UNIQUE DREAM BUILDERS PRIVATE LIMITED,JAIPUR vs. DCIT, CIRCLE - 6, JAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “B” BENCH, JAIPUR BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI T. R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.1217/JPR/2025 (Assessment Year:2017-18)

Unique Dream Builders Vs. DCIT Pvt. Ltd. Circle 6 UDB Tower, SB-59, Third Jaipur Floor, Opp Jaipur Nagar Nigam Tonk Road, Jaipur �थायीलेखासं./जीआइआरसं./PAN/GIR No:AAACU 8928N Appellant .. Respondent Appellant by : Sh. Tarun Mittal, CA & Sh. Harshit Agarwal, CA Respondent by : Ms. Namita Patel, JCIT Date of Hearing 29.07.2026 Date of Pronouncement 28.10.2026 O R D E R Per Annapurna Gupta, AM:- The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax, Appeal, Jaipur 05 (hereinafter referred to as “Ld. CIT(A)”), dated 11.07.2025 under

P a g e | 2 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The grounds raised by the assessee read as under:- 1. On the facts and in the circumstances of the case, Id. CIT(A) has grossly erred in sustaining disallowance of Rs. 34,91,621/- made by Id.AO out of interest expenses claimed by assesse, arbitrarily. 1.1 That, the Id. CIT(A) has erred in confirming the observations of ld.AO that the interest paid on loans were not allowable u/s 36(1)(iii) of the Income Tax Act, as the borrowed funds were utilized for the purpose of making capital contribution in the partnership firm. 1.2 That the Id. CIT(A) has further erred in not appreciating the explanation tendered by the assessee that it had sufficient interest free funds in the form of share capital and interest free loans as also the booking advances received during the year, which were utilized for making such capital contribution in the partnership firm. Appellant therefore prays that disallowance so made, without fully rebutting the explanation of assessee and without establishing nexus between interest bearing borrowed funds and capital contributed in the firm, is purely on presumption basis and deserves to be deleted. 1.3 That Id. CIT(A) has erred in not appreciating the fact that capital contribution in the partnership firm was indeed for the better and smooth running of the firm, wherein the partners are required to plough in funds as and when needed and therefore same had been given as part of commercial expectancy. It is therefore prayed that the disallowance of Rs. 34,91,621/-being made arbitrarily, merely by making presumptions deserves to be deleted. 2. of the grounds That the appellant craves the right to add, delete, amend or abandon any of appeal either before or at the time of hearing of appeal. 3. The solitary issue in the present appeal pertains to disallowance made of interest expenses incurred by the assessee amounting to Rs.34,91,621/- u/s 36(1)(iii) of the Act. 4. The facts leading to the disallowance are that the assessee was noted to have shown incremental investment in the partnership firm M/s Unique Builders (Reality). The assessee being Company was noted to have made investment in the partnership firm during the impugned year

P a g e | 3 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. to the tune of Rs.9,31,48,101/- and on the other hand, it was noted to have claimed interest expenses to the tune of Rs.34,91,621/- on loans taken. In this factual background, the provisions of Section 36(1)(iii) of the Act were invoked by the AO and the interest expenses of Rs.34,91,621/- were disallowed. 5. The contention of the assessee all along has been that the investment in the partnership concern was made of its own interest free funds. 6. The Ld. DR however has relied on the orders of the authorities below contending that this contention of the assessee is not based on facts on record. 7. The facts on which the case of both the parties rest as above is that, the assessee had shown investment in partnership firm as at the end of the year amounting to Rs.22,13,71,246/-, which at the beginning of the year was Rs.12,82,23,145/-. Thus, investment in capital of the firm had increased by Rs.9,31,48,101/-. 8. The assessee’s case of sufficiency of own funds available for making investment rests on the fact that own funds available with the assessee were in the shape of:-  Share capital and interest free unsecured loans totaling to Rs.17,07,69,935/-and,  amounts received from customers against bookings partly remaining available with the assessee amounting to Rs.27.87 crores.

P a g e | 4 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. 9. Thus, as per the assessee it had approximately Rs.44.94 crores of interest free funds available, which were more than sufficient for investing in the partnership firm to the tune of Rs.9,31,48,101/-. 10. The case of the Revenue however is that, the share capital &unsecured loans available with the assessee was to the tune of Rs.16,56,70,602/- and not Rs.17,07,69,935/- as contended by the assessee since the assessee had accumulated losses at the end of year to the tune of Rs.1,02,60,599/- also. That out of the Rs.16.56 crores of share capital of unsecured loans, the assessee had already invested Rs.12.82 crores as at the beginning of the year in the partnership firm and therefore there were no more interest free funds available sufficient enough for investing in the partnership firm to the tune of Rs.9.31 crores. 11. That during the year unsecured loans had increased only by Rs.50.99 lakhs. That though the assessee had received advances of Rs.27.87 crores from customers but on some of these advances, the assessee had paid interest and further, these advances were to be used for completing the construction activity of the assessee and instead of advancing the same to partnership firm as capital contribution, and also the secured loan of the assessee had increased from Rs.2.51 crores to Rs.6.84 crores thus, showing that the assessee had invested in the partnership firm from the secured loans taken interest bearing secured loans. 12. Having considered the contention of both the parties and even going by the argument made by the Ld. DR before us, we find that the assessee has demonstrated availability of sufficient interest free funds for

P a g e | 5 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. making investment in the partnership firm. The fact that the assessee had share capital and reserve to the tune of Rs.16 crores is not disputed. The fact that it had advances from customers to the tune of Rs.27 crores is also not disputed. The investment made in partnership firm during the year is to the tune of Rs.9.31 crores. Even considering the contention of the Department that the share capital and reserve of Rs.16 crores were to be treated as utilized for making investment of Rs.12 crores in the partnership firm upto the beginning of the impugned year, the facts still remains that the assessee had interest free funds by way of advances from customers to the tune of Rs.27 crores for making investment in the partnership firm of Rs.9.31 crores. 13. The Department’s case is that the assessee has paid interest on these advances also and therefore the advances cannot be treated entirely as interest free advances. But the fact of matter is that the assessee has paid interest on these advances of 27 Crs , to the tune of Rs.3,90,910/- only.Thereforelargely these advances are interest free. 14. The contention of the Revenue that these advances from customers ought to have been utilized for business purposes and not advanced to the partnership firm, we find, merits no consideration. The manner of utilization of funds is best left for the business of decide. The Revenue cannot sit in the armchair of the businessman. What is to be seen for determining the nature of funds utilized for making interest free non business advances is that whether sufficient interest free funds were available with the assessee so as to presumeutilization of the same for the purposes of making non business investments .The Hon’ble Apex Court

P a g e | 6 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. in the case of CIT Vs. Reliance Industries Ltd. [2019] 102 taxmann.com 52(SC) has categorically held that the availability of interest free funds which were sufficient to meet its investment is enough to allow the assessee’s claim of deduction of interest u/s 36(1)(iii) of the Act and the Hon’ble court while holding so had rejected the contention of the Revenue that the funds ought to have been utilized for paying off its business loans resulting in lesser interest being paid by the assessee. The question before the Hon’ble Apex Court was:- 1. Whether the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short 'the Act') when the interest would not have been payable to banks, if funds were not provided to subsidiaries; 15. To which the Hon’ble Apex Court answered that as long as interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that the investments were made from the interest free funds available. Its findings in this regard are contained at para 7 of his order as under:- ……. 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. …… 16. Therefore, there is no merit in the contention of the Revenue that the advances of Rs.27 crores available with the assessee ought to have been utilized for the business activity of the assessee and not by way of investment in the capital of partnership firm. The concept/ principle laid

P a g e | 7 ITA No.1217/JPR/2025 Unique Dream Builders Pvt. Ltd. down by the Hon’ble Apex Court is of the “presumption” of utilization of funds and not about the actual utilization of the same. 17. In the light of the same, we find that in the facts of the present case with the assessee having demonstrated availability of sufficient interest free funds for making investment in the partnership firm, the issue of disallowance of interest u/s 36(1)(iii) of the Act stands squarely covered in the favour of the assessee by the decision of the Hon’ble Apex Court in the case of Reliance Industries Ltd. (Supra). Accordingly, we hold that no disallowance u/s 36(1)(iii) of the Act warranted in the facts of the present case, and the disallowance made therefore of Rs.34,91,621/- is directed to be deleted. 18. In effect, the appeal of the assessee is allowed. Order pronounced in the Open Court on 28.10.2026

Sd/- Sd/- (T.R. Senthil Kumar) (Annapurna Gupta) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 28.10.2026 Mittali, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT By Order, Mittali Digitally signed by: Mittali DN: CN = Mittali email = Asst. Registrar mittaligupta34671@gmail.com C ITAT, Jaipur = IN O = Personal Date: 2026.10.30 12:44:17 + 05'30'