INCOME TAX OFFICER, DELHI vs. ADDON REALTY PRIVATE LIMITED, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI

BEFORE SH. SATBEER SINGH GODARA, JUDICIAL MEMBER & SH. KRINWANT SAHAY, ACCOUNTANT MEMBER

ITA No.3008/DEL/2024 Assessment Year: 2017-18 ITO Addon Realty Private Delhi Limited, D -3, District Vs Centre, Saket, Delhi Delhi-110017 PAN No. AAHCA0104B (APPELLANT) (RESPONDENT)

Appellant by Sh. Bhopal Singh, CIT DR Respondent by Ms. Vandna Gopal Sharda, CA Ms. Lavanya Bahl, Advocate Sh. Abhishek Mandhar, CA

Date of hearing: 13/07/2026 Date of Pronouncement: 07/10/2026

ORDER PER KRINWANT SAHAY AM Appeal in this case has been filed by the Revenue against the order dated 28.03.2024 passed by the Ld. CIT(A)/ NFAC, Delhi for the A.Y. 2017-18. Grounds of appeal are as under :-

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“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) had erred in deleting the addition without considering the fact that the assessee was not doing its own business as per given in the memorandum of Association of the Company, rather was indulged as NBFC for borrowing and lending of money, which is ultravires of the objects? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs 28,02,29,626/- made by the addition on account of disallowance of interest expenses claimed u/s 57(ili) of the Income Tax Act as no agreement with M/s Torus Buildcon Pvt. Ltd. was filed before the AO. Moreover, the agreement filed in respect of M/s R.S. Infrastructure Pvt. Ltd. & M/s Pawan Impex Pvt Ltd does not specify the purpose for which the loan is being disbursed which Is mandatory for claiming the said expenditure u/s 57(iii) of the I.T. Act, 1961. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that the confirmed copy of account furnished for the respective parties which were reproduced did not reflect any interest payment being accrued to them 4. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred as the bank details also reveal that no interest payment has been made to the parties except for payment of Rs. 1,10,00,000/- to M/s Pawan Impex Pvt. Ltd. 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred by ignoring the observation made by the AO that the expense is not genuine expense and is no way connected with earning income. It was just booked for inflating the expenditure so as to reduce the tax liability. 6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred that no factual explanation was submitted by the assessee 7. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

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3.1 The assessee is a private limited company engaged in the business of real estate including the erection and construction of houses and buildings, civil structures and constructional work of every description. That this is its line of business is not a matter of assertion alone; it stands verified in scrutiny assessments framed under section 143(3) of the Act for assessment years 2014-15 and 2015-16.

3.2 For assessment year 2017-18 the assessee filed its return of income on 29.10.2017 vide e-acknowledgement No. 267851701291017, declaring total income of Rs. 6,53,618/-. 3.3 In the year under consideration the assessee had, in earlier years and during the year, borrowed unsecured funds from eight parties and had on-lent those funds to six borrowers. On the advances so made it earned interest income of Rs. 28,12,37,966/-, which it offered to tax under the head 'Income from other sources'. On the borrowings it incurred interest liability of Rs. 73,86,84,104/-. Of that liability it claimed only Rs. 28,02,29,626/-as a deduction under section 57(iii) - being the portion proportionate to the funds actually on-lent and capitalised the balance of Rs. 45,84,54,478/- to work in progress, claiming nothing in respect of it. 3.4 By order dated 10.12.2019 passed under section 143(3) of the Act, the Income Tax Officer, Ward 1(3), New Delhi disallowed the entire claim of Rs. 28,02,29,626/- and assessed the income at Rs. 28,08,83,240/- (the returned income plus the disallowance, rounded off in terms of section 288A of the Act). 3.5 In appeal, the Id. CIT(A) called for and examined the material, obtained the assessee's Written submissions dated 30.05.2022, 10.01.2023, 15.03.2023, 20.11.2023 and 03.02.2024, and by the

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impugned order dated 28.03.2024 deleted the disallowance in its entirety. The operative findings: "6. I have examined the details filed by the appellant and the observation made by the AO in the assessment order. Appellant has submitted all the necessary details before the AO. In the case of assessee, the rate at which loan is taken from parties is always less than the rate at which loan is given. 6.1 On perusal of the above chart, it is clear that the rate at which loans are given are more than the rates at which the loans are taken and therefore the profitability of the nature of transaction is completely justified. 6.2 The essential condition for allowability of deduction under section 57(iii) is that the said expenses should be laid out or expended wholly and exclusively for the purpose of making or earning income against which it is claimed as deduction. In the present case, the borrowed funds have been given to parties which are independent and interest income is earned on the advances made. This would mean that the interest expenses, in question incurred by the appellant were expended wholly and exclusively for the purpose of making or earning interest income. 6.3 In view of the above, I hold that the interest expenses claimed is allowable as deduction u/s 57(iii) of the Act. Hence all grounds of appeal under this head are allowed. 5. The Id. Sr. DR submitted that the assessee had carried on no activity of its own during the year as contemplated by the objects clause of its memorandum of association; that the only activity carried on was the earning of interest; that borrowing and lending of money is the business of a non-banking financial company; that the assessee is not registered as such; and that an activity ultra vires the objects clause cannot found a claim for deduction. He relied upon the observation of the Id. Assessing Officer in the assessment order, which reads: "However no such activity was carried out during the year. Only the activity of earning interest was carried out. However the assessee not being a NBFC company cannot indulge in activities of borrowing and lending money." submissions of the assessee

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5.1 The Id. counsel for the assessee submitted, first, that the assessee is and has always been in the real estate business, a fact verified in scrutiny assessments-for-assessment years-2014-15 and 2015-16. Secondly, that the statutory auditor has categorically reported at clause (xvi) of Annexure A to the Auditor's Report, forming part of the audited financial statements at page 18 of the Paper Book, that "the company is not required to be registered under section 45-1A of the Reserve Bank of India Act, 1934", so that the very premise of the ground is contrary to the audited record. Thirdly, that the mere earning of interest income does not convert a company into a non- banking financial company. Fourthly, that this issue was never put to the assessee at any stage of the assessment proceedings and surfaced for the first time in the assessment order. And fifthly, that under the Act all income is chargeable under one head or another after deduction of the expenditure permitted under that head, and the objects clause of a company is irrelevant to that computation.

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GROUND NO. 2 and 3 ABSENCE OF AGREEMENT AND NON-RECITAL OF PURPOSE and ignoring confirmed copies of account already furnished. Submissions of the Revenue 7. The Id. Sr. DR submitted that no agreement with M/s Torus Buildcon Pvt. Ltd. was filed before the Id. Assessing Officer, and that the agreements filed in respect of M/s R.S. Infrastructure Pvt. Ltd. and M/s Pawan Impex Pvt. Ltd. do not specify the purpose for which the loan was disbursed, which specification, he urged, is mandatory for a claim under section 57(iii). On this issue the assessee has made the submissions as under :- 7.1 The Id. counsel submitted that in respect of the loan taken from M/s Torus Buildcon Pvt. Ltd. and on-lent to Ms. Shabnam Dhillon, balance confirmations from both parties, together with the statement of HDFC Bank account bearing the number ending 31154, were filed before the Id. Assessing Officer vide reply dated 03.12.2019, and were reiterated as Annexures D, E and F to the written submissions dated 30.05.2022 filed before the Id. CIT(A). The memorandum of understanding was in any event placed before the Id. CIT(A) at pages 190 to 191 of the Paper Book, along with the confirmation at page 188 and the ledger at page 189. 7.2 As regards R.S. Infrastructure Pvt. Ltd. and Pawan Impex Pvt. Ltd., it was pointed out that the confirmations, ledger accounts of loan and interest payable, memoranda of understanding and bank statements are all on record. 9. The Id. Sr. DR submitted that the confirmed copies of account furnished by the lenders, which are reproduced in the assessment order, reflect only the loan amounts and do not reflect any interest as having accrued to them, and that the Id. CIT(A) ignored this. Submissions of the assessee 9.1 The Id. counsel submitted that the assessee maintains, in its books, a separate ledger for interest payable to each lender, distinct from the ledger of the loan itself; that the questionnaire issued under section 142(1) called for confirmations in respect of unsecured loans and not in respect of interest accrued; and that the confirmations were accordingly obtained of the loan ledgers. He pointed out that in the case of M/s Leon Realtors Pvt. Ltd. the confirmation filed on

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03.12.2019 does carry the interest liability of Rs. 5,50,356/-and tax deducted of Rs. 55,036/-, at page 221 of the Paper Book, and that the interest ledgers of the other parties are at pages 189, 202, 210, 217, 226, 228 and 230 of the Paper Book. He further pointed out that the audited balance sheet discloses, at Note 7 under 'Other Current Liabilities', 'Interest accrued and due on borrowings' of Rs. 89,52,59,116/-, which the Id. Assessing Officer has accepted.

GROUND NO. 4 ABSENCE OF ACTUAL PAYMENT OF INTEREST Submissions of the Revenue 11. The Id. Sr. DR submitted that the bank statements reveal that no interest was actually paid to the lenders during the year, save for a

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payment of Rs. 1,10,00,000/- to M/s Pawan Impex Pvt. Ltd., and that a liability which is not discharged cannot found a deduction. Submissions of the assessee 11.1 The Id. counsel submitted that the assessee prepares its accounts on the accrual basis, as recorded in its Significant Accounting Policies at page 25 of the financial statements the basis of preparation being stated to be Indian GAAP under the historical cost convention on accrual basis, and revenue recognition being stated at clause (c) (ii) to be that "interest and other dues are accounted on accrual basis". He referred to section 128 of the Companies Act, 2013, which obliges a company to keep its books on the accrual basis and according to the double entry system, and to section 145(1) of the Act, under which income under the heads 'Profits and gains of business or profession' and 'Income from other sources' is to be computed in accordance with the cash or mercantile system. 7. During proceedings before us the revenue made the arguments that the bank statements clearly show that no interest was actually paid to the lenders during the year, save for a payment of Rs.110,00,000/- to M/s. Pawan Impex Pvt. Ltd. and that a liability which is not discharged cannot found a deduction. On this issue the Ld. Counsel of the assessee has filed a written submission which he had filed before the Ld. CIT(A) also. In this submission it had been submitted that the assessee prepares its accounts on accrual basis. It is recorded in its accounting policies in the financial statements. The Ld. CIT(A) has given a very clear finding that once account is prepared on accrual basis there is no need of actual payment. We think the finding given by the Ld. CIT(A) is very clear and accordingly we do not want to make any interference on the finding of the Ld. CIT(A) on this issue accordingly revenue’s appeal on this issue is also dismissed. Page No. 8

Findings 12. The ground proceeds upon a misconception of the mercantile system. GROUND NO. 5 GENUINENESS AND INFLATION OF EXPENDITURE Submissions of the Revenue 13. The Id. Sr. DR submitted that the Id. CIT(A) ought not to have ignored the observation of the Id. Assessing Officer that the expenditure was not genuine, was in no way connected with the earning of income, and had been booked merely to inflate expenditure and reduce the tax liability. 13.1 The Id. counsel submitted that the charge is unsupported by a single item of material. The books are audited by an independent auditor under the Companies Act; they have banking channels; and the borrowing rates and lending rates are documented in memoranda executed with the parties. 8. On this issues the revenue has argued that the genuineness of expenditure is not proved. The Ld. DR argued that the Ld. CIT(A) should have not ignored the observation of the AO that expenditure was not genuine. As it was not connected earning of income by the assessee. Here the Ld. Counsel submitted that this charge of the revenue is unsupported by any material on record. Since books of account are audited by an independent auditor in the company Act, therefore, the Ld. CIT(A) has accepted the claim of the assessee. Nothing contrary to the finding of the Ld. CIT(A) has been brought on record before us, therefore, we have no reason to go against the finding of Ld. CIT(A) on this issue. Accordingly, revenue’s appeal on this issue is dismissed.

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GROUND NO. 6 ABSENCE OF FACTUAL EXPLANATION Submissions of the Revenue 15. The Ld. Sr. DR submitted that the Ld.CIT(A) erred in holding as he did, since no factual explanation had been submitted by the assessee. 15. The Id. Sr. DR submitted that the Id. CIT(A) erred in holding as he did, since no factual Submissions of the assessee 15.1 The Id. counsel submitted that the ground is contrary to the record: that replies were 29.11.2019, and before the Id. CIT(A) on 31.05.2022. 10.01.2023. 15.03.2023. 20.11.2023 filed before the Id. Assessing Officer on 03.12.2019 in response to the notice dated and 03.02.2024: that all of them were uploaded on the ITBA portal and remain available for submitted all the necessary details before the AO."

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Ground No.7 17. Ground No.7 is general in nature and reserves liberty to amend, modify alter, add to or forgo the grounds. No additional ground was in fact urged before us. The ground requires no adjudication and is accordingly dismissed.

Sd/- Sd/-

[SATBEER SINGH GODARA] [KRINWANT SAHAY] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:07.10.2026 Neha, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT Digitally signed SHASHI 4. CIT(A) by SHASHI KANT KANT PANDEY 5. DR Date: PANDEY 2026.10.09 Asst. Registrar, 17:52:56 +05'30' ITAT, New Delhi

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