M3M INDIA (P) LTD.,GURGAON V. ACIT, CENTRAL CIRCLE-2, FARIDABAD

ITA 1190/DEL/2024

AI Insights

The case involves cross-appeals by M3M India (P) Ltd. and the ACIT Central Circle-2, Faridabad, concerning the assessment order for the year 2018-19. The primary issues revolved around the disallowance of interest on advances to subsidiaries and group companies, the impairment of goodwill, and various disallowances related to foreign travel expenses and 'on money' received. The Tribunal examined the legal and factual basis for these disallowances and adjustments, referencing various judicial precedents and statutory provisions under the Income Tax Act, 1961.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34283 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Other Referred Cases: S.A. Builders Ltd. Vs. CIT, Rama Synthetic Pvt.Ltd. vs. CIT, CIT vs Reliance Industries, PCIT vs Holy Faith International P.Ltd., CIT vs Seven Hills Hospitals (P.) Ltd., CIT vs Raghuvir Synthetics, CIT vs. CIT vs. Apollo Tyres Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BALJEET KAUR
• Assessee Lawyers: GAUTAM JAIN; VIRTUE OF
• Keywords: Set aside; Proportionate interest; Business expenditure; Depreciation; Fair market value; Cost of acquisition; Commercial expediency; Capital Gains; Search and seizure; Valuation report; Competent authority; Deemed to accrue or arise in india; Wholly owned subsidiary; Share purchase agreement; Scheme of amalgamation
• Section: 143(3); 143(2); 250; 48; 132; 139(1); 43; 22; 13; 115JB; 37(1); 20

Judgement Text

"ITA Nos.1190 & 2033/Del/2024 Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “E” BENCH: NEW DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA No.1190/Del/2024 [Assessment Year : 2018-19] M3M India (P) Ltd. 41st Floor, Tower 1 M3M International Financial Center, Sector-66 Golf Course Extension Road, Gurgaon-122101. PAN-AACCT7082Q vs ACIT Central Circle-2 Faridabad APPELLANT RESPONDENT ITA No.2033/Del/2024 [Assessment Year : 2018-19] DCIT Central Circle-2 Faridabad vs M3M India (P) Ltd. 6th Floor, Paras Twin Towers Tower-B, Golf Link Road Gurgaon, Haryana-122002 PAN-AACCT7082Q APPELLANT RESPONDENT Appellant by Shri Gautam Jain, Adv. Shri Lalit Mohan, CA Shri Ankit Kumar, Adv. & Shri Malay Chaturvedi, AR Respondent by Ms. Baljeet Kaur, CIT DR Date of Hearing 28.02.2025 Date of Pronouncement 26.03.2025 ORDER PER PRADIP KUMAR KEDIA-AM : Both assessee and revenue have filed cross-appeals arising out from the first appellate order dated 16.02.2024 passed under s. 250 of the Income Tax Act, 1961 [“the Act”] by CIT-3, Gurugram arising from the assessment order dated 30.09.2021 passed by the DCIT, Central Circle-2, Faridabad under s. 143(3) of the Act pertaining to assessment year 2018-19. ITA Nos.1190 & 2033/Del/2024 Page | 2 2. The concise Grounds of Appeal raised by the assessee read as under:- 1. “That the learned Commissioner of Income Tax (Appeals)-3, Gurgaon has erred both in law and on facts in-law-in-upholding a disallowance of a sum of Rs. 125,29,80,000/- out of expenditure incurred on interest by applying an adhoc rate of interest on the advances to wholly owned subsidiaries and group companies outstanding at the end of financial year 2017-18 relevant to assessment year 2018-19 u/s 36(1)(iii) of the Act. 1.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once identical claim of deduction stood allowed in preceding years, the disallowance so made and, upheld was contrary to principles of consistency and thus untenable. 1.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that total borrowings from banks and other financial institutions at the close of instant year had fallen from Rs. 992.03 crores to Rs. 879.42 crores and, thus once interest on such borrowings had been allowed in previous financial year then no disallowance could be upheld on account of interest u/s 36(1)(iii) of the Act even in instant year. 1.3. That while upholding the aforesaid disallowance the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once interest free funds were available with the appellant company, which was far in excess to the advances to wholly owned subsidiaries and group companies; the premise of arbitrary, notional and hypothetical disallowance is untenable. 1.4. That while upholding the aforesaid disallowance the learned Commissioner of Income Tax (Appeals) has failed to appreciate that advances to wholly owned subsidiaries where appellant company being a holding company has deep interest in the subsidiaries and, the same has been utilized by the subsidiaries for business purposes and, thus the conclusion that such advances are on not on account of commercial expediency is factually incorrect, legally misconceived and wholly unsustainable. 1.5. That furthermore advances to group companies are also advances to special purpose vehicles in the course of business of real estate, who have either developed the real estate project or have invested in land or are developing land and revenue from which will be shared with the appellant company and thus advances are on account of commercial expediency, therefore disallowance of interest upheld on the basis of such advances is untenable. 1.6. That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate that since it is undisputed fact that, that advances by appellant company to wholly owned subsidiaries and group companies has not been utilized by director of said companies for their personal benefit, ITA Nos.1190 & 2033/Del/2024 Page | 3 then neither logically nor legally it could be alleged much less validly held that disallowance was warranted on account of purported interest in respect of such advances u/s 36(1)(iii) of the Act. 1.7. That the learned Commissioner of Income Tax (appeals) upheld the finding of the learned Assessing Officer that the terms of MOUs which is the base document of transactions between the appellant and its wholly owned subsidiaries and group companies have not been acted upon by the appellant and other parties till date of order of assessment is factually incorrect and thus untenable. 1.8. That further conclusion that no development rights have ever been transferred to the appellant company by its so-called subsidiaries and group companies, whereas appellant is transferring year after year funds in huge amount to its concerns in the garb of developments rights which is nothing but a colorable transaction is not based on any evidence and on the contrary is based on pure surmises, conjectures and suspicion, therefore is otherwise erroneous untenable and unwarranted. 1.9. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide that manner and mode of business. 1.10. That learned Commissioner of Income Tax (Appeals) even otherwise failed to establish in absence of any nexus during the year that advances to wholly owned subsidiaries and group companies are out of interest bearing funds by any positive material much less any evidence, disallowance upheld is otherwise not in accordance with law. 1.11. That learned Commissioner of Income Tax (Appeals) has failed to appreciate that once in the year of advance, it has been accepted that advance was on account of commercial expediency then revenue cannot take a somersault and adopt an inconsistent stand in the instant year so as to uphold the instant arbitrary unjustified disallowance out of interest eligible as expenses u/s 36(1)(iii) of the Act. 1.12. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, disallowance so sustained is absolutely unwarranted. 1.13. That in any case and without prejudice that disallowance upheld is highly arbitrary and excessive and therefore unsustainable. 2. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding a disallowance of sum of Rs. 14,35,697/- out of expenditure incurred on foreign travelling by the appellant company. ITA Nos.1190 & 2033/Del/2024 Page | 4 3. That the learned Commissioner of Income Tax (Appeal) has also erred both in law and on fact in upholding a disallowance of Rs. 1,01,12,775/- representing cost debited and claimed as expenditure while computing income under percentage of completion method of accounting adopted by the appellant company; and accepted in the impugned order of assessment by the learned Assessing Officer. 3.1. That finding of the learned Commissioner of Income Tax (Appeals) that \"no details/documentary evidence in this respect have been give. In the absence of same the appellant could not be substantiate allow liability of the same as business expenditure. The onus was upon the appellant to substantiate the claim made in the profit and loss account in the form of cost of project not materialized. Such onus has not been discharged in this case\" is based upon incorrect appreciation of facts of appellant company; and thus untenable. 4. That the learned Commissioner of Income Tax (Appeal) has also erred both in law and on fact in upholding a disallowance of Rs. 1,40,00,000/- representing expenditure on account of construction of road on the property owned by M/s Mikado Realtors Ltd. eligible for deduction while computing income of appellant for instant year. 4.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was an Memorandum of Understanding between appellant, M/s Mikado Realtors Ltd. and Tata group for sale of shares of M/s Mikado Realtors Ltd. by appellant company to Tata Group, therefore such expenditure was in any case eligible for deduction while computing the income of appellant on account of sale of shares by appellant company. It is therefore, prayed that, that disallowances sustained by the learned Commissioner of Income Tax (Appeals) is not tenable and therefore be deleted and appeal of the appellant company may kindly be allowed.” 3. The Grounds of Appeal raised by the Revenue in the cross-appeal read as under:- 1. “Whether the Ld. CIT(A) is right in restricting the addition of Rs. 179,53,12,500/- made by the AO on account of disallowance of interest u/s 36(i)(iii) of the Act to the extent of Rs. 125,29,80,000/- without giving any cogent reason for holding that the assessee has used interest bearing funds to the extent of Rs.835.32 Crores only for the purpose of giving interest free advances to its subsidiaries/group concerns? 2. Whether the Ld. CIT(A) is right in restricting the addition of Rs. 179,53,12,500/- made by the AO on account of disallowance of interest u/s 36(i)(iii) of the Act to the extent of Rs. 125,29,80,000/- by applying rate of interest @ 15% instead of 18.75% without giving any concrete reasoning? ITA Nos.1190 & 2033/Del/2024 Page | 5 3. Whether the Ld. CIT(A) is right in deleting addition of Rs.155,71,00,407/- u/s 115JB of the Act on account of impairment of goodwill by not considering the ratio laid down by the Hon'ble Supreme Court in the case of Rama Synthetic Pvt.Ltd. vs. CIT [196 Taxman 539 (SC)? 4. Whether the Ld. CIT(A) is right in deleting addition of Rs. 155,71,00,407/- u/s 115JB of the Act on account of impairment of goodwill by placing reliance upon the order of Hon'ble IBS (Interim Board of Settlement) in the case of the assessee whereas against the said order of Hon'ble IBS, a writ petition under Article 226 of the Constitution of India was filed before the Hon'ble High Court of Punjab and Haryana? 5. Whether the Ld. CIT(A) is right in restricting the addition of Rs. 1,16,20,916/- to Rs. 14,35,697/- made by the AO on account of foreign travel expenses ignoring the facts that the assessee couldn't explain the purpose of such visit for business expediency? 6. Whether the Ld. CIT (A) is right in deleting the addition of Rs. 50,00,000/- made on account of receipt of 'On Money' ignoring the facts that it was established by the AO that assessee company has taken 'On Money' on sale of units as there were huge variation in rates of booking in such units by offering different discount to different persons?” 4. Briefly stated, the assessee company is engaged in the business of development of real estate since its incorporation in March, 2007 under the Companies Act, 1956. For the Assessment Year 2018-19 relevant to Financial Year 2017-18 in question, the assessee company filed Return of Income under s. 139(1) declaring total income at INR 66,81,53,820/-. The Return filed by the assessee was selected for scrutiny assessment by issuance of notice under s. 143(2) and s.142(1) of the Act. The AO eventually assessed the income at INR 250,42,00,011/- as against declared income of INR 66,81,53,820/- as per the assessment order dated 30.09.2021 under s. 143(3) of the Act by making following additions/disallowances:- Sr.No. Nature of Addition/Disallowances Amount(Rs.) i) Disallowance out of expenditure incurred on interest by applying an adhoc rate of interest of 18.5% on the balance of advances aggregating to Rs. 957.50 crores to wholly owned subsidiaries and group companies at the end of financial year 2017-18 relevant to assessment year 2018-19 under section 36(1)(iii) of the Act. 179,53,12,500 ii) Adjustment made on account of impairment of goodwill, while computing the book profit u/s 115JB of the Act 155,71,00,407 iii) Disallowance on adhoc basis representing 50% of expenditure 1,16,20,916 ITA Nos.1190 & 2033/Del/2024 Page | 6 incurred on foreign travelling by the appellant company iv) Disallowance representing cost debited and claimed as expenditure while computing income under percentage of completion method of accounting adopted by the appellant company; and accepted in the impugned order of assessment by the learned Assessing Officer. 1,01,12,775 v) Addition representing alleged on money received on booking of flats/units by appellant company 50,00,000 vi) Disallowance representing expenditure on account of construction of road on the property owned by M/s Mikado Realtors Ltd. eligible for deduction while computing income of appellant for instant year. 1,40,00,000 5. Aggrieved by such additions/disallowances and adjustments in ‘book profit’ under s. 115JB etc., the assessee preferred appeal before the CIT(A). 5.1. In the first appeal, detailed submissions were placed before the CIT(A) by the assessee to defend its stance taken in the Return of Income. Oral and written submissions made in the course of appellate proceedings were extracted in the first appellate order. The CIT(A) however granted partial relief to the assessee. 5.2 The CIT(A) scaled down the disallowance towards interest expenditure under s. 36(1)(iii) of the Act from INR 179,53,12,500/- to INR 125,29,80,000/-. The disallowance on foreign travelling carried out by AO at INR 1,16,20,916/- on estimated basis was partly upheld to the extent of INR 14,35,697/-. The CIT(A) deleted the additions to the extent of INR 50,00,000/- made on account of alleged receipt of ‘On Money’. The CIT(A) however upheld the disallowance of INR 1,01,12,775/- representing cost debited and claimed as expenditure while computing income under Percentage of Completion Method (“PoCM”) adopted by the assessee company. The CIT(A) also affirmed the disallowance of INR 1,40,00,000/- representing expenditure on account of construction of road on the property owned by M/s. Mikado Realtors Ltd. whose shares were agreed to be sold by the assessee as per the Memorandum of Understanding (“MoU”) leading to sale of property to Tata Group. The CIT(A) however deleted adjustments/additions to the tune of INR 155,71,00,407/- carried to the book profit under s. 115JB of the Act towards impairment of Goodwill. ITA Nos.1190 & 2033/Del/2024 Page | 7 6. Dissatisfied with the issues adjudicated partly in favour of the assessee and partly in favour of the revenue on different issues, the assessee has preferred appeal before the Tribunal. Likewise, the Revenue has also knocked the door of the Tribunal on the points where the CIT(A) has either scaled down the additions/disallowances carried in the assessment order or where complete relief has been given by the CIT(A). 7. Wide ranging submissions and counter submissions were advanced by both the sides on different issues in the course of hearing. We shall deal with such submissions/counter submissions in support of their respective appeals while adjudicating the respective issues in the succeeding paragraphs. 8. We have carefully considered the rival submissions and perused the assessment order and the first appellate order. The material referred to and relied upon have been perused in terms of Rule 18(6) of the Income Tax (Appellate Tribunal) Rules, 1963. The ratio of judicial precedents cited in the course of hearing by respective sides have been taken into account. 9. Grounds 1 and sub-grounds thereof in assessee’s appeal and Ground 1 to 2 of Revenue’s appeal relates to issue of proportionate disallowance of interest of INR 179,53,12,500/- made by AO with reference to s. 36(i)(iii) on aggregate advances of INR 957.50 crore made to (a) wholly owned subsidiaries and (b) Group Companies. The CIT(A) in first appeal has upheld the disallowance to the extent of Rs. 125,29,80,000/-. The assessee as well as Revenue have agitated the action of CIT(A) granting part relief. 9.1. The relevant facts necessary for adjudicating the issue as emerging from the case records and adverted in the course of hearing are capsuled here under. 9.2. During the FY 2017-18 relevant to AY 2018-19 under consideration, the assessee incurred interest expenditure of INR 403.24 crore on borrowings received in the shape of overdraft facilities/cash credit limits from bank and financial institutions. Out of aforesaid interest expenses of INR 403.24 crore, the assessee claimed interest expenditure of INR 361.31 crore in the Profit & ITA Nos.1190 & 2033/Del/2024 Page | 8 Loss Account. The assessee claimed to have attributed INR 47.07 crore to construction work in progress (“WIP”) and taken into account while computing the income under PoCM. In essence, the assessee claimed interest expenditure to the tune of INR 361.31 crore as revenue expenses for the purposes of determination of taxable income. The AO observed that the assessee has given certain interest free advances to its wholly subsidiary companies ( Rs. 442.26 crore) and group companies ( Rs.515.29 crore) aggregating to INR 957.50 crore upto the end of FY 2017-18 as on 31.03.2018. The AO alleged that such funds advanced to wholly owned subsidiaries and other group companies were not utilized for business expediency and consequently the proportionate interest expenditure attributable to such advances is not qualified for deduction under s. 36(1)(iii) of the Act. The AO also observed that the interest were paid @ 18.75% on borrowings diverted to subsidiary and group cos. The AO accordingly applied interest rate of 18.75% on the aggregate amount on interest free advances of INR 957.54 crore allegedly diverted to wholly owned subsidiary companies and group companies and proceeded to disallow proportionate interest of Rs. 179,53,12,500 ( 957.54 cr.*18.75%] with reference to s. 36(1)(iii) of the Act holding such loans and advances to be utilised for non-business purposes. 9.3. The assessee contested the aforesaid disallowance of interest additions before the CIT(A). It was contended before the CIT(A) that the assessee possessed interest free funds at its disposal to the extent of INR 1836.81 crore in aggregate in the form of share capital, security premium, capital reserve etc even without taking advances from customers into account. Additionally, the assessee holds INR 1199.95 crore being advanced from customers which is again interest free. The assessee thus contended that staggering amount was available with the assessee company in the shape of non-interest bearing funds. Hence, non-interest bearing funds advanced to subsidiary companies and group companies are sufficiently covered by corresponding non-interest bearing funds at its disposal. Besides, the money has been advanced to wholly owned ITA Nos.1190 & 2033/Del/2024 Page | 9 subsidiary companies and group companies to augment its real estate business and such associate companies are in the nature of special purpose vehicle to carry on real estate projects. The assessee also pointed out before the CIT(A) as well as the AO that the money advanced to subsidiary and group companies are backed by MoUs whereby the subsidiary companies and group companies have primarily agreed to transfer the development rights of the land which it possesses or comes into possession in future and also share the Revenue generated in appropriate cases. 9.4. The CIT(A) however did not assign much weight to the plea of business expediency claimed to be ingrained while providing interest free funds to wholly owned subsidiaries and group companies. The CIT(A) however simultaneously adopted the average of interest free advances to various subsidiary and group companies computed at INR 835.32 crore (being average of INR 957.54 crore as on 31.03.2018 & INR 713.14 crore as on 31.03.2017). The CIT(A) thus took average of the opening balance and the closing balance of money advanced being INR 835.32 as the base for estimation of proportionate interest disallowance. The CIT(A) also accepted the effective weighted interest rate 11.67% demonstrated by the Assessee rather than 18.75% adopted by AO. The CIT(A) thus re-estimated interest disallowance on average advances to subsidiary/group companies by applying interest rate of 15% after taking cognizance of associated costs for procurement of borrowings. The CIT(A) thus computed the disallowance @ 15% of the average advance to subsidiary/group companies of INR 835.32 crore. Consequently the additions/disallowances out of expenditure incurred on interest under s. 36(1)(iii) of the Act was scaled down to INR 1,25,29,80,000/-[ 835.32*15%]. 10. The relevant facts concerning the issue as pointed out in the course of hearing before the Tribunal are noted here-under for ready reference:- ITA Nos.1190 & 2033/Del/2024 Page | 10 10.1 (a) Details of borrowings as per assessment order r.w. audited financial statement of the assessee company: Sr.No. Particulars As on 31.03.2017 (Rs. In crores) As on 31.03.2018 (Rs. In crores) i). Borrowed funds from the bank and other financial institutions (Borrowings Non- Current) 994.66 1110.98 ii). Borrowed funds from the bank and other financial institutions (Borrowings Current) 778.70 860.06 Total(A) 1773.36 1971.04 iii). Bank Over draft (B) 7.38 12.84 Total (C)=(A+B) 1780.74 1983.88 (b) Breakup of interest expenditure claimed Sr.No. Particulars Amount (Rs.in lakhs) Interest on i) Term loan 32,488.70 ii) Overdraft facility 7,762.49 iii) Finance liabilities carried at amortized cost 31.55 iv) Guarantee and bank charges 514.11 v) Other borrowing costs 41.56 Total(A) 40,838.41 vi) Less: Transfer to construction work in progress*(B) (4,707.50) vii) Total (C)=(A-B) 36,130.91 (c) Break up of interest free advances to various parties:- Sr.No. Particulars Rs.(in Lakhs) i) Advance Subsidiary 52,886.72 ii) Advance to other related parties 51,621.31 iii) Others 381.31 iv) Other amount recoverable against development right 6646.67 v) Total 1,11,536.01 (1115.36 crores) ITA Nos.1190 & 2033/Del/2024 Page | 11 (d) Break up of interest free advances to wholly owned companies and group companies adopted by AO & CIT(A) for the purposes of disallowances: Sr.No. Particulars No. of companies As on 31.03.2017 (Rs.) As on 31.03.2018 (Rs.) i) Wholly owned subsidiary companies 17 312,15,10,978 442,25,89,083 ii) Group companies 15 400,99,83,182 515,28,98,051 Total 32 713,14,94,160 957,54,87,134 (e) Party-wise break-up of advances to wholly owned subsidiary companies: Sr.No. Particulars Year of advance As on 31.03.2017 (Rs.) As on 31.03.2018 (Rs.) i) Consolidated Realtors(P) Ltd. During FY 11-12 12,00,000 12,00,000 ii) Olive Realcon (P) Ltd. During FY 14-15 to FY 17-18 12,00,00,000 18,34,00,000 iii) M3M Homes (P) Ltd. During FY 17-18 1,90,000 2,71,00,000 iv) Lavish Buildmart (P) Ltd. Prior to FY 11-12 to FY 17-18 24,81,20,978 25,06,53,478 v) Gentle Propbuild (P) Ltd. During FY 17-18 57,00,000 69,23,78,555 vi) Blossom Propbuild (P) Ltd. During FY 13-14 7,00,00,000 7,00,00,000 vii) Roshni Builders (P) Ltd. During FY 16-17 18,39,00,000 18,39,00,000 viii) Generous Realtors (P) Ltd. During FY 12-13, & FY 14-15 14,55,00,000 14,55,00,000 ix) Bonus Builder (P) Ltd. Prior to FY 10-11 7,10,00,000 7,10,00,000 x) Gama Buildwel (P) Ltd. Prior to FY 10-11 10,67,00,000 10,72,00,000 xi) Zenith Realtech (P) Ltd. Prior to FY 10-11 10,66,00,000 10,66,00,000 xii) Morgan Propbuild (P) Ltd. During FY 15-16 & FY 16-17 79,65,00,000 79,65,00,000 xiii) Garden Realtech (P) Ltd. During FY 16-17 7,97,00,000 7,97,00,000 xiv) Zarf Buildcon (P) Ltd. During FY 15-16 71,60,00,000 71,61,50,000 xv) Supreme Propbuild (P) Ltd. During FY 17-18 NIL 10,00,00,000 xvi) Benchmark Infotech (P) Ltd. During FY 17-18 NIL 31,13,07,050 xvii) Nice Realcon (P) Ltd. During FY 12-13 to FY 17-18 47,04,00,000 58,00,00,000 Total 312,15,10,978 442,25,89,083 (f) Party-wise break-up of advances to group companies: Sr.No. Particulars Year of advance As on 31.03.2017 (Rs.) As on 31.03.2018 (Rs.) i) Manglam Multiples (P) Ltd. From FY 15-16 to FY 17-18 71,31,15,152 145,99,00,000 ii) Prompt Engineering (P) Ltd. From FY 16-17 to FY 17-18 41,00,000 54,70,70,103 iii) Metro Education & Welfare During FY 15-16 18,54,00,000 18,54,00,000 ITA Nos.1190 & 2033/Del/2024 Page | 12 (P) Ltd. iv) RSSG Builders (P) Ltd. During FY 15-16 86,27,50,000 86,27,50,000 v) Sharp Realcon (P) Ltd. During FY 15-16 23,45,00,000 23,45,00,000 vi) Ujjala Buildtech (P) Ltd. During FY 15-16 47,25,00,000 47,28,59,918 vii) Bryan Infrastructure (P) Ltd. During FY 16-17 2,70,00,000 2,20,00,0000 viii) Lavya Realtors (P) Ltd. During FY 16-17 10,37,00,000 10,37,00,000 ix) Zamidar Realcon (P) Ltd. During FY 16-17 8,00,00,000 8,01,50,000 x) Gombi Buildwel (P) Ltd. During FY 16-17 17,87,50,000 17,87,50,000 xi) Vibrant Infratech (P) Ltd. During Fy 16-17 89,54,00,000 89,54,00,000 xii) Maarit Infrastructure (P) Ltd. During FY 17-18 ---------- 2,00,000 xiii) Delight Propcon (P) Ltd. From Fy 14-15 14,75,00,000 50,00,000 xiv) Misty Meadows (P) Ltd. Prior to FY 11-12 10,52,68,030 10,52,68,030 xv) Lavanya Realtors (P) Ltd. -------- ------- ------- Total 400,99,83,182 515,28,98,051 10.2. It was pointed out by the assessee that out of 32 companies in aggregate (wholly owned subsidiary and group companies) as tabulated above, there is an increase in advances in 14 entities whereas advances have decreased in 2 companies. There is no change in advances in 15 companies qua preceding financial year. 10.3. The availability of interest free funds at the disposal of the assessee at the end of different Fys; Sr.No. Particulars As on 31.03.2014 As on 31.03.2015 As on 31.03.2016 As on 31.03.2017 As on 31.03.2018 i) Share capital 44.61 44.61 44.61 44.61 44.61 ii) Share premium 2674.98 2674.98 2674.98 2674.98 2674.98 iii) Reserve & Surplus 250.15 192.20 78.87 (395.47) (882.78) iv) Total(Rs.) 2969.74 2717.66 2727.47 2324.11 1836.81 v) Advance from customers 1812.82 2175.44 2328.46 1279.35 1199.95 Total- 3036.76 10.4. Year-wise details of loans and advances outstanding: Sr.No. Particulars As on 31.03.2014 As on 31.03.2015 As on 31.03.2016 As on 31.03.2017 As on 31.03.2018 No.of Cos. Amount (Rs.) No.of Cos. Amount (Rs.) No.of Cos. Amount (Rs.) No. of Cos. Amount (Rs.) No.of Cos. Amount (Rs) i) Wholly owned 17 191.70 18 210.01 20 320 19 394.24 22 528.87 ITA Nos.1190 & 2033/Del/2024 Page | 13 subsidiary companies ii) Group Companies 2 99.93 6 359.94 27 1363.55 15 420.33 15 516.21 Total(C)=(A+B) 19 291,63 24 569.55 47 1665.55 34 814.47 37 1045.08 10.5. As previously noted, the AO has treated aggregate advance given to subsidiary/group companies of INR 957.54 crore [para 10(1)(d) supra] as non business purpose as against aggregate advance of INR 1115.36 crore [Para 10(c) supra] given to such companies as on 31.03.2018. The AO was thus satisfied with the use of advance for business purposes insofar as the interest free advance of INR 157.86 crore is concerned. The AO has proceeded to draw adverse inference of non business purpose advance in respect of interest free advances to the extent of INR 957.50 crore standing as on 31.03.2018. The CIT(A), in turn, has taken the average figure of the outstanding advance as on 31.03.2017 & 31.03.2018 and adopted a median figure of INR 835.32 crore for the purposes of modification in computation of estimated disallowances out of interest expenditure. 11. In this factual backdrop, it is contended on behalf of the assessee that advances given to the ‘wholly owned subsidiary companies’ under consideration to the tune of INR 442.25 crore are clearly motivated by business expediency. Being wholly owned, the assessee holds deep interest in such companies which ultimately serves the business interests of the holding company i.e. assessee herein. Therefore, the advances given to subsidiary companies are nothing but deployment of funds for the furtherance of business of the subsidiary companies which, in turn, would reap profits for the holding co. only. Thus, the advances to subsidiary co. would result in direct benefit to the assessee and cannot be regarded as diversion of funds for non business purposes by any stretch of imagination. This notwithstanding, such advances are backed by MoUs. Noticeably, many of the subsidiary companies have been merged with the assessee company (holding co.) in the later years. The Revenue authorities thus apparently failed to appreciate that money advanced to subsidiary ITA Nos.1190 & 2033/Del/2024 Page | 14 companies stands on a different pedestal owing to holding of deep beneficial interest in the business of such entities. Such entities are primarily created as special purpose vehicles to sub-serve the ultimate business interest of holding company in organic and inorganic ways. The use of funds ‘for the purposes of business’ thus requires to be seen in the larger context of business necessity or expediency and a narrow and pedantic meaning to such expression cannot be given. Significantly, there is no adverse finding recorded by the AO or the CIT(A) that advances given to the subsidiary companies have been used for any personal benefit of the directors or the shareholders nor such finding could be given. The amount advanced to the subsidiary companies are meant for development of the projects undertaken by such subsidiaries from time to time, the benefit of which would be eventually reaped by the holding company. The business purposes in the money advanced to subsidiary companies are thus both explicit and implicit. 11.1. A reference was made to the judgment rendered in the case of S.A. Builders Ltd. Vs. CIT 288 ITR 1 (SC) and large number of other judicial pronouncements squarely covering the issue. 11.2 The assessee thus contends that in view of the fact that amount advanced to subsidiary companies are for the purposes of utilization in real estate business through such subsidiary companies, the nexus between the use of funds advanced and purpose of business is clearly established. As contended, the ‘purpose of business’ as emphasized by the Hon’ble Supreme Court in the case of S.A. Builders, need not necessarily be the business of the assessee itself as long as such advance given, has the potential to generate commercial benefit to the assessee directly or indirectly. The expression ‘for the purpose of business’ under s. 36(1)(iii) is far wider than ‘for the purpose of making or earning such income’ employed in s. 57(iii) of the Act. 11.3 The assessee thus contends in summation that there can be no quarrel on the use of funds advanced to subsidiary cos. to be for ‘the purpose of business’. ITA Nos.1190 & 2033/Del/2024 Page | 15 12. Besides, the assessee also contends in the alternative that apart from the fulfillment of test of commercial expediency on advances made to subsidiaries, the interest cannot be proportionately disallowed on such advances having regard to substantial interest free funds available at the disposal of the assessee which apparently is in excess by multiples. This apart, majority of funds have been advanced in the earlier years. Hence, for multiple reasons, proportionate disallowance towards such advances cannot be made with reference to s. 36(1)(iii) could not be made in view of long line of judicial precedents including CIT vs Reliance Industries [2019] 410 ITR 466 (SC); PCIT vs Holy Faith International P.Ltd. [2018] 407 ITR 445 (P&H) ; Reliance Utility and Power Ltd. 313 ITR 340 (Bom.); CIT vs. Raghuvir Synthetics 354 ITR 222 (Gujarat); CIT vs Seven Hills Hospitals (P.) Ltd. [2015] 370 ITR 369 (Telengana & Andhra Pradesh). 13. As regards advances to group companies, same legal principles would come into play. The commercial spirit in such advances as well as availability of surplus interest free funds covers the issue in same measure. 13.1 On facts, the assessee contends that the assessee has demonstrated that MoUs have been entered with such group companies and the assessee has also derived revenue with reference to advances to group companies in later years. Thus, the test of commercial expediency is demonstrable in such advances. 13.2 The assessee also points out the majority of advances have been given earlier years and carried forward in this year. The advances given earlier have been accepted by the revenue. 14. The assessee thus contends that not only ‘commercial expediency’ is demonstrated, the sufficient interest free funds surpasses the corresponding advances. Hence, proportionate disallowance of interest is not fortified on both counts cumulatively as well as independently even in the group co. advances. 15. The core of the arguments advanced on behalf of the assessee are; (a) interest free advances have been lent to wholly owned subsidiary companies which are engaged in similar business of real estate for utilization ITA Nos.1190 & 2033/Del/2024 Page | 16 and furtherance of such business. The profits arising from such wholly and subsidiary companies belong to the assessee and nobody else. Thus the commercial motives in such advances cannot be brushed aside; (b) interest free advances lent to group concerns are backed by MoUs which demonstrate the intent of the assessee to derive commercial benefits in the subsequent years. The expression ‘purpose of business’ is comprehensive enough to include achieving commercial intent over a period of time, user of borrowed money need not result in any income in the relevant year; (c) near majority of the advance to subsidiary companies and group companies have been made in the earlier years and no adverse finding has been recorded by the Revenue in earlier years; and (d) the interest free funds available at the disposal of the assessee far exceeds and surpasses interest free advance and therefore, presumption of utilization of funds towards interest free advances would arise out of interest free funds. 16. The Revenue strongly objects to various plea raised on behalf of the assessee which is summarized as under:- Firstly, it contends that the plea of the assessee that no disallowance under s. 36(1)(iii) has been made in earlier years despite the fact that the most of the advances have been continuing from earlier years do not carry much weight for the reason, no regular assessment was carried out in the earlier years. The assessee for AYs 2011-12 to 2017-18 carried out pursuant to search and seizure actions under s. 132 of the Act were subjected to Settlement Commission. Thus principles of res judicata shall not apply. Secondly, the contention of the assessee that interest free loans and advances were advanced out of interest free funds is improper. The share premium of INR 2675 crore appearing in the balance sheet has solely arisen amalgamation in FY 2011-12 purely as an accounting entry without actual inflow of funds. The corresponding debit in the balance sheet was in the form of goodwill/inventories at re-valued figure. Hence, this amount was not available ITA Nos.1190 & 2033/Del/2024 Page | 17 with the assessee for advancing to the subsidiary in money form. Similarly, the capital reserves of INR 370 crore reflected in the balance sheet had also arisen under the same scheme of amalgamation and hence was not available for advancing to the subsidiary in money form. The Revenue also contends that advances from customers could not be utilized for advancing to associate concern because advances are received from customers on booking against specific construction projects as per RERA Regulations. Thirdly, specific instances of direct use of borrowed funds for advancing to sister concern have come to surface and thus there is a direct nexus of the borrowed funds with interest free advances. 17. Joining the issue, the assessee rebuts the contention of the Revenue and submits that if the security premium arising on amalgamation way back in 2011-12 is excluded (although stood merged in the overall financial position), in that case impairment of goodwill arising from amalgamation amounting to INR 1072.87 crore requires to be added and considered as interest free funds available by the same token. Besides, advance from customers is interest free funds available and capable of being used for advancements to the group companies and subsidiaries companies engaged in the development of projects as RERA Regulations did not come into play at the relevant time. The overall funds position even according to the Revenue would thus as under:- Sr.No. Particulars Amount (Rs. In crores) i) Balance of retained earning as on 31.03.2018 2,162.58 ii) Add: Share capital 44.61 Total 2,207.19 iii) Less: Securities premium (though disputed) 2,674.98 iv) Balance (467.98) v) Add: Impairment of goodwill debited to retained earnings from financial year 2013- 14 to 2017-18 1072.87 vi) Total 604.89 vii) Advance from Customers 1268.95 viii) Total 1804.84 ITA Nos.1190 & 2033/Del/2024 Page | 18 18. The expressions ‘for the purpose of business’ occurring in s. 36(1)(iii) of the Act is wider in scope than expression ‘for the purpose of earning income, profits or gains’ as held in Madhav Jatia vs CIT [1979] 118 ITR 200 (SC). Availing loan facilities and interest incurred on loans taken has been and are the normal commercial practices of business world. Under s. 36(1)(iii) of the Act, any amount paid on account of interest becomes admissible deduction if the interest was paid on the capital borrowed by the assessee and this borrowing was for the ‘purpose of business or profession’. This concept is wider and thus needs to be viewed in larger context. There is no requirement in s. 36(1)(iii) that utilisation of such loans must necessarily result in some pecuniary profits as long as such money have been utilised for the purposes of business. 19. When the assessee borrows money carrying interest cost and lends the same to sister concern without interest, the interest paid/payable on borrowings cannot be disallowed if the lending is on the grounds of commercial expediency as held in S. A. Builders Ltd. (supra). Similarly, when holding company advances money to its subsidiary companies which incurs losses, such advance is meant to protect its deep interest in the subsidiary. Hence interest on amount borrowed is eligible for deduction though it was advanced interest free to the subsidiary company. The expression ‘commercial expediency’ was explained in S.A. Builders Ltd. case’. The Hon’ble Supreme Court observed that the expression ‘commercial expediency’ is an expression of wide import and it would include such expenditure, a prudent businessman incurred for the purpose of business. It may not be a legal obligation but it is allowable if it is incurred on the grounds of ‘commercial expediency’. It can thus be culled out that the term ‘commercial expediency’ is not a term of art. It means everything that serves to promote commerce and includes every means suitable to that end. In the instant case, the assessee has demonstrated that the loans advanced to both subsidiary cos. and group companies have the trappings of ITA Nos.1190 & 2033/Del/2024 Page | 19 commercial expediency and thus the advances made for business purposes are not susceptible to any proportionate disallowance. 20. The delineations made in preceding paragraphs takes us to the question is to whether the borrowings made by the assessee can be said to be used for the purposes of business or in other words whether the interest free advances by the assessee can be presumed to have been made out of interest free funds. On this issue, we find guidance from the judgment of Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd. 313 ITR 340 (Bom.). The Hon’ble Bombay High Court laid down a major principle about the eligibility of interest expenditure. It held that if there are funds available, both interest free and interest bearing (overdraft, loans etc.), then a presumption would arise that funds deployed in corresponding non earning investments/ advances is out of interest free funds available. Similar view has been expressed in large number of judgments. The Hon’ble Supreme court has also endorsed such principle in Reliance Industries Ltd. (2019) 410 ITR 466(SC). 21. Similar view has been taken by the Hon’ble Gujarat High Court in the case of CIT vs Raghuvir Synthetics Ltd. 354 ITR 222 (Gujarat) wherein the Hon’ble High Court observed as follows:- “As can be noted from the order of the Tribunal, the Assessing Officer disallowed the interest solely on the ground that the assessee had given interest free loans to the associate concerns, viz., R.R. Family Trust and Sagar Textile Mills and this disallowance, in appeal the CIT (Appeals) deleted by holding that the amount advanced to both R.R. Family Trust and Sagar Textiles Mils were not given during the year under consideration, but the same was given in the earlier years. CIT (Appeals) had also taken note of the fact that there was sufficient funds available with the assessee- respondent on which there was no interest liability that had been incurred. In such circumstances, relying on the case of Torrent Financiers Ltd. (supra), it found that the disallowance was not justifiable. The Tribunal on noting these details, in terms held that there was nothing contrary that ITA Nos.1190 & 2033/Del/2024 Page | 20 could be brought on record by the Department. The assessee’s equity share capital Rs.3.85 cores and reserve and surplus of Rs.5.52 crores also were noted by the Tribunal. It found that the interest free fund available with the assessee was far greater than the loan advanced to the sister concerns and as a corollary to that, it concluded that the borrowed money was not utilized for the purpose of advance to the sister concerns, as had been noted by the Assessing Officer. What had weighed with the Tribunal is the fact that the entire interest free funds included owner’s own capital and accumulated profits and other interest free credits and loans and if the total interest free advances including the debit balance of the partners did not exceed the total interest free funds available with the assessee, interest was not disallowable merely on account of the utilization of the funds for non-business purposes. Thus, as can be seen the Tribunal actually relied on the findings given in case of Torrent Financiers Ltd. (supra) and furthermore there was nothing contrary that could be brought on record by the Department for it to hold otherwise. Factually, it found huge funds were available without any interest liability with the assessee and that there was no evidence to hold that the borrowed money was utilized for the purpose of advance to the sister concern. All these aspects cumulatively led the Tribunal to hold that the disallowance made only on the ground that advances were given out of the borrowed funds, holding the assessee ineligible for allowance of interest by the Assessing Officer of the sum of Rs.18.66 lacs was not sustainable. The Tribunal has correctly approached the issue which has been proposed in the present Tax Appeal. When there was no evidence brought on record by the Department for the Tribunal to hold otherwise than what has been concluded by way of any material, we hold that the issue is appropriately concluded in favour of the assessee and against the Revenue.” 22. At this stage, we also refer to the observations made by the Hon’ble Supreme Court in the case of S.A. Builders Ltd. (supra) which clinches the ITA Nos.1190 & 2033/Del/2024 Page | 21 issue. The Hon’ble Supreme Court observed that where the question was that whether interest on funds borrowed by the assessee to give interest free loans to sister concern should be allowed as deduction, the Hon’ble Supreme Court observed that in a case where the assessee borrowed interest bearing funds and lent some of it to its subsidiary/sister concern as interest free advance, the real test in such a case is whether this was done as a measure of ‘commercial expediency’. As noted in earlier paragraph, the expression ‘commercial expediency’ is an expression of wide import and includes such expenditure as prudent business incurs for the purpose of business. The expenditure might not have been incurred under any legal obligation but yet it is allowable as a business expenditure if it was incurred on the grounds of ‘commercial expediency’. 23. Once a broad nexus between expenditure and the purpose of business (which need not necessarily be the business of the assessee itself) is established, the Revenue cannot justifiably claim to put itself in the arm chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. The Revenue authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. In the instant case, the interest bearing funds have been lent to the wholly owned subsidiary company and group concerns, a major amount of which was lent in several earlier years. It is the uniform stance of the assessee that the money was lent to such wholly and subsidiary companies and group concerns to advance & build long term business prospects in real estate business. The assessee claims that the money has been lent for which MoU has been entered for sharing profits which is to arise on adverse development of the project in future years. There is no finding to the effect that money lent by the assessee company to its subsidiary company or to the group concerns has been diverted for non-business purpose or for personal benefit of the assessee or the Directors. The expression ‘for the purpose of business implied in s. 36(1)(iii) of ITA Nos.1190 & 2033/Del/2024 Page | 22 the Act must be viewed in the larger context of business necessity or expediency. It is the case of the assessee that larger amount of interest free funds are available at the disposal of the assessee which far exceeds the corresponding advances made to subsidiary companies/group companies and that to for the purpose of furtherance of real estate business and such entities are special purpose vehicle to achieve such object. As a corollary to the availability of large interest free funds, a presumption would arise that interest free advances are met out of interest free funds. It is trite that no businessman can be compelled to maximize its profits. It is within the domain of taxpayer to utilize interest free funds in a manner which need not necessarily maximize the profits. 24. In the context of facts noted above and various plea raised, we advert to the purport of s. 36(1)(iii) of the Act. As noticed judicially by the precedents, the deduction under s. 36(1)(iii) of the Act is primarily dependent on the fact whether capital borrowed is for the purpose of business of the assessee or not. If it is found that capital was borrowed for the purpose of the business of the assessee, the interest payable thereon is admissible for the purposes of deduction. If the borrowed funds have been utilized for activities closely related to carrying on of the business, the interest expenditure has to be regarded as admissible expenditure on the touchstone of s.36(1)(iii) of the Act. In the instant case, the funds deployed without interest to subsidiary co. and group cos. stands in the vicinity of Rs. 957.54 crore. The corresponding interest free funds available are nearly 3036.76 crore. Thus, in the light of ratio of judicial precedents noted above, the presumption of utilisation of interest free funds for advances to group concerns would be required to be entertained. Hence no proportionate disallowance in the circumstances would be permissible. Besides, the advance to subsidiary does not call for such nexus as the purpose of lending money to subsidiary would automatically promote the business interests of the holding co. The commercial expediency is also established in the wake of profits arising in subsequent years by virtue of such advance to group cos. ITA Nos.1190 & 2033/Del/2024 Page | 23 25. When all the aspects are seen individually and cumulatively, the approach of the Revenue to reject the claim of interest expenditure incurred appears fallacious on the face of it. The availability of sufficient interest free funds itself transcends other consideration. This apart, the amount advanced to wholly owned subsidiary company for the furtherance of its business is nothing but furtherance of the business of the assessee company itself. Thus advances to subsidiary companies clearly attracts onus of far lower pedestal to establish the requirement of ‘for the purpose of business’. The plea of the assessee that the advance to group concerns is for the purpose of business is fortified by MoU and staggering profit in the later years by atleast one of the many companies to whom the advances made. As long as the aim and object of the money advanced is for furtherance of business, actual yield in the subsequent years, although desirable is not wholly necessary. The money advanced to subsidiary companies and group concerns are sufficiently supported to be for the purpose of business. Thus merely because the money has been advanced to such subsidiaries/group companies would by itself cannot entitle the assessee to claim deduction towards interest expenditure. Thus, on both counts, namely availability of surplus funds as well as existence of commercial expediency in such advances, the proportionate disallowance of interest under s. 36(1)(iii) is not justified. 26. In the light of the above delineations the interest expenses disallowed by the AO and partly confirmed by the CIT(A) is wholly unjustified and not sustainable in law. 27. Ground No.1 of the assessee appeal is thus allowed whereas the Ground Nos. 1 & 2 of the Revenue’s appeal are dismissed. 28. Ground No. 2 of the assessee’s appeal is in respect of disallowance of INR 14,35,697/- and Ground No.5 raised by the Revenue is in respect of disallowance of INR 1,01,85,219/- representing expenditure incurred on foreign traveling by the assessee company. ITA Nos.1190 & 2033/Del/2024 Page | 24 28.1 The AO made disallowance of INR 1,16,20,916/- on estimated basis representing 50% of the expenditure incurred on foreign travelling by the assessee company on the ground that part of expenses pertain to family members of the directors/employees and the purpose of all the visits could not be substantiated by the assessee. 28.2 The CIT(A) perused the details filed in the first appellate proceedings and found that part expenses of INR 14,35,697/- and deleted the remaining estimated disallowance of INR 1,01,85,219/-. 28.3. Before the Tribunal also, the assessee could not substantiate that the expenditure incurred towards visits of family members is for the purpose of business. 28.4. We thus decline to interfere with the findings of the CIT(A). 28.5. Consequently, the Ground No.2 raised by the assessee as well as Ground No.5 raised by the Revenue is dismissed. 29. Ground No.3 of the appeal of the assessee is in respect of disallowance of INR 1,01,12,775/- representing cost debited and claimed as expenditure while computing the income under PoCM method of Accounting adopted by the assessee company which method was accepted in the order of assessment by the AO. 29.1 The AO made the impugned addition on the basis that the assessee has failed to file the details in respect of claims towards cost of project not materialized amounting to INR 1,01,12,775/-. The CIT(A) however declined any relief to the assessee. 29.2 Before the Tribunal, the assessee contested the addition before the CIT(A) and submitted that such expenditure represents cost incurred on some projects which did not take off and details thereof are not traceable owing to long time gap. It was submitted that these are the expenditure being part of audited books of accounts as part of work in progress. Once the genuineness of the expenditure is not doubted in the part, mere fact that the project did not ITA Nos.1190 & 2033/Del/2024 Page | 25 materialize or abandoned is not a valid basis to disallow legitimate expenditure incurred. 29.3 In the light of judgement of Hon’ble Punjab & Haryana High Court rendered in the case of CIT vs Majestic Auto Ltd. 315 ITR 445 (P&H) and the judgement of Hon’ble Delhi High Court rendered in the case of ONGC Videsh Ltd. vs DCIT 127 TTJ 497 (Del.), such abortive expenditure incurred by the assessee is allowable business expenditure under s. 37(1) of the Act. We thus reverse the action of the CIT(A) and direct the AO to delete the additions. 29.4. Ground No.3 of the assessee’s appeal is thus allowed. 30. Ground No.4 concerns disallowance of INR 1,40,00,000/- representing expenditure incurred on obtaining approval for construction of road on the property owned by M/s. Mikado Realtors Ltd. eligible for deduction while computing income of the assessee for instant year. 30.1 The facts as emerging from record concerned the issue extracted hereunder:- 24.2. “That assessee acquired share of M/s. Mikado Realtors (P) Ltd. in the following manner:- Sr.No. Date of acquisition No. of Shares Cost of acquisition i) 31.03.2012 2,70,10,000 54,01,00,000 24.3. That the aforesaid shares held by the assessee company were sold to M/s. Tata Realty Infrastructure Ltd. in financial years 2016-17 and 2017-18 relevant to assessment year 2017-18 and 2018-19. The details of sale of shares are tabulated hereunder:- FINANCIAL YEAR 2016-17 ASSESSMENT YEAR 2017-18 Sr.No. Name of company No.of shares Sale consideration i) Akriti Farms 10,000 11,34,00,000 ii) Gree Acre 10,000 89,05,00,000 iii) Mikado Relators (P) Ltd. 2,29,58,500 348,32,50,000 FINANCIAL YEAR 2017-18 ASSESSMENT YEAR 2018-19 Sr.No. Name of company No.of shares Sale consideration i) Mikado Relators (P) Ltd. 40,51,500 82,91,23,000 ITA Nos.1190 & 2033/Del/2024 Page | 26 24.4. That the appellant company declared long term capital gain on sale of aforesaid shares and claimed expenditure of Rs.1,40,77,000/- incurred on obtaining approval to construct 18 meter road over the land owned by M/s. Mikado, from Haryana Urban Development Authority, as per share transfer agreement. Details of the same are as under:- Sr.No. Particulars Assessment Year 2017-18 2018-19 i) Date of sale (A) 31.03.2017 31.03.2018 31.03.2017 07.09.2018 ii) Sale price (B) 348,32,50,000 8,43,20,000 iii) Transfer Expenses (C) ------ 1,40,77,000 iv) Net sale price (D)=(B-C) 348,32,50,000 82,91,23,000 v) Purchase date (E) 31.03.2012 31.03.2012 vi) Purchase cost (F) 92,56,57,250 8,10,30,000 vii) Index cost (G) 127,39,96,877 11,97,83,478 viii) Capital gain (H)=(D-G) 220,92,53,123 70,93,39,522 24.5. The claim is supported by the following evidences:- Sr. No. Particulars Page No(s) of Paper Book i) Copy of sale purchase agreement dated 27.5.2016 amongst; i) Assessee company ii) Tata Realty and Infrastructure Ltd. iii) Standard Chartered Real Estate Investment (Singapore) VII (P) Ltd. iv) Mikado Realtors (P) Ltd. 845-924 ii) Copy of agreement dated 8.5.2017 between Executive Engineer, Mewat Water Services Division, NUH for M/s Mikado Realtors (P) Ltd. for construction of 18 mtrs Road and crossing of utilities across the behrampur Bund at RD 515 falling in Village Behrampur Distt. Gurgaon 925-929 iii) Copy of bank statement of ledger account showing that the payment of Rs. 140.77 lacs is made by the assessee Haryana Government alongwith Form GSTR- 1 930-1006 ITA Nos.1190 & 2033/Del/2024 Page | 27 30.2 The AO observed that the expenditure has been claimed on account of construction of road on the property owned by M/s. Mikado Realtors Ltd. and there is no such condition mentioned in the MoU submitted by the assessee that the assessee company is legally bound to construct any road on the property of another company namely, M/s. Mikado Realtors Ltd. The assessee has merely sold shares of M/s. Mikado Realtors Ltd. to Tata Group of companies and incurring such expenditure is without any legal obligation. 30.3 The assessee reiterated its submissions placed before the CIT(A) in the first appeal as well to the AO in the course of assessment proceedings that the assessee has to obtain ‘approval’ for construction of road as per share transfer agreement. The CIT(A) however incorrectly observed that construction of road on the land owned by M/s. Mikado Realtors Ltd. has no relation with transfer of shares of M/s. Mikado Realtors Ltd. by the assessee. 30.4. The assessee before the Tribunal contends that the assessee company has incurred expenses for obtaining approval for construction of road from the competent authority as per Schedule VIII of share purchase agreement dated 27.5.2016 (pages 896-897 of Paper Book) which reads as under: \"SCHEDULE VIII Conditions Precedent (refer to Clause 3.1) ix) The seller shall procure within a maximum period of 15 (fifteen) months from the Execution Date, in compliance with the applicable law, approval from the relevant Government Authorities to construct a 18 meter road over the bund land, connecting the land parcels forming part of SEZ land separated by the bund land (Khasra no. 151/2); or, realignment of revenue raasta (along the southern periphery of the SEZ Land). This condition precedent shall automatically stand waived, even if not fulfilled by the seller. upon the expiry of 15 (fifteen) months from the execution date.\" ITA Nos.1190 & 2033/Del/2024 Page | 28 30.5. The assessee submitted that infact such an approval was duly obtained under an agreement dated 8.5.2017. It is logical that since the land was owned by M/s Mikado Realtors (P) Ltd. and therefore both legally and logically that agreement was entered between M/s Mikado Realtors (P) Ltd. and Government of Haryana namely HUDA. The relevant agreement is placed at pages 925-929 of paper Book which reads as under(page 926 of Paper Book): \"AND WHEREAS before signing this agreement, the licensee has deposited with the Engineer-in-charge. A cum of Rs. 5.00 lakhs (five lacs only) as a caution deposit as stipulated for the due compliance and satisfactory performance by the LICENSEE of all the terms and conditions of this agreement hereinafter set out so far they are to be observed and performed y the LICENSEE and a sum of Rs. 140.77 Lakhs (One crore forty lacs seventy seven thousand only) list attached) towards the other stipulated charges including the cost of land.\" The details of expenditure were also placed at page 933 of Paper Book. 30.6 The Assessee thus submits that it has not incurred expenses on the construction of road itself. 30.7. On perusal of the facts presented, it appears that the assessee held shares of M/s. Mikado Realtors Ltd. which were sold to Tata Realty Infrastructure Ltd. and derived long term capital gains on such sales of shares. The assessee claimed expenditure of INR 1,40,00,000/- incurred on obtaining approval from Haryana Urban Development Authority (“HUDA”) to construct 18 Meter road over the land owned by M/s. Mikado as per share transfer agreement. The AO has disallowed the expenditure towards approval on the ground that no such condition is mentioned in the MoU submitted by the assessee. It is the contention of the assessee that the requirements of obtaining approval have to be seen in the natural perspective. The shares of Mikado could not be transferred by the assessee to Tata Group without obtaining approval. ITA Nos.1190 & 2033/Del/2024 Page | 29 Thus to facilitate the transfer of shares, the expenditure for approval was incurred. Otherwise the value of land giving rise to fair price on sale of shares would have correspondingly decreased. Thus, the cost of approval incurred has a direct bearing on the sale price of Mikado shares. The shares have been transferred to party of high repute and therefore, the exigencies for incurring such expenses should be left to the wisdom of the assessee. The expenses incurred has direct relation to the value of shares transferred. 30.8. The contentions raised showing the necessity for incurring approval expenses is plausible. The expenses incurred whether voluntarily or under legal obligation is allowable as long as it is incurred in connection with the transfer of shares. The assessee would have either fetched lesser value agreed for transfer of Mikado shares or could not have sold the shares in the absence of such approval as contended on behalf o the assessee. In the circumstances narrated, the expenses incurred requires to be allowed without any demur. 30.9. Ground No.4 of the assessee’s appeal is allowed. 31. Ground No.3 and 4 of the Revenue’s appeal relate to adjustment made of INR 155,71,00,407/- on account of impairment of Goodwill while computing the ‘book profit’ under s. 115JB of the Act. 31.1 The AO denied the claim of impairment of Goodwill (arising to the assessee from scheme of amalgamation) for the purposes of computation of book profit with reference to s. 115JB of the Act. 31.2 The observation of the AO dealing with the issue is reproduced as under:- \"Further the claim of depreciation on the assets acquired under the scheme of amalgamation is restricted only to the extent as if such amalgamation has not taken place. As per proviso to Section 32(1), the depreciation in the hands of the assessee is allowable only to the extent if such amalgamation has not taken place. Therefore, the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation which is allowable to the amalgamating company. Therefore, the following amounts are required to be disallowed while computing the tax liability u/s 115JB of the Act. ITA Nos.1190 & 2033/Del/2024 Page | 30 Assessment Year Amount offered in the computation of income (under normal provisions of Act) Amount which needs to be disallowed for computation of book profit u/s 115JB of the Act 2014-15 30.02 cr 30.02 cr 2015-16 274.25 cr 274.25 cr 2016-17 21.24 cr 21.24 cr 2017-18 591.47 cr 591.47 cr 2018-19 155.71 cr 155.71 cr The assessee could not furnish any plausible explanation for non-addition of impairment of goodwill at Rs. 155,71,00,407/- in computation of book profit under MAT provision. Vide submission dated 25.09.2021 it was merely submitted that with respect to point no. 13 of the questionnaire dt. 23/09/2021 related with Goodwill amount of Rs. 155.77 Cr., which has been debited in the working of POCM, it is hereby clarified that the said amount has not been claimed by the assessee company while computing the Income/(Loss) for the year under consideration. Thus, no explanation for not adding this amount in working of book profit under MAT provision was given by the assessee. Therefore, this amount is added to the book profit of the assessee for the purpose of computation of income under MAT provision. Hence, calculation for MAT is required to be modified as under: - Profit as per part II and III of Schedule VI 116,91,80,218 Add: Income Tax u/s 40(1)(ii) 15,95,72,729 Impairment of goodwill 155,71,00,407 Total 54,74,92,918 Less : Deferred Tax Assets 7,96,00,435 46,78,92,483 Tax calculated @ 18.5 % on Book Profit is Rs.8,65,60,109.” 31.3 In the first appeal, the CIT(A) deleted the disallowance by recording finding that the impairment of Goodwill is not covered in item (a) to (k) enumerated under Explanation (1) to s. 115JB of the Act for the purposes of computation of profit. The relevant paragraph dealing with the issue by the CIT(A) reproduced hereunder:- 9. Ground of Appeal No. 8 9.1 “There was a scheme of amalgamation between M/s M3M India Ltd. (transferor), M/s Model Buildtech Pvt. Ltd. (transferor) with M/s M3M India ITA Nos.1190 & 2033/Del/2024 Page | 31 Developers Pvt. Ltd. (transferee). The scheme of amalgamation was approved by the Hon'ble Punjab and Haryana High Court vide order dated 03.04.2012 applicable w.e.f. 01.04.2011. As per the said scheme, in consideration of amalgamation of transferor company with the transferee company in terms of the scheme, the transferee company would issue / allot to the equity share holders of the transferor company on the basis of share exchange ratio as defined by para 5.1 of the scheme of amalgamation alongwith premium of Rs. 693 per share. As per para 7 of the scheme, the difference between consideration discharged in the form of equity shares issued by the transferee company and value of net assets of transferor company was to be debited to the goodwill account. Such goodwill was attributable to the market value of land/development rights (based upon an independent valuation report) with the stipulation that transferee company would charge impairment of goodwill as per Accounting Standard 28. As per the scheme of amalgamation, assets and liability of the transferor company were to be recorded at the book value in the books of transferee company and no revaluation of existing assets of the transferor /transferee company was to be carried out. 9.2 As per AO, the appellant company failed to follow the scheme of amalgamation as it has made revaluation of the inventory at Rs. 3,37.90 crores as against book value of inventory at Rs. 576.62 crores. But it has not shown goodwill of Rs. 2560.47 crores separately on the asset side, rather the same has been subsumed under the head inventories. Corresponding to the increase in inventory by Rs. 2560 crores, the appellant has created share premium account of Rs. 2674 crores on the liability side. As per the AO, it was not permitted as per the scheme. As per AS-2, inventories are to be valued at cost or market value whichever is lower whereas the appellant did not follow AS-2 and provision of section 145A of the Income Tax Act. The revaluation of the inventory of the transferor company resulted into excess valuation of inventory by Rs. 2560.47 crores (against book value of Rs. 576.62 crores revalued at Rs.3137.09 crores). Such amount of Rs. 2560 crores was not separately shown as goodwill on the asset sides of the balance sheet, rather it was subsumed under the head inventory itself. On the liability side, it was balanced under the head share premium account by Rs. 2674 crores. As per the appellant, the scheme of amalgamation was approved by the Hon'ble Punjab and Haryana High Court and goodwill impairment of Rs. 155.71 crores (debited to the profit and loss account) has been offered to tax while making the computation of income under normal provisions of the Act and same treatment has been given in various past assessments years as well. 9.3 The AO made reliance upon provision of section 43C, 43(1) (value of the assets), section 32(1) read with the proviso of section 32(1) of the Act as well as Accounting Standard 10 for the treatment to be given to the assets i.e. such revaluation amount should have been carried the same under the ITA Nos.1190 & 2033/Del/2024 Page | 32 head revaluation reserve rather than share premium account during AY 2012-13. As per AO such revaluation of inventories should have been credited on the income side by routing the revaluation reserve through the profit and loss account. Moreover, such revaluation reserve should have been added back for the purpose of computation of MAT liability u/s 115JB of the Act by Rs. 2674.98 crore for AY 2012-13. On facts, the AO observed that the appellant did not route the revaluation reserve through the profit and loss account and therefore, such claim of Rs. 155.71 crores debited to the profit and loss account cannot be allowed. Though the appellant has offered the amount on account of such impairment of good for taxable under normal provisions of the Act but the same has not been offered for taxation u/s 115JB of the Act. The AO put reliance upon decision of Hon'ble Supreme Court in the case of Rama Synthetic Pvt. Ltd. vs. CIT 196 Taxmann 539. On the basis of such ratio, the AO was of the view that as the revaluation reserve was not routed through profit and loss account as income in the earlier years therefore, it was not entitled for deduction on account of impairment of goodwill. Further, the AO referred to section 115JB of the Act which states that net profit has to be increased by amount set aside as provision for diminution in the value of any asset. Similarly, depreciation on account of revaluation of assets was not to be allowed for the purpose of section 115JB of the Act. In the given facts of the case, the amount debited to the profit and loss account under the head impairment of goodwill was in the nature of provision for diminution in the value of inventories. In the absence of any satisfactory explanation, the AO after giving show cause to the appellant during assessment proceedings added the amount of Rs. 155.71 crores on account of impairment of goodwill for the purpose of computation of tax liability u/s 115JB of the Act. 9.4 During the appellate proceedings, it was explained through the written submission that the appellant company has debited sum of Rs. 155.71 crores under the head impairment of goodwill. As per the scheme of amalgamation, the difference between consideration discharged in the form of equity shares by the company and net assets in case of transferor company was attributable to the market value of land and has been classified as goodwill in the financial statements. Out of the same amount of Rs. 155.71 crore has been charged in the Profit and Loss account as Impairment of goodwill, computed as per Percentage of Completion Method (POCM), thus the impairment loss on account of goodwill arose out of amalgamation. Such impairment loss was not required to be added to the book profit for the calculation of MAT whereas the same has been added back while computing income under the normal provisions. Further, the amount of 155.71 crores does not represent by any stretch of imagination amount carried out any reserve. No amount was carried to any reserve. It was stated that reliance of the AO upon decision of Hon'ble Supreme Court in the case of Indo Rama Synthetic (supra) is not relevant. Further, it was explained that amount of Rs. 155.71 crore was not set aside as provision ITA Nos.1190 & 2033/Del/2024 Page | 33 for diminution the value of any assets. Further, reliance was placed upon the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273 where it was held that the AO for the purpose of MAT has to accept the accounts prepared in accordance with the provisions of the Companies Act. Further, it was stated that scheme of amalgamation was made effective from AY 2012-13 and similar claims have been made in AYs 2014- 15 to 2017-18 wherein impairment of goodwill has been debited to the profit and loss account, offered to tax under normal provisions of the Act but claimed the same for the purpose of MAT liability u/s 115JB of the Act. On similar facts, Hon'ble Interim Board of Settlement-V, Mumbai vide its order dated 30.03.2023 passed u/s 245D(4) in the case of the appellant for AYs 2011-12 to 2017-18 has allowed such claim u/s 115 JB of the Act. 9.5 On consideration of facts of the case and material on record, it is noted that there was a scheme of amalgamation between M/s M3M India Ltd. (transferor), M/s Model Buildtech Pvt. Ltd. (transferor) with M/s M3M India Developers Pvt. Ltd. (transferee) later known as M3M India Pvt. Ltd ie. appellant. The scheme of amalgamation was approved by the Hon'ble Punjab and Haryana High Court vide order dated 03.04.2012 applicable w.e.f. 01.04.2011. As per the said scheme, in consideration of amalgamation of transferor company with the transferee company in terms of the scheme, the transferee company would issue / allot to the equity share holders of the transferor company on the basis of share exchange ratio as defined by para 5.1 of the scheme of amalgamation alongwith premium of Rs. 693 per share. As per para 7 of the scheme, the difference between consideration discharged in the form of equity shares issued by the transferee company and value of net assets of transferor company was to be debited to the goodwill account. Such goodwill was attributable to the market value of land /development rights (based upon an independent valuation report) with the stipulation that transferee company would charge impairment of goodwill as per Accounting Standard 28. As per the scheme of amalgamation, assets and liability of the transferor company were to be recorded at the book value in the books of transferee company and no revaluation of existing assets of the transferor / transferee company was to be carried out. For reference relevant paras of the scheme of the amalgamation as approved by the Hon'ble High Court is reproduced as under:- ITA Nos.1190 & 2033/Del/2024 Page | 34 ITA Nos.1190 & 2033/Del/2024 Page | 35 ITA Nos.1190 & 2033/Del/2024 Page | 36 ITA Nos.1190 & 2033/Del/2024 Page | 37 ITA Nos.1190 & 2033/Del/2024 Page | 38 In accordance with the same, the appellant has debited goodwill impairment in the profit and loss account for Rs. 155.71 crores for the year under consideration. The similar claims have been made for such impairment of goodwill in the previous AYs with the details as under:-(Rs. In crores) AY Goodwill impairment debited to the P&L Account 2014-15 30.02 2015-16 274.25 2016-17 21.24 2017-18 591.47 Further from the computation of income for the year under consideration, it is observed that the appellant has added back the goodwill impairment debited to the P&L account for the purpose of computation of income under normal provisions of the Act. However, for the purpose of computation of book profit, the net profit has not been increased by the said impairment for the purpose of computation of MAT liability under the provision of section 115JB of the Act. However, the AO has increased the book profit by the said amount of Rs.155.71 crores by making reference to Explanation 1 to section 115JB of the Act on the reason that a) The above amount of Rs. 155.71 crores was in the nature of revaluation of the inventory and therefore the same represents revaluation reserve (clause b). b) It was in the nature of amount set aside as provision for diminution in the value of any asset (clause i). 9.6 On the consideration of facts as mentioned above, in the scheme of amalgamation as approved by the Hon'ble High Court, it is very clearly mentioned in the schedule 7 that the assets / liabilities are to be recorded at the book value and no revaluation of the said assets would be carried out under the present scheme. Therefore, no amount was carried to the revaluation reserves as alleged by the AO. Further, share premium account in this case represent excess consideration discharged in the form of equity shares issued by the appellant in the pursuant to the above amalgamation scheme and the same cannot be categorized as revaluation reserve. 9.7 Further ongoing through the scheme of amalgamation, it is noted that the difference between the consideration discharged in the form of equity shares issued by the transferee company (appellant) and value of net assets of the transferor recorded by the appellant (as per clause 7) was to be recognized as goodwill in the balance sheet on asset side. Accordingly, the appellant has shown goodwill of Rs. 2519.07 crores in the balance sheet (note 8) and corresponding amount has been charged to the security premium amount on the liability side. Further on the perusal of balance sheet / profit and loss account, it is evident that the appellant has not set ITA Nos.1190 & 2033/Del/2024 Page | 39 aside any amount as provision in respect of diminution of value of assets i.e. goodwill. The appellant has charged impairment of goodwill in the books of account for Rs. 155.71 crores for the year under consideration by debiting the profit and loss account (cumulative amount of Rs. 1072.87 crores as on 31.03.2018) and thus has not made any provision for the same as alleged by the AO. 9.8 Further reliance is hereby placed upon the decision of Hon'ble Supreme Court in the case of M/s Apollo Tyers Ltd vs CIT (2002) 252 ITR 273 (SC). In the said decision it was held by Hon'ble Apex Court that once books of accounts are certified by the auditors under the Companies Act as having been properly maintained in accordance with Companies Act then there is limited power to make addition and deductions as provided for in the Explanation to the said section. The relevant part of the said decision is reproduced as under for reference :- \"Therefore, we are of the opinion, the assessing officer while computing the income under Section 115-1 has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J.' It has been discussed vide para no. 8 of the said decision by the Hon'ble Apex Court that an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. The Hon'ble Apex Court in the above decision has held that the profit as determined in the statement of profit and loss prepared in accordance with schedule III of the Companies Act is sacrosanct for the Assessing Officer as well as for the assessee subject to following conditions:- a) The accounts have been maintained by the companies in accordance with the Companies Act. b) The same have been examined and certified by the Statutory Auditors under the Companies Act. ITA Nos.1190 & 2033/Del/2024 Page | 40 c) The accounts have been approved by the companies in its AGM. d) and thereafter filed before the Registrar of Companies. The said ratio has been re-affirmed by the Hon'ble Supreme Court in the case of Malayala Manorama Co. Ltd vs CIT (2008) 300 ITR 251. From the facts of the case, it is found that the above statement of profit and loss for the year under consideration (supra)has been prepared by the appellant/auditors in accordance with the provision of the Companies Act 2013 (Schedule-III). the same has been examined and certified by the Statutory auditors under the Companies Act vide certificate dated 27.09.2018. Therefore following the ratio of Hon'ble Supreme Court in the case of Apollo Tyres (supra), the net profit in this case determined in the said statement needs to be adopted for the purpose of computation of book profit u/s 115JB of the Act subject to further adjustments as provided under Explanation- 1 to the said section. As discussed above, no merit is found in the adjustments made by the AO under Explanation 1 for the computation of book profit under section 115JB of the Act. It is not the case of the AO that such books of account have not been prepared in accordance with Schedule -III to the companies Act, 2013. 9.9 Moreover, such transactions were accounted for in the books of account during assessment year 2012-13 after the approval of the scheme of amalgamation effective from 01.04.2011 by the Hon'ble High Court. Similar claims on account of impairment of goodwill have been made by the appellant from AY 2014-15 to 2017-18 by debiting the audited profit and loss account. Such claims made for the purpose of MAT liability u/s 115JB have been allowed in the case of the appellant by the Hon'ble Interim Board of Settlement-V, Mumbai vide order passed u/s 245D(4) dated 30.03.2023. The relevant part of the said order is reproduced as under for reference:- ITA Nos.1190 & 2033/Del/2024 Page | 41 ITA Nos.1190 & 2033/Del/2024 Page | 42 ITA Nos.1190 & 2033/Del/2024 Page | 43 9.10 Keeping in view above facts and discussion, it is found that the amount of Rs.155.71 crores on account of goodwill impairment is not covered from items (a) to (k) enumerated under explanation 1 to section 115JB of the Act for the purpose of computation of book profit. Accordingly, no merit is found in such disallowance made by the AO for the purpose of section 115JB of the Act. The same is hereby deleted. Ground of Appeal no. 8 is hereby allowed.” 31.4. Before the Tribunal, the assessee vehemently supported the process of reasoning adopted by the CIT(A) while granting relief. The Ld. Counsel contends that additions made is based on fundamental misconception of facts and provision of law. The AO has erroneously re-computed the book profits giving rise to inflated book profit to the extent of INR 155.71 crore without authority of law by incorrectly drawing support from clause (b) to Explanation to s.115JB of the Act which reads as under:- 31.5. The broad contentions of the assessee are extracted hereunder:- 28.2. “It is respectfully submitted that from the facts as stated above amounts debited under the head impairment of goodwill does not represent by any stretch of imagination amount carried to any 'reserve and debited to the profit and loss account and thus the basis adopted is fundamentally misconceived, misplaced and untenable, It may be added here that it is not a case that where share premium credited by the assessee company on 1.4.2011 has in any manner been reduced as increased in the year under consideration. It is submitted that the share premium as was credited of Rs. 2674.99 crores stands remain the same both outstanding of the year and close of year (page 55 of Paper Book) and in such circumstances it is not a case of amount carried to an reserve by debited the profit and loss account and hence the adjustment made is perse, misconceived and untenable. 28.3 It is submitted that even the reliance place on the judgment of Apex Court in the case of Indo Rama Synthetics (1) Ltd v CIT reported in 330 ITR 363 is not tenable. The facts in brief of the said case was during the previous year ending 31-3-2000 relevant to the assessment year 2000-01, fixed assets were revalued resulting in increase in the net book value of such assets by Rs. 288,58,19,000/-, which was credited to the revaluation reserve. For the previous year ending 31-3-2001, relevant to the assessment year 2001-02, the P & L Account showed the charge of depreciation at Rs. 1,27,57,06,000 which was reduced by transfer from revaluation reserve to the extent of Rs. 26,11,74,000 resulting in a net debit on account of depreciation of Rs. 1,01,45,32,000. The Assessing Officer, ITA Nos.1190 & 2033/Del/2024 Page | 44 while computing the book profit under section 115JB of the Act. did not allow reduction of the afore-stated amount of Rs. 26.11.74.000 on the ground that the revaluation reserve stood created in the assessment year 2000-01 and had not been added back while computing the book profit in that year in terms of the proviso to clause (i) of Explanation to section 115JB. It is submitted that in the said case as it is apparent the assets was withdrawn from the revaluation reserve which was credited to the profit and loss account which is not the facts of the instant case there is no assets withdrawn from the revaluation reserve and hence the adjustment is misconceived. 29. It is submitted that the learned Assessing Officer has also supported the aforesaid adjustment by referring to Explanation to section 115JB of the Act he has held at page 37 of order of assessment as under: \"A 5 Even otherwise bare perusal of the section 115JB of the Act regarding adjustments to be made for computation of book profit reveals that the net profit has to be increased by \"i) The amount or amounts set aside as provision for diminution in the value of any asset\" Similarly, the depreciation claimed is first added to the profit and loss account and then is reduced by (iia) the amount of depreciation debited to the [statement of profit and loss] (excluding the depreciation on account of revaluation of assets)\" The amount debited in the profit and loss account under the head 'impairment of goodwill' is in substance provision for diminution in the value of inventories. From the amounts offered in different years, it is noted that no particular methodology has been followed for determination of the amount of impairment. The amount has been arbitrarily debited without any basis in the profit and loss account for various assessment years as mentioned supra to reduce its tax liability under the provisions of section 115JB of the Act. Therefore, the same needs to be disallowed while computing the book profit as statutorily required as per section 115JB of the Act.\" 30. It is apparent from the aforesaid that the amount debited represents for diminution in the value of assets. On the contrary it represents an amount debited under the head impairment of goodwill, it is not a case of provisions much less a provision for diminution in value of assets. 31. It is submitted that the assessee company seeks to add here that claim of assessee is supported by the judgment of Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT reported in 255 ITR 273 wherein it was held, while examining the issue of making adjustments in the book profits for the purpose of MAT. it was held that the Assessing Officer under the Income Tax Act has to accept the authenticity of accounts with reference to ITA Nos.1190 & 2033/Del/2024 Page | 45 the provisions of the Companies Act 1956 which obligated the company to maintain its accounts in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and thereafter to be filed before ROC who has statutory obligation also to examine and satisfy the books of accounts of the company are maintained in accordance with the Companies Act. The section does not empower the Assessing Officer to embark upon fresh enquiry in regard to entries made to books of accounts of the company. The said sub section as a matter of fact, mandates is bodily lifted from the Companies Act into the Income Tax Act for the limited purpose of making the said accounts so maintained as basis of computing the company's income for levy of Income Tax. Beyond that the said sub section does not empower the authority under the income tax act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income computed on the basis of the profit & loss account prepared in accordance with the Companies Act shall be deemed income for the purpose of section 115J of the Act and, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of the Companies Act and, another for the purpose of Income Tax Act. If the legislature intended the Assessing Officer to reassess the company's income then it would have stated in the section that income of the company as accepted by the Assessing Officer. Therefore the Assessing Officer while computing the income under the section has only the power of examining whether the books of accounts are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has limited power of making additions and, reduction as provided for in the Explanation to the said section. To put it differently the Assessing Officer does not have the jurisdiction to go behind the Net profit shown in the Profit & Loss Account except to the extent provided in the Explanation to section 115JB of the Act. The same principle of lawwas reiterated by the Hon'ble Supreme Court in Malayala Manorama Co. Ltd. vs CIT. 32. Reliance is also placed on the following judgments i) 300 ITR 202 (P&H) CIT vs. Sona Woollen Mills Pvt. Ltd. ii) 384 ITR 364 (Gau) CIT v Jajodia Engineering (P) Ltd. iii) ITA No. 170/Del/2019 12.3.2019 Priapus Developers P. Ltd. vs. ACIT \"17. Such a premise of the Assessing Officer cannot be approved for the reason that; • Firstly, this reserve has not been created on revaluation of asset albeit same has been acquired through amalgamation and the shares have been valued as per the purchase method for a certain price. ITA Nos.1190 & 2033/Del/2024 Page | 46 • Secondly, it is not revaluation of any asset held by the assessee, because no such reserve has been created by the assessee on revaluation of shares Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. • Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally belonged to PREPL and PPPL and appeared in their balance sheet; and these assets entered in the books of assessee by virtue of amalgamation valued on fair market value as mandated by the order of Hon'ble High Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. • Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s.115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-1 and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the Id. CIT (A) too cannot be upheld for the same reason.\" 33. It is also added here that submitted that identical claim has been made by the assessee in preceding year: Sr.No. Particulars Gross Amount (I) Less: Impairment of goodwill (II) Amount debited during the year (III) Balance (IV=I-III) (pages of Paper Book) i) As on 31.03.2018 2519.07 1,072.87 155.71 1446.19 (65) ii) As on 31.03.2017 2519.07 917.16 591.46 1601.90 (65) iii) As on 31.03.2016 2519.07 325.70 21.24 2193.37 iv) As on 31.03.2015 2519.07 304.46 274.24 2214.61 v) As on 31.03.2014 2519.07 30.22 30.22 2488.85 34. It is prayed that the findings of the learned Commissioner of income Tax (Appeals) may kindly be upheld and grounds raised by the revenue may kindly be dismissed.” 31.6. The adjustment by way of increase in the book profit on account of impairment of goodwill carried out by the AO is in controversy. As emerges ITA Nos.1190 & 2033/Del/2024 Page | 47 from record, the assets and liabilities belonging to amalgamating companies were acquired by the assessee through amalgamation process and the shares were valued for certain price. The assets entered in the books of the assessee by virtue of amalgamation valued at fair market value as mandated by the order of the Hon’ble High Court. The difference between the net assets acquired (total assets – total liabilities) and the corresponding value of consideration assigned being excess of consideration paid over the net assets acquired was debited to goodwill account by the assessee company. Thus, it is the case of the assessee that no revolution of assets held by the assessee was carried out at all. The assets came to be acquired by the assessee after amalgamation. Such assets belong to the amalgamating companies prior to amalgamation. The value of assets enter in books is based on scheme of amalgamation. Thus clause (b) to Explanation (1) to s. 115JB cannot be applied as incorrectly invoked by the AO. The amount towards impairment of goodwill (being excess consideration paid for acquisition of assets) cannot be regarded as any amount carried to any ‘reserve’. The judgement rendered by the Hon’ble Supreme Court in the case of Indo Rama Synthetics (I) Ltd vs C.I.T,New Delhi [2011] 330 ITR 363 relied upon by the AO is with reference to completely different sets of facts which has no semblance with the facts of the present case. In that case, the assets held by the assessee were re-valued and revaluation reserve was created to recognize the substituted value of the assets. The Hon’ble Supreme Court thus upheld exclusion of revaluation reserve for the purposes of determination of profits. 31.7. The facts in the present case are quite different. In the instant case, cost of goodwill incurred on acquisition of assets by way of amalgamation was entered in the books to corresponding match the assets acquired with the fair market value of the assets. The assessee has charged the impairment of cost of such goodwill to the Profit & Loss Account on appropriate basis. Explanation (1) to s. 115JB enumerates specific situations where the ‘books profit’ declared in the audited financial accounts can be increased suitably. ITA Nos.1190 & 2033/Del/2024 Page | 48 31.8. The debits towards impairment of goodwill do not fall in any of the clauses. The impairment cost debited in the Profit & Loss Account is also not in the nature of provision for diminution in the value of any assets. The CIT(A) has discussed such facts in length and rightly applied the ratio of Apollo Tyres Ltd. (supra) in the facts of the case. The AO was thus not entitled to adjust the book profit without showing the debits towards impairment cost to be inconsistent with any clauses of Explanation (1) to s.115JB of the Act. 31.9. The view taken by the CIT(A) finds support from the decision of the Co- ordinate Bench of the Tribunal in the case of Priapus Developers P.Ltd. vs ACIT in ITA No.170/Del/2019 order dated 12.03.2019. Without reiterating the discussion carried out by the CIT(A), we fully endorse the process of reasoning adopted by the CIT(A). We thus decline to interfere. Ground Nos. 3 & 4 of the Revenue’s appeal are dismissed. 32. Ground No.6 of the Revenue’s appeal relates to addition of INR 50,00,000/- representing purported ‘On Money’ received on the booking of flats/units by the assessee company. The AO made a lumpsum addition of INR 50,00,000/- on the ground that variation in the rates of booking of flats/units is not justified. 32.1. The CIT(A) in first appeal reversed the action of the AO by holding as under:- 12.1 “During the course of search proceedings carried out in the case of the appellant on 25.07.2016, certain papers were found and seized reflecting receipt of cash towards booking of units. The same were explained as rough noting by the appellant. Ongoing through page no. 6 of annexure A7, it was observed by the AO, the same contains details of booking of shop no. 19 booked in the project M3M Tee Point in the name of Smt. Geetika Gupta for Rs. 80,35,440/- @ Rs. 12,000/- per sq.ft. after giving discount of Rs. 27,55,487/-. The AO further mentioned certain transactions of booking where huge discount has been given. As per no. 58 of annexure A5, it was found that consideration @40% s been taken outside the books of account (60% of basic price of Rs. 8,400 has been shown in the books of account @ 5040, whereas there were certain transactions in the books of account were bookings have been made @ 8,400). In respect of such units sold for the project M3M Tee point during the year, the AO made ITA Nos.1190 & 2033/Del/2024 Page | 49 addition of Rs.50 lakh on estimation basis for such suppression receipts for the said project. During the appellate proceedings, it was argued that in the absence of any inquiries made from the persons who have booked space, there was no corroborative evidence that sale proceeds have been suppressed. Thus there was no valid basis for the addition of Rs. 50 lakh. Moreover, books of account have not been rejected, thus the addition made was legally unsustainable. 12.2 From the facts of the case, the AO has made disallowance of Rs. 50 lakh on adhoc basis on the ground that the appellant has received on money against booking of flats/units. However, the said addition is not supported with any basis. In the absence of any basis or logical reasons. Such kind of attention cannot be sustained. The AO has made the above addition on mechanical basis. In view of such facts, addition of Rs.50 lakh made by AO is hereby deleted. Ground of appeal no.11 is allowed.” 32.2. The AO has made an addition of INR 50 Lakhs on account of variations in the rate of bookings of flats/units. The CIT(A) took note of the arguments that in the absence of any enquiry made from the persons who have booked the space and in the absence of any corroborative evidence, the sale proceeds recorded in the books cannot be said to be suppressed. The CIT(A) has granted relief in the absence of any corroborative material adverse to the assessee. 32.3. There can be valid reasons for offering different discounts to different persons. Mere variation in the rate of bookings of different units cannot ipso facto give rise to assumption of existence of ‘On Money’. The findings of the CIT(A) is based on sound principles and thus does not call for any interference. 32.4. Ground No.6 of the Revenue’s appeal is accordingly dismissed. 33. In the result, the appeal of the assessee in ITA No.1190/Del/2024 [Assessment Year 2018-19] is partly allowed and the appeal of the Revenue in ITA No.2033/Del/2024 [Assessment Year 2018-19] is dismissed. Order pronounced in the open Court on 26th March, 2025. Sd/- Sd/- (SUDHIR PAREEK) JUDICIAL MEMBER *Amit Kumar, Sr.P.S* (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER ITA Nos.1190 & 2033/Del/2024 Page | 50 Copy forwarded to: • Appellant • Respondent • CIT • CIT(Appeals) • DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "