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2021 (10) TMI 510 - Income Tax
Income from other sources - Unexplained business income - development management agreement with subsidiary company - HELD THAT:- The main object of the assessee was, inert-alia, to develop real estate for the purpose of commercial, industrial or residential use and other immovable properties and act as realtors, builders, contractors, designers, architects, consultants, developers, construction managers of all types of real estate development. Pursuant to the main objects, the assessee acquired M/s CDPL who became 100% subsidiary of the assessee. M/s CDPL was engaged in developing a mall i.e. Pride Mall at Pune. For the same, the assessee was appointed for providing development management services w.e.f. 01/09/2011 in respect of the said project and an agreement was entered into with CDPL - To render the services, the assessee had employed Mr. Peter Young who was stated to have expertise in managing development of malls and commercial complexes.
Pursuant to development management agreement, the assessee raised invoices on CDPL from time to time and received the payment after deduction of tax at source. M/s CDPL confirmed the transactions in response to notice u/s 133(6). All these facts as well as documentary evidences bolster the claim of the assessee that it has provided management services to M/s CDPL. Merely because there were deficiency in the agreement would not invalidate the agreement since both the parties have acted on the terms of the agreement for which sufficient documentary evidences have been filed by the assessee before lower authorities. Therefore, the lower authorities, in our considered opinion, were not justified in doubting the business receipts of the assessee and assess the same as Income from other sources as unexplained income. We order so. Ground No.1 of the appeal stand allowed.
Assessment of interest income - Allowable Business Income or not? - We find that the funds have been advanced by the assessee to its wholly owned subsidiary for the purpose of business. The project being carried out by M/s CDPL was in line with the main object of the assessee. It could also be seen that the loans have been funded out of the proceeds of the debentures issued by the assessee during the year. Therefore, interest income was rightly offered as Business Income by the assessee. Consequently, interest expenditure would be allowable business expenditure. Ground No.2 of the appeal stand allowed.
Disallowance of various business expenditure as claimed in the Profit & Loss Account - Since, we have held the management fees and interest income as Business income and negated the stand of lower authorities that there was no business activity, these expenditure would be allowable as business expenses. The Ld. AO is directed to verify the same and allow deduction thereof. Ground No.3 stand allowed for statistical purposes.