M/S TURAKHIA ENGINEERING COMPANY PRIVATE LIMITED,MUMBAI vs. DCIT CENTRAL CIRCLE-8(2) , AAYAKAR BHAWAN, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1249/MUM/2026 Assessment Year: 2012-13

Turakhia Engineering DCIT Central Circle-8(2), Company Private Limited Mumbai 2nd floor Gita Building, Vs. Sion Circle, Mumbai - 400022 (PAN: AACCT4176F) (Appellant) (Respondent)

Present for: Assessee : Shri Margav Shukla and Shri Shubham Shah, CAs Revenue : Shri Hemanshu Joshi, Sr. DR Date of Hearing : 23.04.2026 Date of Pronouncement : 20.07.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of ld. CIT (A)- 48, Mumbai, vide order No. ITBA/APL/S/250/2025-26/1082889154(1) dated 21.11.2025, passed against the assessment order by Deputy Commissioner of Income Tax, Central Circle-8(2), Mumbai, u/s. 143(3) read with section 147 of the Income-tax Act (hereinafter referred to as the “Act”), dated 27.08.2019, for Assessment Year 2012-13.

2 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 warranted the re-opening of the case of the assessee. Such reassessment proceedings without any tangible material evidence is bad in law and liable to be quashed. 2. On given facts, circumstances and provisions of the law, the Ld. CIT(A) erred in concluding that the advance given by the assessee to its subsidiary company was not on account of commercial expediency. Hence, confirmation of such disallowance is bad in law and liable to be allowed. 3. Without prejudice to the above, On the given facts, circumstances and provisions of the law. Ld. CIT(A) erred in sustaining the disallowance made u/s. 36(1)(iii) in spite of the fact that the interest expense claimed by the assessee has been duly offered to tax as interest income by the lender of the assessee that is parent company of the assessee. Hence, disallowance made u/s. 36(1)(iii) is bad in law and liable to be quashed. 3. Assessee filed its return of income on 29.09.2012, reporting total loss of Rs. 9,79,209/-. Return was initially processed u/s. 143(1). Subsequently, case was reopened u/s. 147. Information was received from the office of ld. DIT (I & CI), Mumbai, stating that assessee had utilized interest-bearing funds for advancing money without charging any interest. Based on this information and verification of the return, ld. Assessing Officer formed a belief that income chargeable to tax had escaped assessment. Accordingly, a notice u/s. 148 was issued on 28.03.2019.

3.1. During the assessment proceedings, ld. Assessing Officer noted that assessee had taken an interest-bearing loan of Rs. 3,37,74,000/- from a group company, Turakhia Ferromet Pvt. Ltd. Assessee paid interest of Rs. 9,78,652/- at the rate of 6% on this loan and claimed it as a business expenditure in its Profit and Loss account. Ld. Assessing Officer further observed that out of the borrowed funds of Rs. 3,37,74,000/-, assessee had given an interest-free advance of Rs. 3,16,70,295/- to its subsidiary company, Turakhia Engineering Company (Patalganga) Pvt. Ltd. He noted that the funds were immediately diverted upon receipt. For instance, on 16.08.2011, a loan of Rs. 1,50,00,000/- was received, and on the same day, Rs.

3 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 1,50,11,545/- was advanced. Similarly, on 21.10.2011, Rs. 1,50,25,000/- was received and Rs. 1,50,10,000/- was advanced.

3.2. Assessee explained that the advance was given to its subsidiary for the purchase of industrial land at MIDC and claimed ‘commercial expediency’ by stating that since it was the first year of the subsidiary's incorporation and there was no income, no interest was charged. Ld. Assessing Officer rejected this explanation, holding that no commercial expediency was proved. He held that the assessee paid interest on loans taken from a group company but did not charge interest from its subsidiary to whom funds were diverted. Consequently, ld. Assessing Officer disallowed the interest expense of Rs. 9,78,652/- u/s. 36(1)(iii) and added it in the hands of the assessee. The total income was determined at Rs. (557). Aggrieved, assessee went in appeal before the ld. CIT(A).

4 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 funds as a loan to its wholly owned subsidiary which in turn was invested in buying a plot of land for business purposes.

4.1. While dealing on the merits of the case, ld. CIT(A) makes an observation on page-9 of its impugned order that “the advance was made voluntarily for the purchase of capital asset (land) by the subsidiary which does not carry the same weight of commercial expediency as protecting a subsidiary’s working capital arrangement to satisfy lenders.” This observation of ld. CIT(A) establishes that facts of the present case are undisputed as to advancement of loan by the assessee for the purchase of land by its wholly own subsidiary. He subsequently dismissed the appeal by holding that the transaction lacks the characteristic of a prudent commercial decision.

