ITO, NEW DELHI vs. M/S ANTHEIA CONSTRUCTIONS PVT. LTD.,, NEW DELHI

Considering the discrepancy in the date of issuance and date of issuance of the stamp paper on which joint agreement had been filed by the appellant, the joint venture agreement is not given much credence. However, the facts remains that appellant has advanced money to M/s NCPL for carrying out projects in real estate sector which the appellant has stated before the Assessing Officer in the assessment proceedings. It is also a matter of fact and mentioned in the Schedule Note 26 of the Audited Balance Sheet of the NCPL which is filed at page 34 and 35 of the paper book wherein the said company has shown as related parties where control exists, therefore, the transactions with NCPL of advancing money for developing a real estate project comes under the term commercial expediency. As regards the Assessing Officer's observation that no explanation was provided by the appellant during the course of assessment proceedings, it is submitted by the appellant that vide its submission dated 13.10.2016 it has duly explained to the AO that funds were given to NCPL in its course of business and for the purpose of business to undertake the project of infrastructure development. Hence, it cannot be said that NCPL was not a sister concern of the appellant, therefore, the principle laid down by Hon'ble Apex Court in the case of S.A. Builders is squarely applicable in the case of appellant. It is not relevant whether the borrowed money was utilized by the assessee directly or advanced to its sister concern is not relevant. What is relevant is whether the assessee has advanced such amount to its sister concern as a measure of commercial expediency and that has to be seen by the assessee in its course of business and for the purpose of business. Therefore, the appellant submitted that the interest expenditure on the loans obtained by it is fully allowable. In this regard, the appellant has relied upon the judgment of S. A. Builders Ltd vs CIT (2007) 288 ITR 1 (SC), wherein it has been held as under:- "Once it is established that there was nexus between the expenditure and purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the arm- chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case." The appellant has also relied upon the judgment of Hon'ble Supreme Court in the case of Eastern Investment Ltd. vs. CIT 20 ITR 1 (SC) wherein it is held that determining factor of commercial expediency has to be seen from point of businessman and not of revenue. Every businessman knows his interest best and what has to be incurred or not whether it is allowable or not has to be seen from the point of a prudent businessman. It was not necessary for the purpose of allowability of expenditure under the provisions of the Act to show that expenditure was a profitable one or that in fact any profit was earned. It was enough to show that money was expanded out of necessity and with a view to direct and immediate benefit to the trade but voluntarily and on the ground of commercial expediency and in order to indirectly facilitate the carrying on of its business. The appellant further submitted that Section 36(1) (iii) envisages deduction of interest expenses that has been incurred 'for the purpose of business. It is to be noted that such deduction is not restricted to revenue in nature nor it is linked with earning of any income. Thus, even if interest expense does not earn any income, it is to be allowed u/s 36(1)(iii) if it has been incurred for the purpose of the assessee's business. In this regard, the appellant has further submitted that no businessman can be compelled to maximize his profit, therefore, the observation of the AO in the assessment order is arbitrary. The commercial expediency has to be judged from the point of business of the assessee and businessman and not from the point of revenue. In this regard, the appellant has placed reliance on the decision of Hon'ble Supreme court in the case of CIT Vs. A. Raman & Co. 67 ITR (SC) wherein Justice Shah speaking for the Court stated that: "....the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him. Further observed that avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income Tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." The appellant has also placed reliance on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Panipat Woollen & General Mills Co. Ltd. 103 ITR 66 (SC) "The test of commercial expediency cannot be reduced in the shape of a ritualistic formula, nor can it be put in a water-tight compartment so as to be confined in a strait-jacket. The test merely means that the Court will place itself in the position of a businessman and find out whether the expenses incurred could be said to have been laid out for the purpose of the business or the transaction was merely a subterfuge for the purpose of sharing or dividing the profits ascertained in a particular manner. It seems that in the ultimate analysis the matter would depend on the intention of the parties as spelt out from the terms of the agreement or the surrounding circumstances, the nature or character of the trade or venture, the purpose for which the expenses are incurred and the object which is sought to be achieved for incurring those expenses." The appellant submitted that above judicial pronouncements squarely cover the facts of the appellant's case and its intention was to develop infrastructure projects with the help of NCPL for which it has advanced funds. However, the deal could not be executed and subsequently, the money was received back by the appellant. The AR submitted that every transaction cannot result into the earning of profit and sometime due to unfortunate situation there may be loss or there may not be any transaction. Hence, no disallowance of interest can be made. The appellant also relied upon the judgment of Hon'ble Supreme Court in the case of Sree Meenakshi Mills Ltd. Vs. CIT 63 ITR 207 wherein the Court has held that expenditure incurred not with a view to direct or immediate benefit for the purpose of commercial expediency and in order indirectly to facilitate the carrying on the business is therefore, expenditure laid out wholly and exclusively for the purposes of the trade. ………………….. In view of the above decisions, it is held that no income has accrued to the appellant. There is no liability shown of the interest payment to the appellant by M/s NCPL. There are no entries made in the books of accounts of the other party as liability from whom the income becomes due to pay that amount. If income does not result at all, there cannot be a tax. The appellant has produced all the relevant evidences in support of its claim wherein it has stated that the advances were given for business purposes to its associate concerns and the advance was for business expediency. Hence, it is held that no notional interest can be charged or attributed in the case of appellant without realizing such income, therefore, the disallowance of interest in proportion to the advances given to sister concern for business expediency to the extent of Rs.3,13,96,047/- is deleted.”

11. On the other hand, ld. AR for the assessee submitted that loans were given in the earlier years, therefore, principle of consistency will apply and submitted detailed written submissions before us. Relevant part of the written submissions are reproduced as under :- “A. The Ld. Assessing Officer vide his letter dated 26.10.2016 issued under section 133(6) of the Act, sought clarification from the SDM(H) -1V, Delhi, Treasury, Tis Hazari Court, Delhi, regarding the genuineness of the stamp paper and the particulars of the agent who issued it. Refer page 84 of the paper book of AY 2013-14. a. Your Hon ours, there has been no response to these queries to the Ld. Assessing officer or to the assessee till date. Whether the stamp paper is genuine remained unanswered by the SDM (Ha) and they have forwarded the letter of the Ld. Assessing Officer to the SDM Collector for providing the further information to the Ld. Assessing Officer. b. Without receiving any information in respect of the genuineness of the stamp paper, the allegations made by the Ld. A0 are mere bald statements. c. Your Honours may appreciate that when the Ld. Assessing Officer alleges that the transaction is a fictitious, he must establish his claim. d. In the case of the case of Prem Singh and Ors. v. Birbal (2006) 5SCC 353 it was contended that any registered document was presumed to be executed in a valid manner unless such fraud and forgery has been proved by the person challenging the validity of such document. Another case of Anil Rishi v. Gurbaksh Singh (2006) 5 SCC 558 confirmed the opinion that in order to shift the burden of proof proper tangible evidence has to be presented before the court rather than just making mere statements. e. The Hon'ble High Court of Madras in the case of Imperial Automobiles vs. CIT (87 ITR 695) wherein the deed was purportedly executed on 1st of October, 1961 on a stamp paper dated 20.10.1961, the Assessing Officer held the partnership as void-ab-initio, the Court held that; "The question is whether the above view taken by the Tribunal is legally acceptable. It may be that the difference in dates may lead to a suspicion that there was no genuine partnership and that the parties wanted to make it appear that by this document there has beena genuine partnership while there was none. Inconsistency in the dates may be relevant for the purposes of finding out the genuineness or otherwise of the partnership. But, if the partnership is genuine and the inconsistency in the dates is due to a mistake as contended by the assessee, the document itself cannot be said to be invalid for that reason. It may be that though the document is purported to have been written on October 1, 1961, when it will become effective only from October 20, 1961 when it was executed by the parties after the document has been written on the stamp papers. The Tribunal, therefore, is not right in holding that the document itself is in valid for the reason that the date of the document precedes the purchase of the stamp papers. As already stated this question may be relevant for finding out the genuineness or otherwise of the partnership and this question has not been touched by the Tribunal on the view that the document itself is invalid. The Tribunal also did not consider that the rectification deed dated January19, 1965, could cure the defect in the document dated October 1, 1961. In our view, the Tribunal should have gone into the question as to whether the partnership was genuine and whether the partnership deed produced evidenced such a genuine partnership. Its disposal of the appeal on the ground that the partnership deed as such is invalid cannot be accepted." B. Both the assessee company and NCPL are owned by the same individual, Shri Rajiv Ratan, who holds 99% shares in both companies. Hence, both companies are fellow subsidiaries and related parties as per the Companies Act as well as Income Tax Act. C. The interest paid on funds advanced to sister concern for commercial purposes is allowable. The agreement between the assessee and NCPL exists in substance, and the Ld. Assessing Officer has not challenged the transaction. He has only questioned the genuineness of the stamp paper without establishing his claim. a. Your Honours, the Hon'ble Supreme Court in the case of SA Builders Ltd. vs. CIT(A), Chandigarh (288 ITR 1) wherein the funds were advanced to a subsidiary company out of the assessee's cash credit account and the Department had alleged that there was no material on record to show that the assessee had derived any business benefit by advancing the interest free amounts to its sister concern, The Hon'ble Court held that : "35. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit. obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here]. However, where it is obvious that a holding company has a deep interest in its subsidiary and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans."

We also rely on the judgements where interest bearing funds were advanced to sister concern for commercial expediency and expenses was allowed: b. Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. ys. CIT(Central). Ludhiana (379 ITR 347) "4. It would be pertinent to mention that insofar as the advance given to M/s. Hero Fibres Limited is concerned, the case put up by the asses lee even before the Assessing Officer was that it had given an undertaking to the financial institutions to provide M/s. Hero Fibres Limited the additional margin to meet the working capital for meeting any cash loses. It was further explained that the assessee company was promotor of M/s. Hero Fibres Limited and since it had the controlling share in the said company that necessitated giving of such an undertaking to the financial institutions. The amount was, thus, advanced in compliance of the stipulation laid down by the three financial institutions under a loan agreement which was entered into between M/s. Hero Fibres Limited and the said financial institutions and it became possible for the financial institutions to advance that loan to M/s. Hero Fibres Limited because of the aforesaid undertaking given by the assessee. It was also mentioned that no interest was to be paid on this loan unless dividend is paid by that company." c. The Hon'ble High Court of Delhi in the case of PCIT vs. Mira Exim Ltd. (400 ITR 28). wherein the interest bearing funds were advanced to director for guest house acquisition and deal, the Court held that: "5. So far as the second issue. i.e .. the disallowance under section 36(1)(iii) is concerned. the addition was made purely on the basis that the funds were borrowed by a director and that interest needed to be charged. This was wholly an erroneous premise because the amounts were given to the director for purely business purpose of the entity i.e. to acquire guest house. The proposal did not materialize and eventually the money was returned. It is not the Revenue's case that the amounts were utilized by the director for her own purpose. In these circumstances, the Income-tax Appellate Tribunal appropriately relied on under CIT v. Bharti Televenture Ltd. [20117 11 taxmann.com 356/200 Taxman 39 (Mag.)/331 ITR 502 (Delhi). The finding with respect to commercial expediency in the circumstances does not mil for interference.” d. The Hon'ble High Court of Delhi in the case of PCIT Vs. Gaursons Realty Pvt. Ltd. (422 ITR 123) has held that: "3. There are two different entities to which the amounts were either advanced as interest free loans, or wherein investment was made as share application money by the assessee. The first transaction relates to Gaursons Realtech Pvt Ltd. The assessee had invested Rs. 53.22 Crores towards share application money and had also advanced a loan of Rs.

79.65 crores in Gaursons Realtech Pvt Ltd. The submission of learned counsel for the Appellant is that the Assessing Officer had undertaken a forensic examination of the money trail and found that the loans received from the two Banks namely, Bank of Baroda and Andhra Bank aggregating to Rs.158.50 crores had been channeled by the assessee inter alia to Gaursons Realtech Pvt Ltd. The Tribunal has found that as a matter of fact, the assessee had paid the amount of Rs.79.85 crores on behalf of Gaursons Realtech Pvt Ltd. to JP Infrastructure Ltd in respect of an agreement whereunder Gaursons Realtech Pvt Ltd. had agreed to purchase land ad measuring 300 acres from JP infrastructure Ltd. At the same time, there was an underlying transaction between the assessee and Gaursons Realtech Pvt Ltd. by way of a Memorandum of Understanding dated 30-3-2013 whereunder the assessee was to get land ad measuring 88.500 sq. mtrs. (which translates to about 22 acres). That apart, by investing in the share capital of Gaursons Realtech Pvt. Ltd. with the deposit of share application money of Rs. 53.22 crores. the assessee was to acquire a controlling stake in Gaursons Realtech Pvt. Ltd. which was also engaged in the business of real estate development Therefore, there is a direct nexus between the expenditure incurred and the purpose of business, It has been held in Hero Cycles (P.) Ltd. v. CIT (Central) (2015) 63 taxmann.com 308/(2016] 236 Taxman 447 (SC), that once it is established that there is nexus between expenditure and purpose of business, revenue cannot justifiably claim to place itself in arm-chair of businessman, or in the position of the Board of Directors, and to decide how much is reasonable expenditure having regard to circumstances of case. In this regard, we may also note the ratio of the decision of the Supreme Court in SA. Builders Ltd. v. CIT(Appeals) [2007] 158 Taxman 74/288 ITR 1 (SC), wherein the Supreme Court held that the decisions relating to section 37 of the Act will also be applicable to section 36(1) (ü) because in section 37 also, the expression used is "for the purpose of business" and that while interpreting section 37, "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. In our view the Tribunal rightly allowed the appeal of the assessee c and restored the deduction claimed by the assessee under section 36 (1)(ii of the Act." e. The Hon'ble High Court of Bombay in the case of PCIT VS. Sesa Resources Ltd. (404 ITR 707) has held that: "12. Thus, the test is in such cases is whether the loans in question and interest thereon were matters of commercial expediency. We may note that this is admittedly nota L Case where the amount was either a donation (as in Madhay Prasa Jantia's case, supra) or even loan was given to an individual or to a director of the company in his personal capacity. Had that been so, the question might legitimately been asked Las to prove the purposes of the loan. In other Words, the question posed by the Revenue suggests its own answer postulates that when two Commercial entities have between them a loan transaction, it is conceivable that the purpose is something other than a business purpose. Prima facie it seems that the only possible other purpose, as oppose to a business purpose or commercial expediency, is a 'personal' one (such as a loan to a director for personal use or a commemorative loan), and a commercial entity can have no such personal purpose. The finding of the Tribunal in paragraph 11 of its order, in our view, cannot be faulted. It relied on a decision of a co-ordinate bench of the Tribunal in another matter where a decision of the Gauhati High Court in Highways Construction Co. (P.) Ltd. v. CIT (1993] 199 ITR 702 was considered. The finding there was that only the real income earned by the assessee could be brought to tax, not some notional income. The question suggested as a substantial of law seems to proceed on a basis that some notional interest might have been asked to be assessed. We are unable to agree." f. The Hon'ble High Court of Punjab and Haryana in the case of Bright Enterprises Pvt. Ltd. vs. CIT, Jalandhar (381 ITR 107) has held that: "17. The Assessing Officer's view that the advance was not for business purposes as the appellant had no business dealings with the sister company is erroneous. Commercial expediency in advancing loans does not arise only on account of there being transactions directly between the holding company and the subsidiary company or between the group companies inter se The two companies may even be in a different line of business. It would make no difference. It would still be commercially expedient for one group company to advance amounts to another group company, if, for instance, as a result thereof the former benefits, In the present case, as we have already demonstrated, there would be a direct benefit on account of the advance made by the appellant to its sister company if the same improves the financial health of the sister company and makes it a viable enterprise. We hasten to add that it is not necessary that the advance results in a positive tangible benefit 1ong as the amount is advanced with that view in mind or with any other commercially expedient view in mind that is sufficient"

14. Accordingly, ground no.1 raised by the Revenue in both the appeals is dismissed.

by the Revenue is dismissed.

21. Since, the facts in other AY i.e. 2013-14 are exactly similar, our above findings in AY 2014-25 are applicable mutatis mutandis in AY 2013-14. Accordingly, the appeal being for AY 2013-14 filed by the Revenue is dismissed. 22. In the result, both the appeals filed by the Revenue are dismissed. Order pronounced in the open court on this 13th day of September, 2024. Sd/- sd/- (SAKTIJIT DEY) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 13.09.2024 TS