M/S. RESOURCE REALTY P. LTD.,MUMBAI vs. ACIT-CENTRAL CIRCLE-11(1)(1), MUMBAI

This case was listed for hearing on 7 times but neither anybody has attended from the side of the assessee nor submitted any written submission, therefore, the appeal filed by the assessee is adjudicated after taking into consideration the material on record and hearing the ld. D.R.

Fact in brief is that return of income declaring total income of Rs.79,67,546/- was filed on 01.10.2013. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 02.09.2014. Later on the A.O had referred the case to the jurisdiction of Transfer Pricing Officer (TPO) for deciding the transaction with related party as per arms length price. Subsequently, the assessment proceedings were completed u/s 143(3) of the Act by disallowing interest expenses amounting to Rs.1,93,50,000/- u/s 36(1)(iii) of the Act. The A.O noticed that assessee has taken unsecured loan from various parties of Rs.88,00,63,464/-. Out of the total interest paid on these unsecured loan, the assesseee had paid interest of Rs.2,74,58,630/- @ 16% to only one party namely M/s Gaurdex Realtors Pvt. Ltd. (GRPL) from whom the assessee had taken loan of Rs.18 crores. From the detail filed by A.O noticed that funds received from M/s Gaurdex Realtors Pvt. Ltd. was utilized for advancing loan to related party namely Wadhawan International Investments Ltd. (WIIL). The A.O found that assessee had received interest income @ 5.25% from Wadhawan International Investments Ltd. (WIIL) of Rs.6,08,19,278/- Therefore, the A.O asked the assessee to show cause why proportionate interest expenses @ 10.75% amounting to Rs.1,93,50,000/- shall not be disallowed. The assessee submitted that interest expenses had been incurred on loan borrowed 3 M/s Resources Realty Pvt. Ltd. VS. ACIT,CC-11(1)(1) from M/s Gaurdex Realtors Pvt. Ltd. @ 16.5%. The process of the said loan has been used for further investment in Wadhawan International Investments Ltd. (WIIL) and the assessee had earned interest income @ 5.25% to the amount of Rs.6,08,19,278/- and stated that the same was at arms length price. However, the A.O observed that the loan was never utilized for the purpose of assessee’s business but was used for making long term investment for the benefit of its sister concern, therefore, the A.O stated that such application of the loan cannot be termed as utilization for the purpose of business, therefore, excess interest paid @ 10.75% amounting to Rs.1,93,50,000/- was disallowed considering that same was not incurred for the purpose of business u/s 36(1)(iii) of the Act. After taking into consideration the detail and submission of the assessee the ld. CIT(A) held that the impugned loan was not advanced in the course of assessee’s business and there was no commercial expediency of any sort as no plea on this ground has been taken neither before the A.O in the assessment proceedings nor before the ld. CIT(A) in the appellate proceedings. After taking into consideration the facts and circumstances of the case the ld. CIT(A) observed that impugned loan borrowed by the assessee was not utilized for the purpose of the buseins and the same was not eligible for deduction neither u/s 36(1)(iii) nor u/s 37 of the Act. Therefore, ld. CIT(A) has sustained the disallowance made by the A.O.

During the course of appellate proceedings before us neither the assessee had attended the hearing nor made any written submission to controvert the finding of ld. CIT(A). Therefore, taking into consideration the facts and material on record, we don’t find any reason to interfere in the decision of ld. CIT(A). Therefore, the appeal of the assessee stand dismissed.