TMI Blog2020 (9) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... toried commercial and residential complex. It was under this agreement that assessee paid a sum of ₹ 2,21,00,000/- Lacs to Shri Kalyan Realty Ltd on 03.09.2011 as a security deposit. This was done in compliance of terms at para 4.1 of the development agreement. As per this para the assessee was required to pay interest free refundable security deposit of ₹ 2,21,00,000/- to the owner of the land in lieu of the owner granting license for carrying out the development project. Thus, the advance made by the assessee was wholly and exclusively for the purposes of business. The development agreements establish beyond doubt that the amount advanced to both the concerns was under business agreements, therefore there is no occasion for making any disallowance of interest. No merit in the disallowance so made by the A.O. - Decided in favour of assessee. - ITA No. 327, 328 And 329/JP/2019 - - - Dated:- 11-9-2020 - Shri Ramesh C Sharma, AM And Shri Sandeep Gosain, JM For the Assessee : Shri S.L. Poddar, Advocate For the Revenue : Shri B.K.. Gupta, CIT DR ORDER PER: RAMESH C SHARMA, AM These three appeals have been filed by the assessee against the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional evidence. (iii) In the facts and circumstances of the case the ld. CIT(A) has erred in not providing opportunity before rejecting the additional evidences filed in paper book. (iv) In the facts and circumstances of the case the ld CIT(A) has erred in confirming the disallowing of ₹ 30,24,273/- (11595907-8571634) out of interest payment. 2. Due to prevailing COVID-19 pandemic condition, the hearing of the appeal is concluded through video conference. Rival contentions have been heard and record perused. Common grievance of assessee in all the years pertain to disallowance of interest expenditure. Facts in brief are that the assessee is private limited company and is engaged in the business of construction and real estate development. Return for the A.Y. 2012-13 was filed on 29/09/2012 declaring total at ₹ 16,79,160/-. Subsequently a search was conducted in the group case of Rajendra Jain and other on 23/05/2013. Notice U/s 153A of the Act issued on 30/09/2014, in response to notice u/s 153A of the Act, the assessee furnished return of income declaring same income at ₹ 16,79,160/- on 10/11/2014 as filed originally on 29/09/2012. The A.O. has comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed expenditure on account of interest of ₹ 48,88,257/- whereas the corresponding receipts on account of interest were only of ₹ 35,61,984/-. In the view of the AO, the excess interest over and above the receipts of interest being of ₹ 13,26,273/- was on account of interest free advances given the following sister concerns: - (i) Shri Kalyan Realty Ltd ₹ 56,00,0000/- (ii) Shri Kalyan Gem Exports Pvt Ltd. ₹ 2,21,00,000/- During the course of assessment proceedings it was submitted before A.O. that the loans advanced to these sister concerns were on account of business expediency. The assessee was having business stakes in these business concerns. A copy of the reply submitted before the A.O. is available on paper book page no. 1 to 4. However, the A.O. disallowed the interest paid over and above the interest received and thus made an addition of ₹ 13,26,973/-. 8. After going through the development agreement, we found that the assessee concern has advanced loan to Shri Kalyan Realty Ltd and Shri Kalyan Gem Exports Pvt Ltd for conducting business. The loans have been advanced under development agreements with both these concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on the following judicial pronouncements: (a) CIT Vs. Shahibag Entrepreneurs (P) Ltd. (1995) 215 ITR 810 (Guj) Purpose must be to keep the trade going - The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any capacity other than that of a trader. (b) R.B. Bansilal Abirchand Spg. Wvg. Mills Vs. CIT (1971) 81 ITR 34 (Born.) (FB) F.E. Dinshaw Ltd. Vs. CIT (1959) 36 ITR 114 (Bom.)/Delhi Cloth General Mills Co. Ltd. Vs CIT (1972) 85 ITR 261 (Delhi) Purpose need not be to increase profits or to directly benefit the business - The allowance contemplated is not necessarily an allowance for amounts expended to increase profits only, so long as it is for the purpose of the business. It is not also necessary that profits should be earned by such expenditure, nor is it necessary that it should be expended directly for the purposes of business so long as the business indirectly profits. (c) Madhav Prasad Jatia Vs. CIT (1979) 118 ITR 200 (SC) Borrowing must be for the purpose of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the purpose for which the assessee advanced the money to it's sister concern, and what the sister concern did with the money, in order to decide whether it was for commercial expediency but that had not been done. It is not in every case that interest on borrowed money has to be allowed if the assessee advanced it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances, where holding company has a deep interest in its subsidiary and the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the holding company would ordinarily be entitled to deduction of interest on its borrowed loans. 10. Considering the proposition of law laid down in the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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