5 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 5.1. In order to explain the aspect of commercial expediency of the transaction, ld. Counsel submitted that assessee had paid interest of Rs. 9,78,652/- on the inter-corporate deposit taken by it from its another group company named Turakhia Ferromet Pvt. Ltd., amounting to Rs.3,37,74,000/-. Subsequently, it gave advance to its another group company named as Turakhia Engineering Company (Patalganga) Pvt. Ltd. of Rs.3,15,70,305/-. This was given for purchase of land as it was time consuming process of incorporating a new company and having its name approved as a special purpose vehicle. Since the group management did not want to miss the opportunity for purchase of land for its business through the SPV, i.e., Turakhia Engineering Company (Patalganga) Pvt. Ltd., it took the business decision of advancing loan to Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity and charge interest on commencement of its business. However, registration and other compliance procedures with MIDC took longer time and got eventually completed in the year 2015. The Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity could not commence its business as was expected in the year under consideration. Assessee thus, gave an interest holiday to Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity under the approval of its Board of Directors. The year under consideration is the year of incorporation of the SPV and it had incurred losses and therefore, was not in a position to pay interest on the advances given by the assessee to it. The said transaction was adequately reported in the audited financial statements of Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity as advance paid for purchase of land in note no.8 which is extracted below: LONG TERM LOANS AND ADVANCES Particulars As at 31 As at 31 March, 2012 March, 2011

6 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 Loans and Advances To Others CEOMIDC 31,529,190 --

TOTAL 31,529,190 --

5.2. Ld. Counsel for the assessee also referred to the letter issued by MIDC, dated 16.03.2015 which affirms the execution of agreement for lease of plot of land for which the said advance was given by the assessee. In the said letter, it is stated that MIDC had received premium of Rs.3,15,00,000/- at the rate of Rs.2100/- for the plot area of 15,000 sq. metres. A reference was also made to the registered lease documents in respect of the land obtained by Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity which is dated 29.06.2015. It was thus, asserted that there is no colourable device as alleged by the ld. CIT(A) but an actual transaction undertaken by the wholly owned subsidiary of the assessee for obtaining the plot of land from MIDC under the lease arrangement for which assessee had given a loan to it. The objective of obtaining the lease was to start a business centre. The only lapse which occurred is the delay in complying with the MIDC formalities and incorporation of the special purpose vehicle as Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity which did not take place in the year under consideration but eventually got completed in the year 2015, fact of which remains undisputed and uncontroverted.

5.3. Thus, on the strength of the above submissions, it is contended that by applying the principle of commercial expediency, assessee had funded its wholly owned subsidiary by advancing loan which is the startup entity. It was for the commencement of the business for which assessee had funded in the form of loans being a holding company.

7 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 6. We have heard both the parties and perused the material on record. The facts narrated above remains uncontroverted which are duly corroborated by relevant documentary evidence on record. It is also a fact that assessee had furnished all these documents before the ld. Assessing Officer for which a screenshot from the Income-tax website portal is placed on record demonstrating the submissions so made. Ld. Assessing Officer has failed to take into consideration the submissions so made and disallowed the claim of interest expenditure made by the assessee u/s. 36(1)(iii). Assessee made detailed submission before the ld. CIT(A) explaining its case of commercial expediency in terms of principles laid down by the Hon'ble Supreme Court in the case of S.A Builders and Hero Cycles (supra) which was negated by dismissing the appeal.

6.1. From the submissions made by the ld. Counsel before us, we find that the eventual transaction of obtaining land from MIDC under the lease agreement had actually undertaken though on a delayed timeframe for the expansion of the business of the group as a whole. Assessee being a holding company had funded and provided financial support to the Turakhia Engineering Company (Patalganga) Pvt. Ltd. entity which was set up as its special purpose vehicle in the form of wholly owned subsidiary. The year in which the loan has been funded for making an advance payment to MIDC is the first year of incorporation of the SPV wherein it incurred losses. The initial years being startup phase of SPV, assessee provided interest holiday under its board approval. It took time in completing the registration formalities with MIDC and land as desired was eventually obtained from the MIDC by the SPV floated by the assessee for conducting the business operations. All these facts demonstrate existence of commercial expediency to justify the claim of deduction made by the assessee u/s.

8 ITA No. 1249/Mum/2026 Turakhia Engineering Co. Pvt. AY 2012-13 36(1)(iii) towards interest expense on the funds advanced to its SPV for the purpose of business. In the conspectus of the above detailed deliberation on the factual position and the judicial precedents, claim of the assessee is allowed. Grounds raised by the assessee in this regard are allowed.

Order is pronounced in the open court on 20 July, 2026

Sd/- Sd/- (Sandeep Gosain) (Girish Agrawal) Judicial Member Accountant Member Dated: 20 July, 2026 MP, Sr. P.S. Copy to: 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai