LAQSHYA MEDIA LIMITED,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE 10(2)(1), MUMBAI, MUMBAI

ITA 1339/MUM/2025

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Laqshya Media Limited appealed against the order of the National Faceless Appeal Centre (NFAC), which upheld the disallowance of interest made by the Assessing Officer under section 36(1)(iii) of the Income Tax Act, 1961. The disallowance pertained to interest on loans which the assessee argued were funded by interest-free surplus funds. The Tribunal noted that similar issues had been resolved in favor of the assessee in previous years, and the Revenue had not contested these decisions. The Tribunal, therefore, deleted the disallowance, aligning with its earlier rulings and the findings of the jurisdictional High Court.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705410 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: HDFC Bank Limited vs. CIT [2014] 366 ITR 505 (Bom.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADITYA M. RAI
• Assessee Lawyers: RAVI SAWANA
• Keywords: Commercial expediency
• Section: 143(3); 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.1339/MUM/2025 (Assessment Year : 2017-18) Laqshya Media Limited, Jaganlaxmi, Laqshya House, Next to Rameshwar Temple, Saraswati Baug, Society Road, Jogeshwari (E), Mumbai - 400060 PAN : AAACL5004C ............... Appellant v/s ACIT – 10(1)(1), Mumbai ……………… Respondent Assessee by : Shri Ravi Sawana Ms. Priyanshi Chokshi Revenue by : Shri Aditya M. Rai, Sr.DR Date of Hearing – 01/07/2025 Date of Order - 03/07/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 20.12.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2017-18. 2. In this appeal, the assessee has raised the following grounds: - ITA No.1339/Mum/2025 (A.Y. 2017-18) 2 “Being aggrieved by the order of the Ld. Assessing Officer (AO) and the National Faceless Appeal Centre, Delhi (NFAC\"), the Appellant begs to prefer the present appeal on the following grounds which are without prejudice to each other: 1. On the facts and circumstances of the case and in law, the NFAC erred in upholding the disallowance of interest made by the AO under Section 36(1)(iii) of the Act. 2. On the facts and circumstances of the case and in law, the NFAC erred in not following the order of this Hon'ble Tribunal in the Appellant's own case for AY 2010-11, which is followed by the Hon'ble Tribunal for A Ys 2011-12, 2012- 13, 2013-14 and 2014-15 as well, wherein the disallowance of interest made by the AO under Section 36(1)(iii) of the Act had been deleted. 3. On the facts and circumstances of the case and in law, the NFAC erred in not following the order of the Commissioner (Appeals) in the Appellant's own case for AYs 2009-10 and 2015-16, wherein, following the Hon'ble Tribunal's order for AY 2010-11, Commissioner (Appeals) deleted the disallowance of interest made by the AO under Section 36(1)(iii) of the Act had been deleted. 4. On the facts and circumstances of the case and in law, the NFAC erred in not appreciating the fact that the interest-free loans advanced by the Appellant to its subsidiaries were out of own surplus funds and not from the interest- bearing borrowed funds. 5. On the facts and circumstances of the case and in law, the NFAC erred in not considering the relevant finding of the Hon'ble jurisdictional Bombay High Court in HDFC Bank Limited (2014] 366 ITR 505 (Bom.) that if the assessee's own funds are more than the investments made, then it shall be presumed that the investments made by the assessee are out of its own interest free funds. 6. On the facts and circumstances of the case and in law, the NFAC erred in not appreciating the fact that the interest-free loans were advanced by the Appellant to its subsidiaries out of commercial expediency.” 3. The solitary grievance of the assessee is against the disallowance of interest paid under section 36(1)(iii) of the Act. 4. The brief facts of the case pertaining to this issue, as emanated from the record, are: The assessee is engaged in the business of outdoor media advertisement services. For the year under consideration, the assessee filed its return of income on 30.11.2017, declaring a total income of ₹ 37,20,080. The return filed by the assessee was selected for scrutiny, and statutory ITA No.1339/Mum/2025 (A.Y. 2017-18) 3 notices under section 143(3) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, upon perusal of the books of accounts of the assessee, it was observed that the assessee has paid a total interest of ₹ 2,55,38,048/- during the year under consideration. It was further observed that as on 31.03.2017, the outstanding balance of the interest-bearing loans amounted to ₹ 26.68 crore, including the term loan of ₹ 10.53 crore availed by the assessee. Further, it was observed that during the year under consideration, the assessee has not advanced any interest- free loans to its subsidiary companies. Thus, it was noted that the total amount of interest-free loans advanced to the subsidiaries as on 31.03.2017 was ₹ 27.94 crores, which was granted in earlier years. Accordingly, the assessee was asked to explain why the disallowance of interest under section 36(1)(iii) of the Act should not be made. In response, the assessee submitted that the loan advanced to the subsidiary companies is out of interest-free funds available with the assessee. The assessee further submitted that the term loan secured by the assessee was for acquiring/installation of media assets, repayment of other loans and interest and for acquiring vehicles. Further, the working capital loan of ₹ 16.15 crore was taken by the assessee to fund the current assets of the company. The assessee also submitted that it has an operating cash inflow of ₹ 25.59 crore during the year under consideration. The assessee further submitted that the interest-free loan was advanced to the subsidiaries, which are also in the same line of business, and thus, the loan was advanced for business purposes. ITA No.1339/Mum/2025 (A.Y. 2017-18) 4 5. The Assessing Officer (“AO”) vide order dated 24.12.2019 passed under section 143(3) of the Act disagreed with the submissions of the assessee and held that the assessee has not been able to justify its argument that no nexus exists between interest-free advances and interest-bearing borrowed funds. The AO further held that the assessee has to prove that the loans on which interest was paid were utilised for the purpose of its business. Accordingly, the AO disallowed the interest amounting to ₹ 56,05,710/- paid by the assessee on working capital loan under section 36(1)(iii) of the Act. 6. The learned CIT(A), vide impugned order, granted partial relief to the assessee and directed the AO to reduce the disallowance by the amount already disallowed by the assessee under section 43B. Further, the learned CIT(A) also directed the AO to exclude various items of interest while calculating the interest disallowance, as mentioned in paragraph 4.2 of the impugned order. Being aggrieved by the part disallowance of the interest paid under section 36(1)(iii) of the Act, the assessee is in appeal before us. 7. We have considered the submissions of both sides and perused the material available on record. In the present case, the details of interest-free and interest-bearing loans and advances given by the assessee to its subsidiary companies are as follows: - S. No. Name of the subsidiary Status Opening Balance Loans given during the year Loans received during the year Closing balance Provision for Doubtful Loans 1 Laqshya Airport Media Pvt. Ltd. Interest free 1,58,85,021 1,58,85,021 1,57,85,021 2 Laqshya Hyderabad Airport Media Pvt. Ltd. Interest free 26,44,36,320 4,43,00,000 22,01,36,320 3 Laqshya Event IP Pvt. Ltd. Interest free 3,34,34,000 4,42,50,000 3,34,34,000 ITA No.1339/Mum/2025 (A.Y. 2017-18) 5 4 Laqshya Event IP Pvt. Ltd. Interest bearing 1,00,00,000 8,09,16,000 5 Tempus Fugit Pvt. Ltd. Interest free 1,47,85,000 1,72,00,000 1,00,00,000 6 Tempus Fugit Pvt. Ltd. Interest bearing 37,51,06,341 6,14,50,000 4,43,00,000 3,19,85,000 Total 39,22,56,341 8. Thus, the opening balance of interest-free loan and advances by the assessee to its subsidiary companies as on 01.04.2016 was ₹ 32,36,55,341. Out of the same, the assessee received interest-free loan of ₹ 4.43 crore during the under consideration. Thus, the total amount of outstanding interest-free loans advanced to the subsidiary company as on 31.03.2017 was ₹ 27,93,55,341. From the aforesaid details, as taken note by the AO in the assessment order, it is further evident that during the year under consideration, the assessee advanced interest-bearing loans to its subsidiary companies amounting to ₹ 6,14,50,000. Except for the aforesaid loan, it is evident that all other loans were interest-free loans and the same were advanced to the subsidiary companies in the preceding years. 9. During the hearing, the learned Authorised Representative (“learned AR”) submitted that a similar disallowance under section 36(1)(iii) of the Act has been made by the AO in assessee’s own case since the assessment year 2010-11. By referring to the orders passed by the Co-ordinate Benches of the Tribunal in assessee’s own case in preceding assessment years, forming part of the paper book from pages 162-255, the learned AR submitted that the disallowance made under section 36(1)(iii) of the Act was deleted by the Co- ordinate Benches of the Tribunal. The learned AR further submitted that the Department’s appeal against the Tribunal’s order for the assessment year 2010-11 was dismissed on this issue, and the findings of the Tribunal were ITA No.1339/Mum/2025 (A.Y. 2017-18) 6 upheld vide order dated 23.01.2025 passed by the Hon’ble Jurisdictional High Court in ITA No.1011 of 2018. 10. We find that the Co-ordinate Bench of the Tribunal in assessee’s own case in M/s. Laqshya Media Ltd. vs. DCIT, in ITA No.7310/Mum/2018, vide order dated 17.07.2020, following the decision rendered in assessee’s own case for the assessment year 2013-14, deleted the similar disallowance made under section 36(1)(iii) of the Act, by observing as follows:- “24. Ground No. 5 relates to disallowance of interest under section 36(1)(iii) of the Act. During the assessment, the AO noted that assessee has incurred interest of Rs. 6.71 crore. It was further noted that the assessee has advanced interest free loan to its subsidiary. The AO issued show-cause notice for interest disallowance under section 36(1)(iii). The assessee filed detailed submission vide reply dated 30.11.2017 as recorded in para-7.2 of the draft assessment order. In the reply the assessee submitted that the advance to the subsidiaries was given for commercial expediency and that the assessee had sufficient interest free funds available with it. The AO disregarded the contention of the assessee. The AO made disallowance under section 36(1)(iii) by taking view that assessee is unable to justify the commercial necessity for making interest free advances to its subsidiaries nor been able to substantiate beyond doubt that advance had been made from own funds. The AO disallowed Rs. 64,95,182/-. The DRP confirmed the action of the AO by following the order of earlier years. 25. The learned A.R. of the assessee submitted that this issue has been raised in appeal in previous assessment years wherein the Tribunal has held that no disallowance under Section 36(1)(iii) of the Act is warranted wherein the interest free loans advanced to the subsidiaries were out of commercial expediency. Thus, this ground of appeal is also covered in favour of the assessee. 26. On the other hand the id. DR for the revenue supported the order of the lower authorities. 27. We have considered the submissions of the parties and have perused the record. We have noted that on identical ground of appeal, the coordinate bench of Tribunal in earlier year (AY 2013-14 in ITA No. 7340/Mum/2017 dated 06.01.2020) passed the following order; \"20. Corporate tax disallowance of interest under section 36(1)(iii) of the Act. On this issue it was noted by the assessing officer that assessee has given interest free loans to its subsidiaries without charging any interest. The assessee's explanation that assessee had sufficient own funds to give interest- free loan to subsidiary companies was rejected. Hence disallowance of interest was done amounting to Rs 4,51,66,441. ITA No.1339/Mum/2025 (A.Y. 2017-18) 7 21. The dispute resolution panel following its earlier decision upheld the assessing officer's action. Against this order assessee is in appeal before the ITAT. 22. We have heard both the sides and perused the records. Learned counsel of the assessee reiterated that in assessee's own case ITAT for assessment year 2009 - 10 to assessment year 2012 - 13 has held that no disallowance in this regard is warranted as the interest free loan advanced to the subsidiaries was out of commercial expediency. Furthermore, the tribunal had also held that assessee's interest free funds to grant loans were sufficient and in this regard it had placed reliance upon Hon 'ble Bombay High Court decision in the case of CIT vs HDFC bank. In these circumstances learned counsel contended that no disallowance in this regard is warranted. He further contended that facts are identical and assessee's interest free funds are more than the advances given to AE's. 23. Upon careful consideration we find that since facts are identical and DRP has also followed its earlier year order which has been reversed by the ITAT, respectfully following the above said precedent we direct that no disallowance in this regard is to be made. 28. Respectfully following the decision of the Coordinate Bench in earlier assessment years, wherein it was held that the assessee has sufficient interest free funds available with it and the advances was given for commercial expediency; hence we are in agreement with the submissions of the assessee that this ground of appeal is covered in favour of the assessee. Hence, we are inclined to delete the addition/disallowance under Section 36(1)(iii) of the Act. No contrary fact or law is brought to our notice. Ins the result this Ground of appeal is allowed.” 11. During the hearing, the learned AR also placed reliance upon the decision of the learned CIT(A) in assessee’s own case for assessment year 2015-16, wherein a similar disallowance was deleted, following the judicial precedent in assessee’s own case in preceding years. The learned AR further submitted that the Revenue has not filed any appeal against the aforesaid findings of the learned CIT(A) for the assessment year 2015-16. 12. In the present case, it is an undisputed fact that during the year under consideration, no interest-free loans were advanced by the assessee to the subsidiary companies and all the interest-free loans were granted in the preceding years. Therefore, respectfully following the decisions of the Co- ordinate Bench of the Tribunal rendered in assessee’s own case in preceding ITA No.1339/Mum/2025 (A.Y. 2017-18) 8 years, the disallowance made under section 36(1)(iii) of the Act is deleted. As a result, the grounds raised by the assessee are allowed. 13. In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 03/07/2025 Sd/- NARENDRA KUMAR BILLAIYA ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 03/07/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "