DAFTARI REALTORS PVT. LTD.,KOLKATA vs. I.T.O., WARD - 9(1),, KOLKATA

PDF · subscribers
ITA 76/KOL/2026Status: DisposedITAT Kolkata07 October 2026AY 2013-20145 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO and the Ld. CIT(A) failed to appreciate the facts in proper perspective despite documentary evidence. The Tribunal found that the interest debited by the assessee was wrongly disallowed under section 36(1)(iii) of the Act. The reasoning was that the loan was taken for a business purpose (development of a construction project), and when that purpose was stalled, the funds were utilized commercially by lending them out at a higher interest rate, generating income. The Tribunal noted that this was the second round of litigation and that setting aside the case would serve no purpose. Therefore, the Tribunal set aside the order of the Ld. CIT(A) and directed the AO to delete the disallowance of Rs.98,39,938. The ratio decidendi is that if borrowed funds are utilized for business purposes, and when the primary business purpose is stalled, the funds are deployed commercially to earn a return, the interest on such borrowed funds should not be disallowed, especially when income is generated from such deployment.

What were the facts?

The assessee, Daftari Realtors Pvt. Ltd., filed its return for AY 2013-14 declaring a loss. The case was selected for scrutiny. The assessee had taken an unsecured loan of ₹10,53,50,000 and debited interest expenses of ₹98,39,938. This loan was obtained for a joint construction project with its sister concern, M/s. Triara Vyapaar Private Limited, on a property at Rajarhat. A Memorandum of Understanding dated 20.09.2010 and a Deed of Conveyance dated 21.09.2010 were executed for this purpose. A Development Agreement was also entered into with M/s. Arpit Nirman Private Limited on 29.09.2011. However, a civil dispute by Mr. Rajjak Ali Mondal halted the development. Due to this, the assessee, out of commercial expediency, granted an interest-bearing loan of ₹7,47,86,028 to M/s. Arpit Nirman Private Limited, earning interest income of ₹84,94,405. The loan was advanced at a higher rate than the borrowing rate. The Assessing Officer (AO) and the CIT(A) disallowed the interest expenses.

What were the issues?

1. Whether the disallowance of interest expenses of Rs.98,39,938 made under section 36(1)(iii) of the Income Tax Act, 1961, is justified? Assessee's Contention: The assessee argued that the interest-bearing loan was taken for the development of a construction project. When the development was stalled due to a civil dispute, the surplus funds were utilized by granting an interest-bearing loan to M/s. Arpit Nirman Private Limited out of commercial expediency. The interest income earned was higher than the interest paid on the borrowed funds, and the loan granting was in accordance with the Memorandum of Association. The assessee relied on the facts and circumstances of the case, including the documentary evidence presented. Revenue's Contention: The judgment does not record any specific contentions made by the Revenue. The disallowance was upheld by the AO and the CIT(A).

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

For Appellant: Shri Amit Agarwal, AR
For Respondent: Shri Pramod Lakra, DR
Hearing: 13.08.2026Pronounced: 07.10.2026

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 07.11.2025 for the AY 2013-14.

2.

The issue raised by the assessee is against the order of ld. CIT(A) upholding the disallowance of interest expenses of Rs.98,39,938 made under section 36(1)(iii) of the Income Tax Act, 1961.

3.

The facts in brief are that the assessee filed the return of income on 28.09.2013, declaring total loss of ₹ 8,25,752/-. The case of the assessee was selected for scrutiny. The

ITA No. 76/KOL/2026 Daftari Realtors Pvt. Ltd.; A.Y. 2013-14 notices u/s 143(2) and 142(1) of the Act along with questionnaire were issued and duly served upon the assessee. During the relevant previous year, the Appellant assessee company has taken an unsecured loan of ₹10,53,50,000/- and paid interest thereon which was debited as interest expenditure in the profit and loss account amounting to ₹98,39,938/-. The said loan was primarily obtained for development of Construction Project, jointly with its sister concern namely M/s. Triara Vyapaar Private Limited, on a property situated at Rajarhat, North 24 Parganas. The assessee company is noted to have entered into a Memorandum of Understanding dated 20.09.2010 with the said M/s. Triara Vyapaar Private Limited for the said purpose. The said Memorandum of Understanding is placed at Pages 56 to 63 of the Paper-book filed before us. As per the terms of the said Memorandum of Understanding, the assessee company was required to transfer fund to M/s. Triara Vyapaar Private Limited for financing the said purchase of land and allied activities. The assessee company and M/s. Triara Vyapaar Private Limited jointly purchased the said piece of land, which was intended for Development, vide Deed of Conveyance dated 21.09.2010. The said Deed of Conveyance dated 21.09.2010 is available at Pages 64 to 93 of the Paper- book.

4.

The assessee company also entered into a Development Agreement dated 29.09.2011 with M/s. Arpit Nirman Private Limited for development of the aforesaid Land. The

Page 2 of 5

ITA No. 76/KOL/2026 Daftari Realtors Pvt. Ltd.; A.Y. 2013-14 Development Agreement dated 29.09.2011 is placed at Pages 94 to 118 of the Paper-book.

5.

Thereafter a Civil Dispute was raised by one Mr. Rajjak Ali Mondal in the Civil Court at Barasat and thus the development of the aforesaid Land could not be carried out. The documents related to the said Civil Dispute are placed at Pages 125 to 146 of the Paper-book.

6.

The documents on record show that the assessee had purchased the land in order to develop the same and construct buildings on it for sale to prospective customers but due to Civil Dispute and legal cases, no further development could be carried out.

7.

As the said development of land was stuck , therefore the assessee company out of commercial expediency utilized its surplus funds by granting interest-bearing Loan of Rs.7,47,86,028 to M/s. Arpit Nirman Private Limited. The assessee derived interest income of Rs.84,94,405 on such loan. The said granting of loan was in accordance with the objects contained in the Memorandum of Associations. The facts on records reveal that the money was borrowed at the rate of around 5% to 9% whereas loan was advanced at a rate of 12% which was more than the borrowing rate.

8.

The aforesaid land at Rajarhat was acquired for the sum of Rs.2,62,00,000 (exclusive of Registration Charged and other expenses) and the assessee’s share in the said Land was 50%. A perusal of the fixed asset Schedule in Note 7 of the Balance Sheet as at 31st March, 2013 shows that Investment Page 3 of 5

ITA No. 76/KOL/2026 Daftari Realtors Pvt. Ltd.; A.Y. 2013-14 in Land stood at Rs.1,41,61,140. Further a sum of Rs.1,56,61,140 was standing as advance to M/s. Tiara Vyapaar Private Limited as per the terms of above-mentioned Memorandum of Understanding. The said facts are clearly discernible from the documents mentioned above and also the documents placed at Pages 119 to 124 of the Paper-book filed.

9.

We find that the AO and Ld. CIT(A) had failed to appreciate the facts in proper perspective despite of all documentary evidences being available on record. We are of the view that ,this being the second round of Litigation before the Tribunal, no purpose will be served for again setting aside the case to either of the authorities below. Considering the facts and circumstances of the case , we are of the considered opinion that the interest debited by the assessee was wrongly disallowed by the AO under section 36(1)(iii) of the Act and confirmed by the ld. CIT(A).Therefore we are not in concurrence with the ld. CIT(A) on this issue. Consequently, we set aside the order of ld. CIT(A)( and direct the AO to delete the disallowance of Rs.98,39,938.

10.

In the result, the appeal of the assessee is allowed.

Order pronounced on 07.10.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 07.10.2026 Sudip Sarkar, Sr.PS Page 4 of 5

ITA No. 76/KOL/2026 Daftari Realtors Pvt. Ltd.; A.Y. 2013-14 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

Dy. Registrar Income Tax Appellate Tribunal, Kolkata

Page 5 of 5

More judgments on Section 36(1)(iii)

All 3,665 judgments and leading authorities on Section 36(1)(iii) →

Recent GST High Court judgments

Search GST case law →