DCIT, NEW DELHI vs. M/S. SINDHU TRADE LINKS LTD., NEW DELHI

The grounds of appeal are as under:-

Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

As regards to Ground Nos. 1 and 2 of the Assessee’s appeal relating to sustaining disallowance of interest on advance made towards purchase of property to the extent of Rs.12,87,839/-, the Ld. AR submitted that the assessee company had advanced Rs. 6.37 Cr. towards purchase of property out of which Rs. 17 lacs had been paid in A.Y. 2007-08. These advances were received back in subsequent assessment years (A.Y. 2009-10 and A.Y. 2010- 11) as the deal could not materialize and hence the amount advanced towards it was received back. The Assessing Officer disallowed interest amounting to Rs. 1,14,66,000/- calculated at the rate of 18%, observing that the aforesaid amount was not advanced by the Assessee during the ordinary course of its business. In appeal before the CIT(A), the CIT(A) rejected the contention of the Assessee that the aforesaid sum was advanced towards the purchase of property during its ordinary course of business, however it restricted the disallowance to Rs. 12,87,839/- by computing the proportionate interest as per the number of days for which the said amount was advanced to the parties. The Ld. AR submitted that the assessee is a NBFC which is registered with the RBI in category of Loan Investment Company and is also engaged in the business of Real Estate Activity and therefore the sum in question was advanced towards purchase of property. However, as the deal could not materialize, the said amount was subsequently received back by the Assessee. Therefore, the stand of the Assessing Officer as well as that of the CIT(A) that the said sum was not advanced during the ordinary course of business is without any basis. Furthermore, the Assessing Officer as well as the CIT(A) have erred on facts and in law in not appreciating that the assessee had sufficient interest free fund available with it and therefore, no disallowance of interest can be made as the presumption would be that the money was advanced out of the said interest free funds. This fact was mentioned by the CIT(A) in para 10.3 in the order. The Ld. AR relied upon the following decisions:

The Ld. DR submitted that the assessee on one hand was paying interest to the tune of Rs.1,46,26,712/- on the loan raised by it in conducting the business, at the same time, it had advanced funds to the tune of Rs. 6.37 crores without charging any interest on such huge amount. Before the Assessing Officer, the Assessee claimed that the assessee company had advanced this amount against the property. Before the Assessing Officer the assessee could not provide any evidence that these amounts were really meant for the purchase of property and therefore, the Assessing Officer rejected the contention of the assessee that these advances were given in the ordinary course of business. Another contention of the assessee that being a Non- Banking Financial Company, it was engaged in the activities of sale of shares, financing loans etc., but it failed to substantiate as to whether the money advanced in the garb of advance against land had resulted in any income at all. As per the Assessing Officer, since the assessee failed to discharge its onus establishing that the advance was given for business purposes, the Assessing Officer rightly computed the proportionate interest @ 18% on such advance and disallowed the amount of Rs. 1,14,66,000/- from the total interest paid by the assessee. As is evident from the assessee’s submissions before the CIT(A), the assessee failed to substantiate its claim that the loan/advance was meant for real estate business i.e. for purchasing the property. Neither any agreement to purchase nor any receipt showing that the advance was meant for buying the property, has been furnished by the assessee. Even at the end of such a loan, in none of the cases, the purchase of property got materialized. The CIT(A) observed that the money advanced to four persons but in none of the cases, a single deal could materialize and the entire amount (except Rs. 20 lac in the case of Shri Shiv Dayal) was got refunded to the assessee. Therefore, the Assessing Officer’s action in holding that the advance was not meant for business purpose was justified. As regards having sufficient interest free funds, the assessee was making investments from common pool of funds from where

We have heard both the parties and perused the material available on record. The CIT(A) observed that the assessee failed to substantiate its claim that the loan/advance was meant for real estate business i.e. purchasing the property. On record there is no agreement to purchase nor any receipt showing that the advance was meant for buying the property. In fact, in none of the cases, the purchase of property got materialized. The Ld. AR submitted that the assessee company had advanced Rs. 6.37 crores towards purchase of property out of which Rs. 17 lacs had been paid in A.Y. 2007-08. These advances were received back in the subsequent assessment years (A.Y. 2009-10 and 2010-11) as the deal could not be materialized and the amount advanced towards it was received back. This aspect was not looked into by the Assessing Officer as well as the CIT(A) and needs to be looked into in its entirety. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 1 and 2 are partly allowed for statistical purpose.

As regards to Ground Nos. 3 as well as additional grounds no. 7 & 8 of assessee’s appeal relating to disallowance u/s 14A r.w. Rule 8D amounting to Rs. 10,58,926/-, the Ld. AR submitted that during the year under consideration, the assessee company received dividend amounting to Rs. 2,86,370/-. The Assessing Officer has straightway, without recording any satisfaction or reasoning in the assessment order, made disallowance u/s 14A read with Rule 8D(ii) & 8D(iii) amounting to Rs. 10,58,926/-, which is also highly excessive. The CIT(A) upheld the entire disallowance made by the Assessing Officer u/s 14A and rejected the contention of the Assessee that the

The Ld. DR submitted that the assessee earned dividend income of Rs. 2,86,370/- during the year and no expenditure pertaining to earning of such exempt income has been disclosed by the assessee in his accounts. The Assessing Officer after considering all the relevant aspects of the case concluded that the assessee’s case is fit for the share capital funds as well as interest bearing funds as mentioned in para 13.3 of CIT(A)’s order. Besides utilizing the capital funds in creation of fixed assets, the assessee has invested it in interest free funds also which has been claimed as share application money or advance given by the company for alleged business purposes. The assessee admitted that being an NBFC company, it has deployed funds to the tune of Rs. 26.44 crores for generating the interest income. Thus, it cannot be ruled out that interest bearing funds were utilized for making investments in shares which yielded dividend income. The quantum of investment has been claimed by the assessee company only at a restricted figure of Rs. 36,77,947/- and the assessee has excluded those investments which could not generate dividend income during the year but these investments definitely have a potential of generating dividend income in future and some expenditure in respect of such investments has incurred in the assessee’s case. The Assessing Officer observed that the opening investment shown by the assessee itself was at Rs. 1,99,71,495/- while the closing investment was to the tune of Rs. 4,24,71,495/-. Therefore, the

We have heard both the parties and perused the material available on record. The Ld. AR submitted that the assessee has earned exempt income to the tune of Rs. 2,86,370/- whereas the Assessing Officer has made disallowance amounting to Rs. 10,58,926/-. The CIT(A) as well as Assessing Officer has not looked into the aspect of actual exempt income and the investment at large. Therefore, this issue also needs to be verified in its entirety. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 3 as well as additional grounds no. 7 & 8 are partly allowed for statistical purpose.

As regards to Revenue’s appeal, the Ld. DR submitted that the assessee company has taken secured loans of Rs. 4,70,49,253/- and unsecured loans of Rs. 5,86,86,639/- totaling Rs. 10,57,35,892/- and has debited an interest of Rs. 1,46,26,712/- excluding bank charges of Rs. 1,25,682/-. As per details filed by the assessee, it has given loans and advances Rs. 23.39 crores out of which the assessee has given loans and advances under the nomenclature of share application money to its associates companies namely Global State Developers Pvt. Ltd. (Rs. 20 lakhs), Shanra India Pvt. Ltd. (Rs. 77 lakhs), and Garuda Resorts Pvt. Ltd. (Rs. 80,01,866/-). The assessee company has not proved that it has been issued share certificates. It has failed to file copies of the share certificates from these companies. The Assessee company was asked

The Ld. AR submitted in respect of Ground No. 1 of the Revenue’s appeal relating to deletion of addition on account of deemed dividend u/s 2(22)(e) of the Act amounting to Rs. 1,57,01,866/- that the assessee company had given

We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen that the assessee has given the money in question and not received the share application money, therefore provisions of Section 2(22)(e) cannot be applied. Section 2(22)(e) of the Act is attracted only when a shareholder having shares not less than 10% receives any advance or loan from a company or any concern, any advance or loan from that company in which such shareholder has substantial interest, i.e. 20% shareholding. The assessee is the payer in the present case and not holding any shares in the companies to which it has given share application money. Neither the assessee is shareholder in these companies nor are the companies shareholders of the assessee company. Thus, Section 2(22)(e) of the Act is not applicable in cases of companies in which public are substantially interested and the assessee company is a Public Limited Company and therefore, provisions of Section 2(22)(e) cannot be applied. Admittedly, the assessee company is registered with stock exchange and fulfill all the conditions of Section 2(18) which is definition of “company in which public is substantially interested.” Thus, the submissions of the Ld. AR

As regards to Ground No. 2 of the Revenue’s appeal relating to deletion of interest disallowance on share application money investment made in M/s Global Estate Developers Pvt. Ltd. amounting to Rs. 3,60,000/-, the Ld. DR submitted that as per the details filed by the assessee company, it has been found that the assessee company has given loans and advances to the tune of Rs. 23,39,02,212/- out of which an amount of Rs. 20,00,000/- has been expressly shown as loans and advances in the balance sheet, although in the later details the assessee has shown it in the garb of share application money, but the assessee failed to discharge its onus that these advances were in the ordinary course of business of the assessee company which is an NBFC company and exceptions will be applicable in this case. Further so far, the assessee has not proved that the money which it advanced in the form of /in the garb of share application money were actually allotted to the assessee company. The assessee also failed to demonstrate that whether these money advanced was in the ordinary course of business i.e. financing activities. This transaction is directly in the nature of loans and advances and the assessee company has not shown any return of income / interest on these amount. Further as per the P & L account the assessee has debited an amount of Rs. 1,46,26,217/- as interest on loans and Rs. 1,25,682/- as bank charges. The fact that assessee has taken interest bearing loan, itself is testimony that the assessee had no surplus fund in so far as giving of non-interest bearing fund to other company / persons. Thus, the Assessing Officer has rightly disallowed the interest @ 18% per annum amounting to Rs. 3,60,000/-.

The Ld. AR submitted that the assessee company had given share application money amounting to Rs. 20,00,000/- to M/s Global Estate Developers Pvt. Ltd. The Assessing Officer issued a show cause notice to the assessee to state as to why proportionate interest should not be disallowed in the case of share application money paid to non associate companies. In response thereto the Assessee submitted that in view of sufficient interest free funds, no disallowance of interest should be made, however, the contention of the assessee was rejected by the Assessing Officer and the Assessing Officer disallowed proportionate interest amounting to Rs. 3,60,000/- alleging that the assessee had given interest free loan/advance to the said company under the garb of share application money. The CIT(A) deleted the said disallowance by holding that making investments in the shape of share application money was a normal business activity of the assessee and therefore, it cannot be held that it was not for business purposes. Furthermore, it was observed by the CIT(A) that given share application money to the same company in A.Y. 2006-07 also, but no notional disallowance was made by the Assessing Officer in that assessment year. The Ld. AR submitted that in view of the fact that the assessee company had sufficient interest free fund, no disallowance of interest can be made as the presumption would be that the money was advanced out of the said interest free funds. The Ld. AR relied upon the following decisions: a. CIT vs. Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Bom. HC) b. CIT vs. Reliance Industries Ltd. (2019) 410 ITR 466 (SC) Furthermore, it is incorrect to say that the amount given is not share application money as the CIT(A) has rightly held that money has been given by the assessee in the ordinary course of its business and therefore, no notional interest thereupon can be disallowed. Admittedly, this investment in share application money was done in the last assessment year and no disallowance has been made by the Assessing Officer in the last year when the assessment for the said assessment year was completed by the same Assessing Officer who has done the assessment for the assessment year under consideration. The Ld.

We have heard both the parties and perused all the relevant material available on record. The assessee company had given share application money amounting to Rs. 20,00,000/- to M/s Global Estate Developers Pvt. Ltd. The CIT(A) deleted the said disallowance by holding that making investments in the shape of share application money was a normal business activity of the assessee and therefore, it cannot be held that it was not for business purposes. Furthermore, it was observed by the CIT(A) that given share application money to the same company in A.Y. 2006-07 also, but no notional disallowance was made by the Assessing Officer in that assessment year. The CIT(A) was right in deleting the said addition as similar share application money was given in earlier assessment year and no such disallowance of interest has been made therein. The Revenue cannot without any reasonable cause change its stand for the present assessment year. Therefore, when there is no change in the facts of the present case, then no disallowance in the present assessment year can be made. Ground No. 2 of the Revenue’s appeal is dismissed.

As regards to Ground No. 3 of the Revenue’s appeal relating to deletion of interest income on accrual basis amounting to Rs. 25,84,841/-, the Ld. DR submitted that the assessee was given a show cause in respect of certain advances amounting to Rs.11,09,14,347/- out of which certain amounts were reduced. The same are as under: a) Un-matured interest charges – Rs. 24,22,575/- b) Un-matured interest charges – NPA – Rs. 1,62,266/- The Assessing Officer observed that these amount is nothing but amount of

The Ld. AR submitted that the Assessing Officer made an addition of Rs. 25,84,841/- in respect of un-matured interest charges treating the same as interest income for the year under consideration. The CIT(A) deleted the said addition holding that the said addition was made by the Assessing Officer without properly appreciating the facts of the present case and accounting principles adopted by the assessee. The Ld. AR submitted that the un-matured interest represent the amount of income pertaining to the next financial years included in the amount of trading advance. The Ld. AR relied upon the decision of the Hon’ble Apex Court in case of CIT vs. Excel Industries Ltd. (2013) 38 taxmann.com 100 (SC).

We have heard both the parties and perused all the relevant material available on record. It is seen that the Assessing Officer made an addition of Rs. 25,84,841/- in respect of un-matured interest charges treating the same as interest income for the year under consideration. The CIT(A) deleted the said addition holding that the said addition was made by the Assessing Officer without properly appreciating the facts of the present case and accounting principles adopted by the assessee. But the CIT(A) has not looked into the material on record which needs to be verified. Therefore, this issue needs to be verified by the Assessing Officer in its entirety. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 3 of Revenue’s appeal is partly allowed for statistical purpose.

As regards to Ground No. 4 of the revenue’s appeal relating to deletion of

The Ld. DR submitted that the contentions taken in assessee’s appeal for Ground No. 1 and 2 be taken into account. The Ld. DR relied upon the Assessment Order.

We have heard both the parties and perused all the relevant material available on record. The Ground Nos. 1 and 2 of assessee’s appeal is challenging the remaining amount which was confirmed by the CIT(A), hence the same reasoning which we have given for Ground Nos. 1 and 2 will apply herein. Hence Ground No. 4 of Revenue’s appeal is partly allowed for statistical purpose.

As regards to Ground No. 5 of the Revenue’s appeal relating to deletion of addition made on account of unexplained investment in property amounting to Rs. 28,44,800/-, the Ld. DR submitted that as per the observations of the Assessing Officer there are certain purchases of land /properties where in the assessee company have shown lesser amount of purchase consideration than the possible / probable market value of the land. In fact the amount has been shown much below the stamp duty amount. The Assessing Officer held that as per the registered documents the market value of land is higher and stamp duty has been paid on the higher value which proves the rate of land in that are at the relevant period. Even in the normal practice, land is purchased on a consideration higher than the rate fixed by the Government authorities. Under the circumstances the value of land is taken as per circle rate fixed by the government and the difference of amount is being added back. Accordingly, the Assessing Officer rightly made addition of Rs. 28,44,800/- and treated it as unexplained investment u/s 69 of the Act.

The Ld. AR submitted that the assessee company had purchased land at Tifra Bilaspur for Rs. 55,44,800/- including stamp duty and registration charges of Rs. 7,06,705/-. The Assessing Officer issued a show cause notice to the assessee to state as to why the difference between value of land declared and that adopted for payment of stamp duty should not be added as unexplained investment. In response thereto the assessee submitted a detailed reply, however, the same was rejected by the Assessing Officer and the Assessing Officer made addition on account of unexplained investment in property amounting to Rs. 28,44,800/- on the basis of difference between value of land declared and that adopted for payment of stamp duty. The Assessing Officer has followed his own order of earlier years. The CIT(A) deleted the said addition by holding that similar additions were made in the earlier assessment years and the same have been decided in favour of the assessee by the CIT(A) in the earlier assessment years, i.e., A.Y. 2004-05, 2005-06 and 2007-08. The Ld. AR submitted that the case of the assessee is covered in its favour by the orders of the Tribunal in assessee’s own case for earlier assessment years which are as under: a. DCIT vs. Sindhu Trade Links Ltd. ITA No. 1268/Del/2014 A.Y. 2004-05 b. DCIT vs. Sindhu Trade Links Ltd. ITA No. 1452/Del/2014 A.Y. 2007-08

We have heard both the parties and perused all the relevant material available on record. It can be seen that the assessee company had purchased land at Tifra Bilaspur for Rs. 55,44,800/- including stamp duty and registration charges of Rs. 7,06,705/-. The Ld. DR submitted that as per the observations of the Assessing Officer there are certain purchases of land /properties where in the assessee company have shown lesser amount of purchase consideration than the possible / probable market value of the land. In fact the amount has been shown much below the stamp duty amount. The Assessing Officer held that as per the registered documents the market value of land is higher and stamp duty has been paid on the higher value which proves the rate of land in that are at the relevant period. But from the perusal of the Assessment order it cannot be seen that the Assessing Officer has brought out any evidence to substantiate that any amount more than what has been recorded in the sale deed was paid by the assessee and in the absence of any such evidence, no addition can be made merely on the basis of presumption. Thus, the CIT(A) rightly deleted this addition and there is no need to interfere with the findings of the CIT(A). Hence, Ground No. 5 is dismissed.

As regards to ITA No. 2429/Del/2014 filed by the assessee for A.Y. 2009- 10, in respect of Ground No. 1 well as additional Ground Nos. 7 and 8, the Ld. AR submitted that the submissions with respect to ground No. 3 as well as additional Ground Nos. 7 and 8 of A.Y. 2008-09 may be taken into account as the grounds are identical. The Ld. DR submitted that the Ground No. 1 is similar to that of appeal filed by the assessee for A.Y. 2008-09, therefore, same contentions of the Revenue be taken into account for deciding this year as well.

We have heard both the parties and perused all the relevant material available on record. As regards Ground Nos. 1 well as additional Ground Nos. 7 and 8 for A.Y. 2009-10 is identical to that of Ground No. 3 well as additional Ground Nos. 7 and 8 of A.Y. 2008-09, we have already given the findings to that respect. This issue is remanded back to the file of the Assessing Officer for

As regards to Ground Nos. 2, 3 and 4 for A.Y. 2009-10 is concerned the same is relating to interest free shareholder funds and is similar to Ground No. 1 of the appeal of assessee for A.Y. 2008-09.

We have heard both the parties and perused all the relevant material available on record. The advances were received back in the present assessment years A.Y. 2009-10 and in subsequent Assessment Year i.e. 2010- 11 as the deal could not be materialized and the amount advanced towards it was received back. This aspect was not looked into by the Assessing Officer as well as the CIT(A) and needs to be looked into in its entirety. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 2, 3 and 4 are partly allowed for statistical purpose.

In result, all the appeals are partly allowed for statistical purpose.

CIT(Appeals) 5. DR: ITAT