IHHR Hospitality P.Ltd, New Delhi V. AddlCIT, Special Range-4, New Delhi

ITA 4991/DEL/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8063 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 15-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “C”: NEW DELHI ] BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA. No. 4991/Del/2018 (Assessment Year: 2015-16) M/s. IHHR Hospitality Pvt. Ltd., 32/7, Samalka, NH – 8, New Delhi–110 037. PAN: AAACI9385B Vs. Addl. CIT, Special Range : 4, New Delhi. (Appellant) (Respondent) Assessee by : Shri Ranjan Chopra, C. A.; Department by : Ms. Anima Barnwal, Sr. D. R.; Date of Hearing 16/09/2021 Date of pronouncement 22/11/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT(A)-35, New Delhi dated 27.04.2018 for the Assessment Year 2015-16 raising solitary grounds of appeal that the ld CIT(A) has confirmed the disallowance of Rs. 7,35,33,540/- on account of advances given to M/s. IHHR Hospitality (Andhra) Pvt. Ltd. 2. Grounds of appeal raised by the assessee are as under:- “1. That the Revenue has erred in law and on facts in disallowing a sum of Rs. 7,35,33,540/- by computing the said notional interest on account advance given to M/s. IHHR Hospitality (Andhra) Private Limited. 2. That the order of the revenue is bad in law and on facts.” 3. Brief facts of the case shows that the assessee company is engaged in the business of hospitality and operates Andhra in Hyderabad. It filed its return of income on 30.09.2015 declaring loss of Rs. 46,24,07,700/-. The case of the assessee was selected for scrutiny. 4. During the course of assessment proceedings the ld AO noted that the assessee has given huge advances to its subsidiary namely IHHR Andhra Page | 2 Pvt. Ltd the amount of outstanding as on 31/03/2015 is Rs. 71,01,77,000/-. On this account no interest is charged. The assessee has paid interest of Rs. 33,54,98,000/-. Therefore, the ld AO asked the assessee that why proportionate disallowances should not be made. 5. The assessee replied on 21.10.2016 mainly stating that it’s a joint venture between Andhra Pradesh Govt and assessee company. The amount of advance is for the business purpose. It is stated that the assessee company is engaged in the business of hospitality and in order to penetrate the hospitality business it entered into joint venture with the Andhra Pradesh Govt who contributed the land and the assessee contributed the funds. There were restrictions on the pattern of share holding and the Andhra Pradesh Govt. was to maintain 26% of share capital. The sums were advance as alone. It is sole responsibility of the assessee to complete the project of the SPV. For the purpose of the business the assessee has raised funds and has paid interest. It was also submitted that the assessee company is assessed to income tax for last several years and the ld AO has taken the stand for the first year i.e. in Assessment Year 2014-15. The assessee company further relied upon the decision of the Hon’ble Supreme Court in Munjal Showa 168 Taxmann 403. The ld AO rejected the argument of the assessee and thereafter disallowed 12% on the average value of outstanding of Rs. 61,27,79,500/- amounting to Rs. 7,35,33,540/-. The assessment order was passed on 29.12.2017 determining total loss of the assessee at Rs. 38,88,74,160/-. 6. The assessee preferred an appeal before the ld CIT(A) who confirmed the action of the ld AO and therefore, the assessee is in appeal before us. 7. The ld AR vehemently submitted that the advances are for the purpose of the business of the assessee. The assessee and the company to whom land is given are engaged in the same business. The assessee has entered into a joint venture therefore, the interest expenditure incurred by the assessee is driven by business exigencies and therefore no disallowances should have been made. He further referred to the several judgments to support his case. He also referred extensively to the joint venture/ SPV share holder agreement entered into between assessee and Andhra Pradesh Govt. He further submitted that the assessee has a interest free share capital Page | 3 available with it of Rs. 30,233 lakhs and whereas the investment made in the above company is merely Rs. 3614 lakhs. He submitted that assessee has huge interest free funds available then amount advanced without charging interest to subsidiary company carrying same business. He therefore referred that 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. Therefore, his twin arguments that the (i) advance given are for the business purpose and (ii) further even otherwise the assessee has huge interest free funds available in the form of share capital and free reserve. Hence, according to him no disallowance could have been made. 8. The ld DR vehemently supported the order of the lower authorities. 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. Andharpradesh Govt 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. Page | 4 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 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 Page | 5 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. 14. In the result appeal of the assessee is allowed. Order pronounced in the open court on 22/11/2021. -Sd/- -Sd/- (SUCHITRA KAMBLE) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 22/11/2021 *AKKEOT* Copy forwarded to 1. Appellant; 2. Respondent 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi