IHHR HOSPITALITY PRIVATE LIMITED,NEW DELHI vs. THE ACIT, CIRCLE 12(1), DELHI, NEW DELHI

(A.Y 2017-18) M/s IHHR Hospitality Private Vs ACIT Limited, Co/ Hotel Four Points Circle-12(1) by Sheraton, 32/7, Plot No. 9, Delhi Samalka, NH-08, New Delhi PAN: AAACI9385B Appellant Respondent Assessee by Shri Ranjan Chopra, CA Revenue by Written adjournment application Date of Hearing 24/07/2025 Date of Pronouncement 13/08/2025 ORDER

PER YOGESH KUMAR, U.S. JM:

“1. That the Order of learned CIT (A) sustaining the order of the learned Assessing Officer is bad in law and on facts and is liable to be set-aside. 2. That the learned CIT(A) has erred in law and on facts in upholding the disallowance of expenses made under Section 14A of the Income Tax Act, 1961 r.w. Rule 8D, amounting to Rs. 36,15,330/- by the AО.

2. That the learned CIT(A) has erred in law and on facts in upholding the disallowance of a sum of Rs. 15,80,202/- made under Section 36(1)(va) of the Income Tax Act, 1961by the AO on account of delayed payment of employees contribution to ESI/PF.

3. That the AO as well as learned CIT(A) have erred in law and on facts in disallowing a sum of Rs. 3,37,72,042/- u/s 36(1)(iii) of the Income Tax Act, 1961 on account of interest on unsecured loan given to its subsidiary namely M/s IHHR Hospitality (Andhra) Private Limited inspite of the fact that Hon'ble ITAT has passed order in the favour of the appellant company on the same ground for the Assessment Year 2015-16.”

9. Ground No. 3 is regarding disallowance of Rs. 3,37,72,042/- u/s 36(1)(iii) of the Act on account of interest on unsecured loan given to the subsidiary namely M/s IHHR Hospitality (P) Ltd. The Ld. Counsel for the Assessee submitted that the said issue of disallowance made on interest on account of unsecured loan is covered in Assessee’s own case for Assessment Year 2015-16, wherein the Co-ordinate Bench of deleted the said disallowance, therefore, sought for allowing the Ground No. 3.

10. Per contra, the Ld. Departmental Representative relying on the findings of the Lower Authorities, sought for dismissal of the Ground No. 3 of the Assessee.

“8. As regards ground no.2 i.e. disallowing interest of Rs.5,40,62,940/- u/s 36(1)(iii), at the outset, ld. Counsel for the assessee submitted that this issue is covered by the decision of ITAT in the assessee's own case in in AY 2015-16 vide order dated 22.11.2021.

AndharpradeshGovt Allotted land to the assessee and in lieu of that share capital was issued. The assessee has given advance to the subsidiary company as on 31.03.2014 of Rs. 51.54 crores which gone up to Rs. 71.07 crores as on 31.03.2015. The assessee company has not charged any interest on loan to its subsidiary, however, it has paid interest of Rs. 33,54,98,000/- on borrowed funds. The fact shows that the assessee company entered into a joint venture agreement that the Andhra Pradesh Govt in 2005 and incorporated a special purpose vehicle to which advances were given for a hotel at Hyderabad. The govt of Andhra Pradesh provided a land of 14.94 acres at Hyderabad and got share in the above company. The assessee company raised its share capital and put money into subsidiary company as interest free unsecured loans due to equity cap of 26% in favour of Andhra Pradesh Govt. The assessee company received share capital of Rs. 75 crores out of which 22.65 crores was given to the subsidiary company. On looking at the balance sheet of the assessee company it is placed at page No. 80 of the paper book, assessee has share capital and reserve and surplus of Rs. 32,791 lakhs and has advance Rs.7101 lakhs to its subsidiary company as on 31.03.2015.Therefore, even on the simple matrix it is apparent that the assessee has huge interest free funds available with it in the form of share capital and reserve and surplus which is more than the amount of interest free loan to the subsidiary company. Thus there cannot be any disallowance u/s 36 91) 9iii) of the Act. Therefore, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Supreme Court in case of Reliance Industries Ltd 102 Taxmman.com 52 (SC). Even otherwise the assessee has shown that it has given a loan to its subsidiary company in terms of memorandum agreement entered into with Andhra Pradesh Govt. for setting up hotel at Hyderabad. The business of the assessee as well as its subsidiary are also exactly same i.e. hospitality business. Thus the advances are also driven by business exigency.

11. Hon Delhi High court in Principal Commissioner of Income Tax v. Gaursons Realty (P.) Ltd.* [2020] 120 taxmann.com 259 (Delhi) has held that Where assessee, real estate company, had advanced loan to sister company for purpose of acquisition of land and to acquire a controlling stake in sister

concern which was also engaged in real estate business, deduction claimed by assessee under section 36(1)(iii) could not be disallowed on account of said advance of loan.

13. In view of above facts were direct the ld AO to delete the disallowances of interest expenditure on two counts.

i. The assessee has interest free advance available with it more than the amount of interest free advance given ii. The subsidiary and the assessee are engaged in the same business, the assessee entered into joint venture agreement for setting up hotel at Hyderabad therefore, there is a business exigencies shows by the assessee.

Accordingly, we allow ground No. 1 of the appeal." Since the facts in the assessee's own case for the aforesaid assessment year case are similar to the present assessment year, following the aforesaid coordinate Bench, we delete the addition and allow this ground.:”

12. By respectfully following the order of the Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2014-15, we allow the Ground No. 3 of the Assessee by deleting the disallowance of Rs. 3,37,72,042/- made u/s 36(1)(iii) of the Act.