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TMI Blog2020 (8) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. The appeal was admitted on 27.06.2019 on the following Substantial Questions of Law: i. Whether the provisions of Section 36(1)(iii) of the Income Tax Act, 1961 permit the claim for deduction of interest paid for the borrowed amount used for business purpose? ii. Whether the Appellate Tribunal was correct in ignoring the purpose and utilization of the borrowed money by recording perverse finding of fact of non existence of business purpose despite the execution of Joint Development Agreement entered into between the appellant and holding company? iii. Whether the Appellate Tribunal is correct in holding that unregistered of the Joint Development Agreement would lead to the presumption of diversion of borrowed funds for non busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were made for acquiring land on behalf of the assessee for construction of a project called 'Hansa Chitra Project'. In this regard, the assessee had referred to a Joint Development Agreement with the holding Company and the assessee. Challenging the disallowance, the assessee preferred appeal to the Commissioner of Income Tax (Appeal)-III, Chennai, (hereinafter referred as 'the CIT(A)' for brevity), which was dismissed by an order dated 17.01.2013. The assessee preferred appeal to the Tribunal which had rejected the assessee's appeal by the impugned order. This is how, the assessee is before us by way of this Tax Case Appeal, raising the above mentioned Substantial Questions of law. 4. It is submitted by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing officer committed an error in disallowing the claim for deduction. It is further submitted that the Assessing officer as well as the CIT(A) and the Tribunal failed to appreciate the basic fabric of the simple business transaction between the assessee and its holding Company and if it had been properly construed, the claim for deduction would have been allowed. Further it is submitted that the order of the CIT(A) for the assessment year 2010-11 dated 17.01.2013 was noticed by the Tribunal, wherein the disallowance of the interest paid on the presumption of diversion of borrowed funds was rejected by the CIT(A) in granting deduction of such interest payment as in accepting the business purpose of the utilization of the borrowed fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment Agreement dated 11.04.2007. The petitioner is the Developer in the said Agreement. The Holding Company has been termed as an Investor, who had secured development rights of a project called 'Hansa Chitra' in the land situate in Zamin Pallavaram Village. The Investor / holding Company has approached the assessee/developer to develop the said property by constructing 67 flats. The assessee/ developer agreed to put up built up area of 84,860 sq.ft at its cost and expenses, according to the recital in the Agreement. This was because, the Investor/holding Company investing Rs. 11,25,00,000/- and assigning the development rights to the assessee/developer and the developer agreed to pay the investor/holding Company Rs. 11,25,00,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and noted that at no point of time, the holding Company which itself is a Investor had an occasion to take advance from the assessee's Company as they have borrowed loans from Banks. Further on considering the return of income and the materials placed, the Assessing Officer found that the assessee is paying Rs. 42,85,869/- towards operational expenses of the holding Company and this amount is shown in the Ledger Account as the joint venture share of the holding Company and therefore, it is not necessary for the assessee to give any advance to the holding Company. Thus, the Assessing Officer concluded that the assessee had failed to establish commercial expediency. 10. Taking note of the requirement of business services, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. 12. Further CIT(A) found that the assessee has failed to establish that interest free advances were for the purpose of business and therefore, the decision in M/s. S.A. Builders VS. CIT does not come to the rescue of the assessee. Accordingly, the appeal was dismissed. The Tribunal independently considered the facts recorded by the Assessing Officer as well as the CIT(A) and confirmed their orders. 13. We find no perversity in the approach, observation and conclusion arrived at by the Tribunal. To our mind, the nature of transaction makes it clear that there is no element of commercial expediency. The holding Company holds 99.99% shares in the assessee. The assessee has given a loan of Rs. 18,30,19,927/- to the holding Company during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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