M/s Homeland City Projects Limited, Delhi V. The ITO/DCIT, Delhi/Ludhiana

ITA 413/CHANDI/2022

AI Insights

The case involves M/s Homeland City Projects Limited, which appealed against the order of the Ld. CIT(A), Delhi-4, confirming the addition of Rs. 16,53,699 as disallowed interest under section 36(1)(iii) of the Income Tax Act, 1961. The assessee argued that the interest-free funds available were sufficient to cover the investments made, referencing various judicial precedents. The AO had disallowed the interest claiming the borrowed funds were not used for business purposes. The CIT(A) upheld this decision, leading to the current appeal. The tribunal found inconsistencies and a lack of documentation to verify the transactions and their purposes, thus setting aside the matter for a fresh examination by the AO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127592 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 08-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 05-05-2022
• Other Referred Cases: Reliance Industries vs. CIT, PCIT vs. Shapoorji Pallonji & Co. Ltd., Bright Enterprises vs. CIT, CIT vs. S.A. Builders
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 413/Chd/ 2022 Assessment Year : 2017-18 M/s Homeland City Projects Limited 18, Chander Lok Enclave, Pitampura Delhi-110034, Delhi The ITO Ward-11(2), Delhi PAN NO: AABCH4362E Appellant Respondent ! " Assessee by : Shri Sudhir Sehgal, Advocate # ! " Revenue by : Smt. Amanpreet Kaur, Sr. DR $ % ! & Date of Hearing : 09/05/2023 '()* ! & Date of Pronouncement : 05/07/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A), Delhi-4 dt. 21/09/2020 pertaining to A.Y. 2017-18 wherein the assessee has taken the following grounds of appeal: 1. That the Ld. CIT(A) has erred in confirming the addition of rs.16,53,699/- as made by the Assessing Officer on account of disallowance of interest u/s. 36(1) (iii). 2. That the Ld. CIT(A) has failed to appreciate that the assessee had sufficient interest free funds available and as such disallowance of interest u/s. 36(1)(iii) in uncalled for in the light of judgment of Hon'ble Apex court in the case of 'Reliance Industries' reported in 102 taxmann.com 52 (SC) and of Karnataka High court reported in 423 ITR 220 in the case of PCIT vs. Shapoorji Pallonji & Co. Ltd. and many cases of jurisdictional Income Tax Appellate Tribunal, Chandigarh and of Hon'ble Punjab & Haryana HC in the case of Bright Enterprises as reported in 381 ITR 107 (P & H - HC). 3. That the Ld. CIT(A)/AO has also failed to appreciate that the onus was on the revenue as a assessee cannot be ask to prove negative and as such the disallowance as confirmed is against the facts and circumstances of the case. 4. That the appellant craves leave to add, amend, or alter any of the above grounds of appeal before or during the course of appellate proceedings. 2 2. At the outset it is noted that there is delay in filing the present appeal as pointed out by the Registry. During the course of hearing, the Ld. AR taken us through the condonation application filed by the assessee as well as the affidavit so furnished and it was submitted that the delay has happened on account of COVID-19 pandemic and in view of the decision of the Hon’ble Supreme Court, for working out the period of limitation, COVID 19 pandemic period as so specified needs to be excluded. It was submitted that where the COVID 19 pandemic period is excluded as per the decision of the Hon’ble Supreme Court, there won’t be any delay in the filing of the present appeal and it was accordingly submitted that the appeal be admitted for adjudication on merits. The Ld. DR is heard who has not raised any objection. In view of the submissions made by the Ld. AR and after hearing the Ld. DR as well as perusing the application and the affidavit placed on record, the delay in filing the present appeal is hereby condoned and the appeal is admitted for adjudication. 3. Briefly, the facts of the case are that the assessment in this case was completed under section 143(3) dt. 29/11/2019 wherein the AO has disallowed a sum of Rs. 16,53,699/- holding that the borrowed funds expanded by the assessee for acquiring the share of the sister concern are not utilized for its business purpose and hence the interest claimed by the assessee needs to be disallowed. 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the findings of the AO and against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us. 5. During the course of hearing, the Ld. AR submitted that the assessee company has received loans from M/s Diamond Traexim Pvt. Ltd. amounting to Rs. 4,68,55,000/- and from M/s Apex Fibre India Ltd. amounting to Rs. 11,50,00,000/- amounting to Rs. 16,18,55,000/-. It was submitted that the assessee repaid amount of Rs. 4,29,52,000/- to M/s Diamond Traexim Pvt. Ltd. which was received as a loan earlier. It was also submitted that the assessee also repaid amounting to Rs. 12,86,70,000/- to M/s Diamond Traexim Pvt. Ltd. received as advance for business transaction. It was accordingly, submitted that the loan received during the year has been fully utilized by the assessee for repayment of loans and advances to M/s Diamond Traexim Pvt. Ltd. 3 6. It was submitted that against the amount of loan received during the year amounting to Rs. 16,18,55,000/-, the assessee has repaid loans and advances amounting to Rs. 17,16,22,000/- and the difference amounting to Rs. 97,67,000/- has been utilized from the interest free funds / internal accruals which have been used for repayment of loans and advances. It was submitted that the interest bearing funds amounting to Rs. 11,50,00,000/- received from M/s Apex Fibre India Ltd. have been used to repay the amount to M/s Diamond Traexim Pvt. Ltd. and no interest bearing amount has been left after the repayment. 7. It was submitted that during the year under consideration, the assessee company has debited a sum of Rs. 16,53,699/- being the amount of interest paid to M/s Apex Fibre India Ltd. on account of loan received during the year. It was submitted that it is a matter of fact that there is no opening balance/ loan etc from M/s Apex Fibre India Ltd. It was submitted that as explained earlier, the amount received from M/s Apex Fibre India Ltd. have been fully used to repay the amount to Diamond Traexim Pvt. Ltd. so it cannot be assumed that the interest bearing funds have been used to make investment during the year. 8. It was submitted that the AO in para 2 of the assessment order has stated that out of opening investment of Rs. 9,28,46,388/- in unquoted shares, an amount of Rs. 3,91,49,000/- of unsecured loan from M/s AB Continental Commodities Pvt. Ltd. was used to make the investment in the F.Y. 2014-15, but it is a matter of fact that no interest is paid to M/s AB Continental Commodities Pvt. Ltd. during the year. 9. It was submitted that the interest debited in the P&L Account during the year fully pertains to M/s Apex Fibre India Ltd. and the loan amount from the said company has been fully used for repayment to M/s Diamond Traexim Pvt. Ltd. It was submitted that regarding the fresh investment of Rs. 1,88,20,000/- in the unquoted equity shares, only interest bearing funds were those relating to M/s Apex Fibre India Ltd. and the same have been used for repayment to M/s Diamond Traexim Pvt. Ltd. 10. It was submitted that there cannot be any disallowance under section 36(1)(iii) of the Act where there are sufficient interest free funds available with the assessee at the time of giving advance. It was submitted that the AO as well as the Ld. CIT(A) had 4 made disallowance by stating that interest bearing funds have been used for making investment in the group companies and the same are not for business purposes. It was submitted that the interest as debited in the P&L account pertaining to M/s Apex Fibre India Ltd. and the loan amount from the said company has been fully used for repayment to M/s Diamond Traexim Pvt. Ltd. and therefore the interest bearing funds have not been used for making any investment in shares as so held by the AO and confirm by the Ld. CIT(A). 11. It was submitted that the investment in group companies is very much for the purpose of business and purpose of investment is not for earning the dividend income but having control and business purpose. The advances so made to the group concerns cannot be cannot by any stretch of imagination could be held to be non- business advances, particularly when there is no diversion of funds for personal benefit of directors and in support the reliance was placed on the decision of Hon’ble Supreme Court in case of CIT Vs. S.A. Builders as reported in 288 ITR 1, 12. Per contra, the Ld. DR has relied on the order and the findings of the lower authorities. 13. We have heard the rival contentions and purused the material available on record. As per the AO, the assessee has claimed interest expenditure of Rs 16,53,699/- which has been paid in respect of loan raised from M/s Diamond Traexim Pvt Ltd. whereas as per the ld AR, the interest expenditure so claimed by the assessee pertains to fresh loan transaction undertaken by the assessee during the year wherein the assessee has received fresh loans of Rs 11.50 crores from M/s Apex Fibre India Limited and which has been utilized to repay the existing loan and business liability towards M/s Diamond Traexim Pvt Ltd. There are no transaction documents on record in order for us to verify the alternate factual position so submitted by both the parties. In view of the aforesaid inconsistency and lack of documentation in appreciating the true nature of the transaction and particulars of the transacting parties and how the funds have been initially mobilized and subsequently utilized and purpose of such utilisation and thereafter, repayment thereof, we believe that the matter deserve to be set-aside to the file of the AO to examine the matter a fresh and decide the matter as per law. In 5 view of the same, the contentions so advanced by both the parties are left open and not adjudicated upon. The matter is set-aside to the file of the AO to examine the same afresh after providing reasonable opportunity to the assessee. 14. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 05/07/2023. Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 05/07/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar