Dd Township Ltd., New Delhi vs Assessee

This appeal, preferred by the assessee, is directed against the order of ld CIT(A)-XIII, New Delhi dated 03-10-2012, relating to AY 2009-10. Following grounds are raised:

"1(a) That the ld. CIT(A) has gone wrong in upholding the erroneous order passed by the AO making disallowance of Rs. 2,97,82,854/- under section 36(1)(iii) of the Income Tax Act, 1961.

(b) That in upholding the disallowance of Rs. 2,97,82,854/- , the ld. CIT(A) has been guided by irrelevant and erroneous 2 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

considerations. The judgments relied upon both by the AO and the Ld. CIT(A) have no application to the facts and circumstances of the case. The judgments relied upon in support of the assessee's case were relevant to decide the controversy in issue. Both the authorities have looked at the case from wrong angle thereby coming to an erroneous conclusion.

(c) That the authorities below have failed to appreciate correctly the facts of the case thereby coming to a conclusion which was untenable in the eyes of law. No disallowance of any amount was called for having regard to the facts and circumstances of the case. The submissions made on behalf of the assessee having not been properly appreciated and erroneous conclusion has been reached. The entire addition of Rs. 2,97,82,854/- deserves to be deleted."

That the impugned order passed by the Ld. cIT(A) confirming the addition made to the returned income, is bad in law and against the facts of the case."

2. The assessee had filed its return of income on 30-9-2009, declaring loss of Rs. 14,65,34,601/-. Thereafter, the assessee filed a revised return on 1-11-2010, wherein loss for the year was reduced to Rs. 4,81,03,138/-.

2.1. Brief fact of the case are that the assessee, a developer, in the relevant assessment year dealt in real estate business. The AO noticed that during the year under consideration the assessee company had entered into an agreement for development of land with DD Infrastructure and other companies of the group for developing of real estate projects at Faridabad. The assessee had also sold land rights during the year and had shown income on account of transfer of land rights. Besides, the assessee had earned 3 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

interest income and also rental income. In the backdrop of these facts, the AO noticed from the P&L a/c. that against the income earned under the head "House property, interest income and income on account of transfer of land rights, the assessee had claimed financial charges of Rs. 17,46,69,166/-.

2.2. The assessee in its reply pointed out that assessee itself added back interest of Rs. 9,84,31,463/- while filing its revised return and accordingly loss was reduced as against originally returned. As regards the balance interest, the assessee pointed out that the same was attributable to the business of the assessee for which it had given advance to buy land rights on which it had shown income of Rs. 5 crores.

2.3. The assessee also pointed out that it had shown interest income of Rs. 20,85,562/- on account of various loans and advances. The assessee further submitted that it had made an investment of Rs. 20,05,64,120/- in group companies. In addition to this investment, the company had also given interest free advance to the group companies amounting to Rs. 168,43,58,666/-. The assessee also pointed out that apart from secured and unsecured loans, the company had on its disposal a sum of Rs. 102,16,46,857/- in the shape of advance received from customers in the earlier years, which were interest free advances and were utilized for giving loans and advance to the group companies for purchase of land and likewise the investment also represented the investment from the same source. Thus, the assessee's plea was summarized as under:

4 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

Investments in group companies Rs. 20,05,64,120/- Interest free loans and advances Rs. 168,43,58,566/-

Total Rs. 188,49,22,686/- Less: Interest free loan available Rs. 102,16,46,857/- with the assessee Balance interest free advances Rs. 86,32,75,829/- (investment)

2.4. The AO, after referring to plethora of decisions concluded that where the assessee had given interest free advance and had also given interest free loans to group concerns for helping them and since assessee had not been able to establish any direct nexus between own funds vis a vis interest free loans, disallowance u/s 36(1)(iii) was to be made on account of utilization of interest bearing funds for non business activities. The AO, accordingly, worked out the disallowance at Rs. 2,97,82,854/- as under:

174412088 X 863275829 = Rs. 12,82,14,017/-

1174331352 Interest needs to be disallowed 12,82,14,017/-

Less: interest already added back 9,84,31,463 Balance interest 2,97,82,854

2.5. In appeal, the ld. CIT(A) confirmed the AO's action, inter alia, observing that assessee company had made investment in group companies of Rs. 20,05,64,120/- to have a controlling stake on such companies.

Besides, the assessee had given interest free advance to the group companies of Rs. 168,43,58,566/-. He further pointed out that no benefit was shown to have been derived by the assessee from these investments and interest free loans. There was no commercial expediency found in advancing interest free loans and investments. Therefore, the interest free loans and investments 5 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

were without any justification and they were without any business purpose. Hence, such interest payments expenditures could not be held as incurred for business purposes. He also relied on various case laws, as mentioned in his order.

2.6. Aggrieved, the assessee is in appeal before us.

3. Ld. counsel for the assessee submitted that the assessee was a developer and dealt in real estate business. He referred to page 39 of the PB to demonstrate that AO had wrongly computed the interest bearing funds advanced which was actually as under:

Interest free funds available With the assessee Rs. 1,02,16,46,857

Unsecured loans (interest Free) available with the Assessee Rs. 20,46,65,623 1,22,63,12,680 Less: Investments in group Companies. 20,05,64,120 Total: 1,02,57,48,360 Interest free loans & Advances provided to Concerns 1,68,43,58,567 Less: Interest bearing advances-

Interest recd. Shown in profit & Loss A/c Assessment order-

Page no. 3 2,26,50,000 1,766,17,08,567 Interest bearing funds advanced 63,59,60,207"

3.1. Ld. counsel submitted that the assesse is a developer and deals in real estate business. During the year company had entered into an agreement for development of land with DD Infrastructure and other companies of the group for developing real estate project at Faridabad. He further submitted 6 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

that under the Land Acquisition Act, single entity is restricted to purchase over certain restricted limit of land. In view of this restriction, assessee advanced/ borrowed money for business purposes to its group concerns for purchasing the plot of land and thus the amount was advanced to group concerns not for controlling interest in the company but for commercial expediency. He submitted that the findings of ld. CIT(A) that the amount was advanced for acquiring controlling interest, is not correct. Ld. counsel further referred to page 16 of the PBH wherein the balance sheet of assessee is contained, wherein investment in group companies has been shown at Rs. 20,05,64,120/-.

3.2. Ld. counsel further referred to page 19 of the PB wherein details of loans and advances aggregating to Rs. 168,43,58,566/- are contained to demonstrate that advances were given in various projects which was mentioned in schedule 8 to the balance-sheet as under:-.

Advance in various projects - Project Faridabad (Sector-70) 107,774,988.00 - Project Faridabad (Sector-77) 491,341,398.00 - Project Mohali 68,352,975.00 - Project Zirakpur 246,726,424.73 - Project Sonepat 2,690,549.00 - Project Amritsar 67,206,222.00 - Project Faridabad (Farm House) 10,000,000.00 - Project Gurgaon 7,624,370.00 - Other Misc. advance for land 128,538,566.73 1,684,358,566.73

3.3. Ld. counsel pointed out that the aforementioned balances were with respect to collaboration agreement.

7 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

3.4. In the backdrop of these facts, ld. counsel submitted that the decision of Hon'ble Supreme Court in the case of SA Builders 288 ITR 1 is squarely applicable because all the advances were for commercial expediency.

4. Ld. DR submitted that investment in group companies was for acquiring controlling interest.

5. We have considered the rival submissions and have perused the record of the case. Both the lower revenue authorities have proceeded with a premise that investments in group companies were made to have controlling interest in such companies and interest free advances were given to group companies which were not for business purpose. We find that the entire thrust of assessee's submissions from the very beginning was that the amounts were advanced to group concerns, keeping in view the restrictions imposed by Land Acquisition Act and this aspect we find has not at all been addressed by lower revenue authorities. If the advances were given out of commercial expediency then it is settled law that no disallowance is called for.

5.1. From the details reproduced from balance-sheet as above it appears that the amounts were advanced for various purchases and, therefore, it could not be concluded that the interest free advances given to group concerns, were not for business purposes. We find that these aspects have not at all been examined by lower revenue authorities and no findings have been recorded as to the purpose for which interest free advances were given to group companies. The assessee's submissions are quite convincing that 8 ITA no. 6311/Del/2012 DD Township Ltd. Vs. DCIT

considering the restrictions imposed by Land Acquisition Act, it had entered into various collaboration agreements. The AO is required to record specific finding on these aspects before coming to the conclusion that the entire interest free advance given to group concerns were not for business purposes. We, therefore, set aside the order of lower revenue authorities and restore the matter back to the file of AO to examine the issue de novo particularly having regard to the availability of own funds and collaboration agreement entered into by assessee with its group concerns and if the amounts had been advanced to group concerns for business expediency, then no disallowance is called for.

6. In the result, assessee's appeal is allowed for statistical purpose. Order pronounced in open court on 29-04-2015.

Sd/- Sd/- (C.M. GARG ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29-04-2015. MP: Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR