ASSOCIATION ONE CAN FIND A CLAUSE WHI CH ALLOWS A COMPANY TO INVEST IN SHARES OF OTHER COMPANIES, W HETHER THEY PERFORM SIMILAR BUSINESS ACTIVITIES OR NOT. THAT DO ES NOT MEAN THAT INVESTING IN OTHER COMPANIES BECOMES THE BUSIN ESS OF THE COMPANY. THE AR HAS SUBMITTED IN HIS REPLY THAT EN TERING INTO A JOINT VENTURE AND PROMOTING AN INFRASTRUCTURE COMPA NY AND 11 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . HOLDING SUBSTANTIAL EQUITY STOCK THEREIN IS ITSELF A BUSINESS WHICH HAS BEEN DONE BY THE ASSESSEE COMPANY IN PURSUANCE OF ITS OBJECT DULY MENTIONED IN THE OBJECT CLAUSE OF THE M EMORANDUM. IT WOULD BE PERTINENT TO MENTION HERE THAT HAD THIS BEEN THE CASE, THE ASSESSEE WOULD HAVE BEEN REQUIRED TO CLASSIFY T HE SHARES OF INVESTEE COMPANIES AS ITS STOCK OR AS TRADE INVESTM ENTS AND NOT SIMPLY AS INVESTMENT AS SHOWN IN THE BALANCE SHEET. IT NEEDS TO BE ASSERTED HERE THAT THAT BUSINESS PURPOSE IN RELA TION TO AN EXPENDITURE NEEDS TO BE DIRECT AND PROXIMATE AND NO T INDIRECT AND DISTAL. IN THE CASE AT HAND THE PURPOSE FOR INC URRING THE LOAN IS TOO DISTANCED FROM THE ACTUAL BUSINESS OF THE AS SESSEE TO BE ALLOWED AS GENUINE BUSINESS EXPENDITURE. ON THE ISSUE OF GIVING OUT LOANS FROM THE BORROWED FUNDS, THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION AND IT IS SAFELY PRESUMED THAT THE ASSESSEE HAS NOTHING TO PROVE THA T THESE LOANS WERE GIVEN FOR ANY BUSINESS PURPOSE. FROM THE FOREGOING DISCUSSION IT IS CONCLUDED THAT I) ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITIE S DURING THE YEAR II) IT HAS BORROWED FUNDS FROM OUTSIDE ON WHICH IT HAS INCURRED INTEREST EXPENSES OF RS.5,35,90,353/- III) THERE IS NO NEXUS BETWEEN THE UTILIZATION OF B ORROWED FUNDS AND THE BUSINESS ACTIVITIES OF THE ASSESSEE. 12 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . 5.1 AGGRIEVED, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT (A) THAT IT WAS ENGAGED IN THE BUSINESS OF REAL ESTATE AND INFRASTRUCTURE DEVELOPMENT. IT WAS SUBMITTED THAT A SSESSMENT YEAR (AY) 2009-10 WAS THE THIRD YEAR OF THE OPERATION OF THE ASSESSEE COMPANY. IN THE FIRST FINANCIAL YEAR I.E., FY 2006- 07, THE ASSESSEE HAD CARRIED OUT BUSINESS OPERATIONS FOR ONLY 3.5 MO NTHS AND HAD RECORDED SALES OF RS.14.25 CRORES AND IN THE SECOND YEAR OF EXISTENCE I.E., FY 2007-08 IT HAD RECORDED REVENUE FROM BUSINESS OPERATIONS OF RS.68.27 CRORES. IT WAS ALSO SUBMITTE D THAT IN THE YEAR UNDER CONSIDERATION, ALTHOUGH, THE ASSESSEE WAS NOT ABLE TO MAKE ANY SALE BUT IT CONTINUED TO PURSUE ITS BUSINESS BY WAY OF HOLDING STOCK OF PROPERTY, TO KEEP ON PARTICIPATING IN VARI OUS OBJECTS OF REAL ESTATE AND INFRASTRUCTURE BY WAY OF FORMING SPV AND JOINT VENTURES. IN THIS REGARD, IT WAS SUBMITTED BY THE ASSESSEE BEF ORE THE LD. FIRST APPELLATE AUTHORITY AS UNDER:- YOUR HONOUR, DURING THE YEAR UNDER CONSIDERATION TH E APPELLANT APPLIED FOR CERTAIN BIDS. IN SOME OF THEM IT WAS SUCCESSFUL. IT HAD ALSO PARTICIPATED AS A JOINT VEN TURE PARTNER IN INFRASTRUCTURE/IT PROJECT AT GHAMBIA AND IN THE MUN ICIPAL SOLID WASTE PROCESSING PROJECTS IN THE STATE OF U.P. AND HARYANA. IT 13 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . HAD ALSO PROMOTED 100% SUBSIDIARY COMPANY FOR RETAI N CHAIN BUSINESS. IT HAD ALSO PARTICIPATED IN SDZ PROJECT I N GREATER NOIDA. IT ALSO APPOINTED AGENTS FOR LAND AGGREGATIO N IN AND AROUND KANPUR AS WELL AS IN AND AROUND BHOPAL, NCR REGION ETC. IT HAD ALSO PARTICIPATED IN BID FOR ALLOTMENT OF IT/OTSEZ PROJECT IN NOIDA. A DETAILED CHART OF PARTICIPATION IN PROJECT AND OTHER BUSINESS ACTIVITIES UNDERTAKEN BY THE APPELLA NT DURING THE YEAR UNDER CONSIDERATION ARE ATTACHED AT PAGE NO.21 8 TO 421. 5.2 THE LD. CIT (A) FOUND MERIT IN THE SUBMISSION S MADE BY THE ASSESSEE AND ALLOWED THE CLAIM MADE FOR DEDUCTION U/S 36(1)(III) OF THE ACT BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE AP PELLANT AND HAVE CONSIDERED THE FACTS AND EVIDENCES ON RECO RD. I HAVE ALSO PERUSED THE CASE LAWS RELIED UPON BY THE APPEL LANT. THE APPELLANT HAS TAKEN LOAN FROM ITS 100% HOLDING COMPANY M/S UFLEX LTD. @ 10% PER ANNUM ON INTEREST. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS DISCLOSED INT EREST AND OTHER INCOME, WHEREAS CLAIMED VARIOUS EXPENDITURES INCLUDING INTEREST ON BORROWED FUNDS AND OTHER FINANCIAL CHAR GES AMOUNTING TO RS.5,35,90,353/-. THIS AMOUNT INCLUDES THE BANK CHARGES OF RS.5,08,161/- AND INTEREST PAID OF RS.5, 30,82,192/- ON BORROWED FUNDS. ADDITION HAS BEEN MADE BY THE AO ON THE BASIS THAT THERE IS NO BUSINESS ACTIVITY BY THE APP ELLANT DURING THE YEAR, THE APPELLANT HAS BORROWED FUNDS FROM OUT SIDE AND 14 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . INCURRED INTEREST EXPENSES, HOWEVER THERE IS NO NEX US BETWEEN THE UTILIZATION OF BORROWED FUNDS AND THE BUSINESS ACTIVITIES OF THE APPELLANT. AS SUBMITTED IN DETAIL, AS REPRODUCED EARLIER, IT I S CONTENDED BY THE APPELLANT THAT THOUGH THERE IS NO REVENUE SHOWN DURING THE YEAR FROM THE BUSINESS ACTIVITY, HOWEVER THERE HAS BEEN BUSINESS OPERATIONS IN THE LAST TWO YEARS AND SUBSE QUENT YEARS. THE APPELLANT HAVING DEALINGS IN DEVELOPMENT AND SALES IN REAL ESTATE BUSINESS CANNOT BE STATED TO BE HAVI NG NO BUSINESS ACTIVITY DURING THE YEAR, SIMPLY BECAUSE T HERE IS NO REVENUE RECEIPTS SHOWN IN THE PROFIT AND LOSS ACCOU NT. IT IS ALSO CONTENDED THAT AO HIMSELF HAS CONSIDERED THE TRAVEL LING EXPENDITURE AND MADE CERTAIN DISALLOWANCES WHICH CL EARLY INDICATES THAT THE APPELLANT HAS NOT STOPPED ITS BU SINESS OR NO BUSINESS DURING THE YEAR. THE OTHER BUSINESS EXPEND ITURES ARE ALLOWED BY THE AO THEREBY RECOGNIZING THE BUSINESS ACTIVITIES FOR THE YEAR UNDER CONSIDERATION. FURTHER, BEING IN REAL ESTATE THERE CANNOT BE AN ABRUPT DISCONTINUATION OF BUSINE SS IN ONE YEAR. THE APPELLANT HAS DEMONSTRATED THAT IT HAS MADE VAR IOUS EFFORTS TO ENTER INTO VARIOUS BUSINESS ACTIVITIES D URING THE YEAR UNDER CONSIDERATION. IT HAS UNDERTAKEN MORE THAN 9 PROJECTS AND ALSO CARRYING INVENTORY OF RS.53.87 CRORES OF T RADED GOODS IN THE FORM OF APARTMENTS, WHICH IS READY FOR SALE AND HAS BEEN SOLD SUBSEQUENTLY. THE APPELLANT HAD ALSO PARTICIPA TED IN JOINT 15 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . VENTURE PARTNER IN TWO PROJECTS OUTSIDE INDIA AND A LSO INDULGED INTO PROMOTING SUBSIDIARY FOR RETAIL CHAIN BUSINESS . THE VARIOUS ACTIVITIES OF THE APPELLANT COMPANY CARRIED OUT DUR ING THE YEAR UNDER CONSIDERATION ARE COVERED WITHIN THE INCLUSIV E DEFINITION OF THE BUSINESS, AS DEFINED IN THE ACT. FURTHER, THE ACTIVITIES CARRIED ON BY THE COMPANY I S DULY COVERED WITHIN ITS MANDATE AS MENTIONED IN THE MEMORANDUM A ND ARTICLES OF ASSOCIATION OF THE APPELLANT. IT IS A R EALITY IN MODERN TIMES THAT THE BUSINESS IS BEING CARRIED OUT THROUG H JOINT VENTURES AND SMALL PURPOSE VEHICLES (SPC) AND REAL ESTATE AND INFRA PROJECTS ARE BEING TAKEN UP IN MOST OF BIDS I SSUED BY THE GOVERNMENT AND SEMI GOVERNMENT BODIES THROUGH THIS MODEL OF BUSINESS, WHERE INVESTMENT AND FUND RAISING IS MUCH CONVENIENT AND POOLED. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES O F THIS CASE AND FOLLOWING THE CASE LAWS RELIED BY THE APPELLANT AND AS DISCUSSED IN THE FOREGOING PARAGRAPHS, THE BUSINESS ACTIVITY DURING THE PERIOD UNDER CONSIDERATION HAS BEEN ESTA BLISHED BY THE APPELLANT THROUGH ITS MANDATE, CONDUCT AND ACTI ONS AS SUCH. NO REVENUE SALES CANNOT BE A BASIS TO ARRIVE AT A CONCLUSION THAT THERE IS NO BUSINESS ACTIVITY DURIN G THE YEAR, ESPECIALLY WHEN THERE HAS BEEN BUSINESS ACTIVITIES IN THE PAST TWO YEARS AND IN SUBSEQUENT YEARS, AS WELL AS UNDER STANDING THE FACT THAT APPELLANT IS IN THE BUSINESS OF REAL ESTATE WHICH HAS CONSTANT DEVELOPMENT OF VARIOUS BUSINESS PROJEC TS. 16 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . WITH REGARD TO THE AOS FINDINGS THAT THERE IS NO N EXUS BETWEEN THE UTILIZATION OF BORROWED FUNDS AND THE BUSINESS ACTIVITY OF THE APPELLANT, IT HAS BEEN DULY DEMONSTRATED BY THE APPELLANT THAT THE FUNDS BORROWED HAS BEEN DEPLOYED/INVESTED FOR VARIOUS BUSINESS PROJECTS OF THE APPELLANT SUCH AS RS.10 CRORES UTILIZED FOR GETTING BANK GUARANTEE FOR BIDDING THE ALLOTMENT OF LEASE HOLD RIGHTS FROM RAIL LAND DEVELOPMENT AUTHOR ITY, RS.25.50 CRORES FOR AGGREGATION OF LAND TO DEVELOP RESIDENTIAL/COMMERCIAL COMPLEX-WHICH IS MAIN BUSINE SS OF THE COMPANY, RS.6.05 CRORE FOR PAYMENT OF INTEREST AND OTHER EXPENSES, RS.22 CRORES PAID TO AKC DEVELOPERS LTD. AS EQUITY CONTRIBUTION IN JV OF MUNICIPAL SOLID WASTE PROJECT RS.7.35 CRORES TO QCELL LTD. GAMBIA AS ITS CONTRIBUTION FOR JV OF IT ENABLED SERVICES ETC. IT IS NOTED THAT ONE OF THE O BJECT AND BUSINESS OF THE APPELLANT IS TO ENTER JOINT VENTURE AND FORMING SPV TO CARRY OUT REAL ESTATE AND INFRASTRUCTURE BUS INESS. IN ORDER TO CARRY OUT ITS BUSINESS, THE APPELLANT HAS TO ENTER INTO VARIOUS JOINT VENTURES OR BECOME PART OF CONSORTIUM , BRINGING FINANCIAL AND TECHNICAL RESOURCES TOGETHER WITH CO- PARTICIPANTS IN VARIOUS PROJECTS IN THE REAL ESTATES. THIS TYPE OF ARRANGEMENT IS VERY COMMON, ESPECIALLY WITH THE GOVERNMENT AND SEMI GOVERNMENT PROJECTS, WHERE THE BID CAN BE MADE THRO UGH CONSORTIUM ALSO. FURTHER, IT IS THE PREROGATIVE OF THE APPELLANT TO CONDUCT ITS BUSINESS IN THE MANNER IT FINDS APPROPRIATE OR EXPE DIENT. IT IS 17 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . NOT OPEN FOR REVENUE AUTHORITIES TO CHALLENGED THE SAME, AS ALSO HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS. THE AO HAS RELIED UPON THE JUDGEMENT IN CIT VS. HR SUGAR FACTORY P. LTD. 187 ITR 363, WHILE MAKING DISALLOWA NCE. IN THIS REGARD, THE APPELLANT HAS SUBMITTED, AS REPRODUCED EARLIER, THAT THE FACTS OF THE CASE RELIED UPON BY THE APPELLANT IS NOT APPLICABLE IN THE INSTANT CASE DUE TO THE REASON TH AT THE APPELLANT HAS GIVEN ADVANCE TO THE VARIOUS PARTIES, NOT RELATED TO IT AND FOR THE BUSINESS PROJECTS BEING UNDERTAKE N BY THE APPELLANT. THEREFORE, THIS CANNOT BE TREATED AS INT EREST FREE LOANS AND ADVANCES GIVEN FOR NON BUSINESS PURPOSES. LOOKING TO THE FACTS OF THIS CASE I TEND TO AGREE WITH THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD AS THE FACTS ARE FOUND DISTINGUISHABLE AND HENCE THE JUDGEMENT RELIED UPON BY THE AO IS NOT APPLICABLE IN THE INSTANT CASE. LOOKING TO THE FACTS OF THIS CASE, WHERE IT IS ESTA BLISHED THAT THERE IS A BUSINESS ACTIVITY DURING THE YEAR BY THE APPELLANT AND THE BORROWED FUNDS HAVE BEEN DULY DEPLOYED/INVESTED FOR THE BUSINESS PURPOSES AND THE AO HAS RECOGNIZED THE OTH ER EXPENDITURES, AND FOLLOWING VARIOUS DECISION RELIED UPON BY THE APPELLANT, THE SAID CLAIM OF INTEREST AMOUNTING TO RS.5,35,90,353/- IS ALLOWED AS BUSINESS EXPENDITURE WITHIN THE MEANING OF PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE APPELLANT GETS RELIEF ACCORDINGLY. 18 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . 5.3 DURING THE COURSE OF HEARING BEFORE US, THE L D. DR HAS RELIED ON THE ORDER OF ASSESSMENT AND AS SUBMIT TED THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANC E. 5.4 ON THE OTHER HAND, THE LD. AR HAS VEHEMENTLY SUPPORTED THE IMPUGNED ORDER. 6.0 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD. WE FIND NO ME RIT IN THE OBSERVATIONS OF THE AO THAT THE ASSESSEE HAS NOT CA RRIED OUT ITS BUSINESS OF REAL ESTATE AND INFRASTRUCTURE DEVELOPM ENT DURING THE YEAR UNDER CONSIDERATION. THE LD. DR HAS NOT BEEN A BLE TO DEMOLISH THE FACTS RECORDED BY LD. CIT (A) WHEREIN IT IS NOTE D THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE VAR IOUS EFFORTS TO ENTER INTO BUSINESS ACTIVITIES. IT HAD UNDERTAKEN M ORE THAN 9 PROJECTS AND ALSO CARRIED INVENTORY OF 53.87 CRORES OF TRADED GOODS IN THE FORM OF APARTMENTS WHICH WAS READY FOR SALE AN D WHICH WERE ALSO SOLD SUBSEQUENTLY IN THE FUTURE YEARS. THE ASS ESSEE HAD ALSO PARTICIPATED IN JOINT VENTURE PROJECTS OUTSIDE INDI A. THESE ACTIVITIES OF THE ASSESSEE WERE IN CONSONANCE WITH ITS MEMORANDU M OF ASSOCIATION. DURING THE YEAR UNDER CONSIDERATION, T HE ASSESSEE HAD 19 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . MADE FRESH BORROWINGS OF RS 78.82 CRORE FROM ITS HOL DING COMPANY. THE ASSESSEE HAD SUBMITTED DETAILS OF UTILIZATION O F THIS SUM WHICH IS ON RECORD AND NOTED BY THE LD CIT (A) AT PAGES 2 7 TO 30 OF THE IMPUGNED ORDER. ONCE THESE DETAILS ARE PERUSED, THE OBVIOUS CONCLUSION IS THAT THERE IS A CLEAR CONNECTION BETW EEN THE MONEY BORROWED AND ITS UTILIZATION FOR PURPOSES OF BUSINE SS OF REAL ESTATE AND INFRASTRUCTURAL DEVELOPMENT CARRIED ON BY THE A SSESSEE. WE, THEREFORE, FIND NO MERIT IN THE DISALLOWANCE MADE BY THE AO AND THE IMPUGNED ORDER IS THEREFORE UPHELD. GROUND NO.3 IS, THEREFORE, DISMISSED. 7.0 GROUNDS 4, 5 & 6 ARE GENERAL IN NATURE AND NO SPECIFIC GRIEVANCE HAS BEEN ADDRESSED BY THE LD. DR IN THIS REGARD. THESE GROUNDS ARE ALSO DISMISSED. 20 ITA NO.3736/DEL/2016 ACIT VS. M/S. UTECH DEVELOPMERS LTD . 8.0 IN THE FINAL RESULT, THE APPEAL OF T HE DEPARTMENT STANDS DISMISSED. ORDER PRONOUNCED ON 30 TH JUNE, 2021. SD/- SD/- (N.K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/06/2021 *DRAGON* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI