DCIT CIRCLE 13(2)(2), MUMBAI vs. NANDANBALA COMMERCIALS PRIVATE LIMITED , MUMBAI

Per Amarjit Singh (AM): The appeal filed by the revenue is directed against the order passed by the ld. CIT(A) NFAC, Delhi dated 09.02.2023. Since the appeal filed by the revenue and cross objection filed by the assesse are based on identical facts on similar issue, therefore, for the sake of convenience both these appeals are adjudicated together.

ITA No. 1134/Mum/2023 (AY: 2016-17) “1. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in accepting the Appellant's claim of interest expenditure of Rs.12,00,14,253/- as related to the business activities and holding that the assessee is eligible for deduction u/s.36(1)(ii) of the Act. 2. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in not considering the profit on sale of Mutual Funds of Rs.1,90,16,861/- as assessable under the head "Capital gain" and accepting the same as offered to tax under the head "Income from Business/Profession" by the Appellant.” 2. Fact in brief is that return of income declaring total income at Rs. Nil was filed on 16.10.2016. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 03.07.2017. The assessee company is engaged in the business of real estate and property development, leasing the residential and commercial properties to earn lease rentals for capital appreciations. It is also engaged in the business of purchase and sale of securities as mentioned by the AO at para 2 of the assessment order. During the course of assessment the assessing officer noticed that assessee has incurred borrowing cost of Rs.17,16,59,600/- by way of interest. On query the assessee company explained that since it was engaged in the business of real estate and property development, it intended to purchase land for the purpose of its business therefore it borrowed funds from its shareholders and group concerns. In order to materialise the deal the necessary documents were prepared and it had also paid stamp duty of

P a g e | 3 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. Rs.9.25 crores on the said purchase documents. The assessee company had also filed a copy of the challan of payment of stamp duty of Rs.9.25 crore paid on 21.10.2015. The same was reflected under the head other Current Assets Other Receivable at Note no. 10 of the Audited Accounts. However, the negotiations was not completed, therefore, in the intervening period to reduce the interest cost on borrowed fund the assesse had invested Rs.315 crores in “Franklin India Treasury Management Account – Super Institutional Plan” a fund. Since the negotiations for purchase of land could not be finalised because of some differences, therefore, part investment made in the temporary mutual fund was liquidated in March 2016 and the amount so realised were paid to the lenders in order to reduce the interest cost on borrowed amount. However, the negotiations could not be materialised, therefore, amount invested in mutual fund were redeemed in the subsequent year and the amount were repaid to the lenders. In this process the assessee has realized a gain of Rs.190,16,861/- from the investment in mutual fund for the year under consideration and also claimed interest expenditure as a borrowing cost of Rs.17,16,59,600/-. The gain realised claimed under the head business receipt since, the investment was made to reduce the cost on borrowing of the funds obtained for the purpose of business. The assesse also explained that temporary parking of funds of Rs.315,10,00,000/- was shown under the head purchase of stock-in-trade and part sale of mutual funds of Rs.60 lac during the year were shown under the head Revenue from Operations and the remaining balance units of Mutual Funds was shown as stock-in-trade in the financial statement of the assessee company. The assessee explained that in the books of accounts it had accounted Mutual Funds as stock in trade. In support of its contention the assessee referred the CBDT Circular 4/2004 dated 15.06.2007. The relevant extract of the same is as under:

P a g e | 4 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. “(i) Where a company purchases and sells shares, it must be shown that they were held as stock in trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction. (ii) the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions. (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt.”

However, the AO had not agreed with the submission of the assessee and he was of the view that assessee company was primarily engaged in the business of real estate and property development and it was not engaged in the business of purchase and trade in mutual funds. The AO also observed that assessee company was not engaged in regular purchase and sale of shares and there was only single one off transaction during the year purchased of mutual fund which conclude that the assessee company had made investment in mutual funds with the sole intention to earn profit from investment. The AO was also of the view that CBDT circular 4/2007 dated 15.06.2007 was applicable to sale of shares and not mutual funds. In view of the above facts the assessing officer treated the gain of Rs. 1.90 crores earned on the sale transactions of mutual funds as short term capital gain of sale of mutual funds. The AO had disallowed the claim of interest expenses of Rs.12,00,14,253/-.

7.3 Finding on Ground of Appeal No. 1(a) to 1(e)

P a g e | 5 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd.

a) Appellant is engaged in business of Real Estate as a Builder and Developer. To buy land the Appellant borrowed funds from private parties as under: . On 21.10.2015 the Appellant borrowed funds from Aditi Estate Project Pvt. Ltd. (AEPPL) for payment of Stamp duty and part payment of purchase of land. Stamp Duty of Rs.9.25 crore was paid. . On 26.10.2015 the Appellant borrowed funds from M/s Radius Enterprises to make payment for land purchase. . On 16.10.2016 the deed for conveyance was made for buying the land. . On 28.03.2016 the Appellant partly sold units of Mutual Fund. . On 03.05.2016 the Appellant filed affidavit before the collector of Stamp for claiming refund of stamp duty as land deal could not be executed as sellers did not execute the deed. . On 13.06.2016 the Appellant sold balance units of Mutual Fund. . On 13.06.2016 the Appellant repaid the borrowed funds. . On 04.09.2017 the Appellant entered into deed of conveyance which was executed. . On 31.03.2018 the land purchased was shown as stock in Trade in Audited Financial Statements of Appellant b) The funds were borrowed to purchase land measuring 3845.08 sq. meters situated at Malabar and Comballa Hills, Mumbai for consideration value of Rs.185 Crores This is an undisputed fact. The three conditions to allow interest expenses as deduction u/s.36(1)(ii) of Act are as under: - The money/ capital must be borrowed by assessee. It must be borrowed for purpose of business Assessee must have paid interest on borrowed amount. In the case of appellant it is clear that:- Appellant has borrowed funds. Appellant has paid interest thereon. Funds were borrowed for business purpose only i.e. purchase of land. Appellant fulfills all the three conditions of section 36(1)(iii) meaning that interest cost is duly allowable u/s.36(1)(ii) of Act. c) Appellant was in the process of purchase of land. It is proved by fact that appellant paid Stamp Duty of Rs.9.25 crore for purchase of land and the documents were presented before Stamp Duty Authority for registration. Purchase of land represents the first activity in the business of development of real estate i.e. business of appellant. It shows that funds were borrowed for the purpose of business and interest was paid on the borrowed funds. Thus, the interest expenses are allowable u/s.36(1)(ii) of Act. d) The land was ultimately purchased by appellant on 04.09.2017 and land purchased / acquired was shown as stock in trade in the audited financial statements of appellant for year ending 31.03.2018. This fact ultimately proves that borrowed funds were used for business purpose by appellant.

P a g e | 6 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. e) AO has held that deduction of interest is not allowable as the borrowed funds were used to buy Mutual Funds units. This fact is not relevant as it has been proved beyond doubt that borrowed funds were ultimately used for business purpose only i.e. to acquire purchase land which was done on 04.09.2017. Investment in Mutual Funds was done to reduce the borrowing cost only as land acquisition by appellant was being delayed prolonged and appellant did not keep the borrowed funds as idle and parked the borrowed funds by investing in units of Mutual Fund to reduce the borrowing cost of appellant. Thus, the action of AO that interest expenses on borrowed funds was not used for business of appellant is not sustainable. 7.4 a) The expression "for the purpose of business" includes the expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also benefits thereby. The expression" Commercial expediency" is of wide import and includes such expenditure as a prudent businessman incurs for purpose of business. The expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. Reliance is placed on the judgement of Hon'ble Apex Court in case of SA Builders Ltd. vs CIT (2007) 288 ITR 1. b) The Hon'ble ITAT Delhi in the case of Mason Infrastructure (P) Ltd vs DCIT (2021) 130 taxmann.com 234 has decided on this issue in favour of appellant in case where the facts are almost similar to the facts of appellant. The facts in this case were as under:- i) Assessee company was in business of purchase, sale and development of land and real estate. ii) It was holding 11.74 hectares land in Rajasthan. Appellant applied for change of land-use of land for setting up industrial unit on that land and then letting it out iii) Pending approvals by different authorities, the assessee keeping in mind the utilization of funds lying idle with company. the assessee lent the borrowed funds of Rs.17 crore to ABW Infrastructure @18% p.a. at same interest rate. (iv) AO disallowed the interest expenses holding that borrowed funds, were not utilized by the assessee for the assessee's real estate business. The Hon'ble ITAT allowed the deduction in respect of the interest expenditure on borrowed funds by holding as under:- “keeping in view the proximity of time in obtaining loan from OIPL for the immediate necessity of meeting the expenditure for conversion of land uses and also other business prospects, and in lending the idle funds to ABW Infrastructure for the purpose of earning of interest on the idle funds at the same rate of interest at which the loan was obtained, it is to be opined that the transactions are driven by business considerations and are part of the commercial expediency, the disallowance of interest expense of Rs. 1,35,25,521 on loan taken for purposes of business and against which interest income has been earned and offered to tax is

P a g e | 7 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. unwarranted and the same qualifies to be allowed under section 36(1)(i)/section 37(1)" c) The Hon'ble Delhi High Court in Gorwara Plastic & General Inds. (P) Ltd. vs DCIT (1999) 63 TTJ 329 has also decided a similar issue in favour of appellant. The facts are as under:- Assessee borrowed Term Loan from bank for acquisition of land and other fixed assets. It became impossible to acquire the said assets immediately. Assessee purchased shares of two companies with whom it had business dealings and earned dividend. Assessee Claimed deduction of interest paid. The AO disallowed the same holding that borrowed capital was not used for business purpose. The CIT(A) affirmed the order of AO. The Hon'ble ITAT held that the assessee is clearly entitled to deduction of interest paid on term loans to bank. The borrowed funds could not be immediately used for the purpose for which the bank sanctioned loan and funds were lying idle and appellant purchased shares of M/s. SIL and M/s. TEL This has to be adjudged from the point of view of a prudent trader. Such a decision was taken by the assessee in best interest of its business purpose. The provision of Section 736(1) provides that interest paid on capital borrowed for purpose of business will be allowable as deduction. Diversion of funds borrowed for one particular purpose but diverted for another purpose of same business will be an allowable expenditure under these provisions. The overall financial position clearly supported the assessee contention that no part of borrowed funds was diverted for non business purpose. Therefore, the assessee was clearly entitled to deduction of interest paid on Term Loans to bank. d) In the case of PCIT vs Reebok India Co. (2018) in 409 ITR 587 (Del) the Hon'ble Delhi High Court held that the money borrowed to advance the same to a subsidiary for some business purpose would qualify for deduction of interest, so long as the money borrowed is not utilized by the assessee for personal benefit and not for business purpose. e) The Hon'ble Supreme Court in Madhav Prasad Jatia vs CIT (1979) in 118 ITR 200 (SC) and CIT vs Malyalam Plantations Ltd. (1964) in 53 ITR 140 (SC) held that the expression "for the purpose of business or profession" occurring in Section 36(1)(iii) is wider in scope than the expression for the purpose of earning income, profits and gains". That the expenditure incurred voluntarily and meeting the "commercial expediency test is to be allowed as a deduction and it is immaterial if a third party benefits by said expenditure. The Revenue can not assume the role and occupy the arm chair of a businessman to decide whether the expenditure was reasonable, f) The Hon'ble Delhi High Court in CIT vs Dalmia Cement (Bharat) Ltd. (2002) in 254 ITR 377 held that once it is established that there is a nexus between the expenditure and purpose of business (which need not be business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of businessman or in the position of Board of Directors DAR and assume the role fox decide how much is reasonable expenditure in the

P a g e | 8 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. circumstances of the case. No Businessman can be compelled to maximize its profit. The Income Tax Authorities must not look at the matter from their own new point but that of a prudent businessman. We have to see the transfer of borrowed funds to a sister concern from point of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 7.5 a) The next issue is the AO's contention that circular no. 4/2007 of CBDT only applies to shares and not to Mutual Funds. This contention of the AO does not hold good. This circular also applies to the purchase and sale of units of Mutual Funds. b) The Hon'ble Kolkata ITAT in Smt. Yamini Khandewal vs ACIT (2022) in 142 taxmann.com 529 has held that CBDT Circular no. 4/2007 applies to the units of Mutual Funds also. c) The CBDT Circular No. 4/2007 dated 15.06.2007 has been discussed in various judicial pronouncements to determine whether a particular item is a Capital asset or Stock in Trade. Reference is made to a decision of Authority of Advance Ruling (288 ITR 641) where in referring to judgements of Hon'ble Apex Courts in several cases, it has culled out the following principles. "(i) Where a company purchases and sells shares, it must be shown that they were held as stock-in-trade and that existence of the power to purchase and sell shares in the memorandum of association is not decisive of the nature of transaction; (ii) the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions, (iii) ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend, etc., then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt." On perusal of the above, it can be seen that - a) The first principle requires to verify how the shares were held in the books of accounts at the end of the financial year. The Appellant had held the shares as stock in trade in the audited financial statements and shown the entire activity as Business Activity. b) The second principle requires to examine the nature of transaction, their magnitude and the ratio between the purchase and sale. The Appellant has parked Funds pending finalization of the land deal to reduce the borrowing cost. c) Thirdly this principle suggests that ordinarily purchase and sales with the motive of profit would lead to inference of trade/adventure in the nature of

P a g e | 9 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. trade, whereas the object of the investment to derive income by way of dividend would result into investment activity. The Appellant has established its clear intention of holding the investment in Mutual Fund was solely and exclusively to offset the interest burden on the funds borrowed and there was no intention to hold the units of mutual fund for a long period of time and earn dividend on the same. From the above facts and the CBDT Circular it is clear that whether particular holding of securities are as investment or stock in trade is best known to the assessee and the treatment in the books of accounts is a decisive factor to determine the taxability of the same. INCOME 7.6 The CBDT further issued Circular No. 6 of 2016 where in guidelines were given to determine as to whether surplus generated from sale of listed shares or other securities would be treated as Capital Gains or business income. The guidelines are reproduced as under:- “(a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in- trade, the income arising from transfer of such shares/securities would be treated as its business income, 1. In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; 2. In all other cases, the nature of transaction (ie. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT." From the above, it is clear that if an assessee chooses to treat shares or securities as stock-in-trade, the income on sale of such shares/securities would be assessable as business income. The intention of an assessee being a company is prima facie ascertained from the treatment given to the transactions in its books of a/cs. In the Appellant's case it has accounted Mutual Funds as Stock in Trade. This view of the appellant is supported by the clause 3 of Circular No. 6 of 2016. 7.7 a) The AO has denied the deduction of Interest u/s. 36(1)(iii) holding that there is solitary transaction of purchase units of Mutual Funds. This action of AO is not sustainable as once the "business expediency of a transaction has been established the frequency of transaction becomes irrelevant to decide its nature as business transaction or investment transaction. b) The Hon'ble Apex Court in case of Karam Chand Thapar & Bros (P) Ltd. vs CIT (1969) in 74 ITR 26(SC) held that a transaction of sale may, in a given case, be isolated, in another, it may be intimately related to the business of the assessee. In the later case the profit arising from the

P a g e | 10 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. transaction will probably arise out of assessee's business and will be assessable as Business Profit. 7.8 a) The next issue to decided is whether the gain on sale of units of Mutual Fund was assessable as " Profit and Gain from Business" or STCG. b) AO has assessed the gain on sale of units of Mutual Funds as STCG. This action of AO is not sustainable as the borrowed funds were inextricably linked to acquisition of land for real estate business of appellant. The temporary investment made in Mutual Fund are also relatable to the business of appellant and profit in sale of Mutual Funds are assessable under the head 'Profits and Gains from Business". c) Reliance is placed on the judgement of Hon'ble Delhi High Court in case of Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255, wherein it was held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is a capital receipt which is to be set off against preoperative expenses, is admissible, as the funds received by the assessee company are 'inextricably linked with the setting up of the plant and such interest earned cannot be treated as income from other sources. d) The Appellant has already established business expediency of purchasing the units of mutual funds. Accordingly, purchase and sale of units of mutual fund was not an investment activity. Hence, gain on sale of the same would not be assessable as capital gains but would be assessable under the head "Profits and Gains from Business or Profession". e) Reliance is placed on the judgement of Hon'ble Bombay High Court in case of CIT v. Lok Holdings [2009] 308 ITR 356, wherein assessee-firm was involved in business of development of properties. In course of its business, it received money in advance from its customers intending to purchase flats in properties developed by it. As said moneys could not be utilized immediately for purpose of business, assessee temporarily invested surplus amounts from such moneys in banks and other concerns and earned interest thereon. Interest was earned out of such monies accruing from the business of the assessee-company and the same was also utilised for the purpose of business. In light of these facts, Hon'ble High Court held that the interest income on the investments would be assessable as income from business. f) In case of the Appellant, too, the consideration received from sale of units of mutual funds were immediately used for repayment of loans. The Appellant repaid its borrowing as it felt that the deal may prolong beyond reasonable time which can increase interest burden. This itself shows that there was no investment activity carried on by the Appellant and that the gain on sale of units of mutual fund would be assessable as business gain. g) The AO has taxed unrealized gain on account of fair valuation of closing stock of mutual fund units, as income from "Profit and Gain from Business and hence, he should have taxed the gain on sale of part of the mutual fund units during the year also as income from "Profit and Gain from Business" and not as STCG.

P a g e | 11 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. h) Reliance is placed on the judgement of Hon'ble Karnataka High Court in case of CIT v. Production P. Ltd (2007) 290 ITR 598/211 CTR 393, wherein it was held that what is business income and what is not business income has to be judged from the main activity of the business of each assessee. In the present case, main activity of the assessee was export business and not that of earning interest on short term fixed deposits. The assessee instead of keeping such funds idle, since it did not require it for its immediate business activity, had deposited the same in Banks and hence interest income derived from such advances was assessable as business income. i) It is not in dispute that the investment in mutual funds was made to earn profits. In fact, the Appellant had invested in a growth plan of the mutual fund, which does not generate regular income like interest, dividend, etc. The AO, himself accepted this fact that the sole intent was to earn profits. The Appellant submits that intention at the time of purchase of shares is paramount to decide as to whether the same is assessable under business income head or Capital Gains head. j) The Hon'ble Apex Court in the case of CIT v. H. Holck Larsen [1986] 26 Taxman 305/160 ITR 67, had held when transaction of purchase and sale of shares were to nurse investments and to avoid erosion of capital, surplus arising from the sale of shares is a capital receipt. In Appellant's case there was no such intention to hold units of mutual funds. The Appellant held it only for the purposes of earning profits. k) In DPJ Viniyog P. Ltd. v. DCIT (2018) 65 ITR 74 (SN), Hon'ble Kolkata ITAT held that the intention can be judged by the entries made by the assessee in his books of account, i. e., the treatment in his books of account of the assessee. The motive of the assessee was to earn the dividend not to trade in shares and the motive was reflected with the intention of the assessee. The board of directors of the assessee had passed the resolution stating that the motive of the assessee was to keep the shares as an investment not as stock-in-trade. The income of the assessee should be assessed under the head "capital gains" instead of "business income". l) Reliance is placed on the judgement of Hon'ble Rajkot ITAT in case of Pratish Manilal Modi (HUF) v. ACIT (2019) 174 ITD 736 (Rajkot) (Trib.), wherein the Hon'ble ITAT held that mere frequency or magnitude of transaction in a systematic manner cannot be criteria to hold that assessee was engaged in a business activity of shares. Since the assessee had clearly demarcated shares as investment in its balance sheet, income was chargeable to tax as capital gains and not as business income. [Referred CBDT circular No. 6/2016, dt 29-2-2016 and Circular No. 4/2007, dt. 15-6-2007]. m) In Appellant's case, since the units of mutual fund were bought with a sole intention to earn profits, so that the borrowing cost can be reduced, and that the same had been clearly shown as stock-in-trade, the same cannot be treated as a capital asset and gain on sale of the same was assessable under the head "Profit and Gain from Business". Further, the unrealized gain on fair valuation of mutual fund units is offered to tax and assessed as income from "Profit and Gain from Business".

P a g e | 12 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. 7.9 In view of the facts and discussion and respectfully following the judicial pronouncements as outlined in paras 7.2 to 7.8 of this order the interest of Rs.17,14,48.933/- disallowed by the AO is not sustainable in the eyes of law and same is hereby deleted. The AO is directed to allow the interest amounting to Rs 17.14.48.933/- as incurred for the purpose of business of appellant and to hold the purchase and sale of units Mutual Funds by appellant as a business activity of appellant. The AO is directed to allow these interest expenses of Rs.17,14,48,933/- as business expenses u/s.36(1)(iii) of Act. The AO is directed to hold the profit on sale of Mutual Funds of Rs.1,90,16,861/- as 'Income from Business and Profession' of appellant. The GOA No. 1a and 1b are allowed. The appellant has itself disallowed interest expenses of Rs.2,10,667/- u/s. 37(1) of Act and Rs.5,14,34,680/- u/s 40(a)ia) of the Act. Appellant has not deducted TDS on interest expenses of Rs.17,16,59,600/-. Thus, it has made suo moto disallowance of Rs.5,14,34,680/- u/s 40(a)(ia) of Act. In view of the same, the balance interest expenditure works out to Rs.12,00,14,253/- (171659600 -210667-51434680) is eligible for deduction u/s. 36(1)(iii) of the act. 7.10 GOA No. 1c, 1d and 1e Since the GOA No. 1a and 1b have been allowed and the profit on sale of units of Mutual Funds of Rs.1,90,16,861/- has been held as 'Income from Business and Profession' and the interest expenses of Rs.17,14,48,933/- are held to be related to business of Appellant, therefore, the GOA No. 1c, 1d and 1e (being alternative plea of appellant) become infructous or academic in nature and separate adjudication is not required on these GOA.” 4. During the course of appellate proceedings before us the ld. D.R referred the order of assessing officer and submitted that assessee company has not justified that amount in the mutual fund was invested as part of its business activity and supported the order of assessing officer in respect of not treating the interest payment as business expenses and assessing the income from sale of mutual Fund Funds as Short Term Capital Gain. On the other hand, the ld. Counsel submitted that assesse company was incorporated to conduct the business as builders and developer and real estate, therefore, for the purpose of business it has negotiated for purchasing of land at Malabar & Cumbala Hills Mumbai from certain trustee and beneficiaries of private trust. However, the negotiations could not be materialised. Therefore, the assessee company had parked the funds in the mutual funds in the intervening period to reduce the interest cost on the amount borrowed for the

P a g e | 13 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. purpose of its business as the deal for the purchase of the land was not materialised. The ld. Counsel supported the order of ld. CIT(A) and referred different para of the findings of the ld. CIT(A) as reproduced supra in this order. He also referred CBDT Circular 4/2007 dated 15.06.2007 in support of the claim of the assessee company that the mutual fund were held as stock-in-trade and transactions was carried out for the purpose of business.

Sr. Particulars No. a Deed of conveyance dated 16.02.2016 submitted along with stamp duty paid on 21.10.2015 B Final executed deed of conveyance dated 04.09.2017 along with payment of stamp duty of Rs.,25,00,000/- on 04.09.2017 c Relevant annexure to application made for refund of stamp duty paid on 21.10.2015.

The assessee also submitted that these documents were admitted facts and were never in dispute and the lower authorities never called these documents. The ld. Counsel also referred the following judicial pronouncements for admitting the same as additional evidences:

“i. Smt. Prabhavati S. Shah Vs. CIT [231 ITR 01] (Bom HC) ii. CIT Vs. K. Ravindranathan Nair [265 ITR 217] (Ker HC) iii. Smt. Mohindar Kuar Vs. Central Government And Ors [104 ITR 120] (All HC)” After hearing both the sides and the submission of the assessee these copies of documents are also admitted as additional evidences in order to decide the issue in appeal on merit.

P a g e | 14 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. 6. Heard both the sides and perused the material on record. During the year under consideration the assessee company has negotiated for purchase of land measuring 3845.08 sq. mtr at survey no. 2/441, Malabar & Cumbala Hills, Mumbai from the trustees and beneficiaries of a private trust for its development for consideration of Rs. 185 crores. In order to buy the land the assesse borrowed funds from certain parties at various dates in the month of October 2015. The assessee company had also paid stamp duty towards purchase of land of Rs.9,25,00,000/- on 21.10.2015, however due to disputes amongst the seller beneficiaries and trustees, the deal could not be finalised and in order to ensure that payment towards purchase of land would be required to be made in near future at any time, the assessee had parked the borrowed funds into highly liquidated funds i.e units of mutual funds and also to reduce the borrowing cost in the form of payment of interest on the borrowed funds since the execution of transactions could not be finalised. The assessee liquidated the part of the investment and made repayment to the lenders in the F.Y. 2016-17 which had reduced its cost of borrowing. Subsequently, in the financial year 2017-18 the transactions towards purchase of land was concluded and the assessee had purchased the land as part of stock-in-trade of the assessee company. We have perused the copies of financial statement placed in the paper book submitted by the assessee. It is noticed that assessee has shown the land acquired as stock-in-trade in the financial statement of the assessee for the year ended 31.03.2018. We have also perused the copies of documents placed in the factual paper book which were also filed before the lower authorities. In the memorandum of Association filed under the Companies Act 2013 under the category B as Matter which are necessary for furtherance of the Objective Specified in Clause 3(A) at clause no. 10 it is incorporated for furtherance of the objective to invest and deal with moneys of the company not immediately

P a g e | 15 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. required in any manner. The assessee explained that temporarily idle funds were used to buy mutual fund in order to reduce the cost of borrowings. The assessing officer has not brought any material on record to disprove the facts reported by the assessee that due to the dispute between the beneficiary and trustee of the private trust that the conveyance deed could not be executed timely. Therefore, idle funds were temporary placed in the highly liquidated units of mutual funds to reduce its interest cost as a prudent businessman for the purpose of business. It is also evident from the financial statement that assessee has shown the land purchased as stock in trade and unit of mutual fund were also shown as stock in trade. The copy of challan for payment of stamp duty of Rs.9.25 crores for purchase of land show that assessee has borrowed fund for the purpose of its business of development of real estate. During the course of appellate proceedings before the ld. CIT(A) the assessee has also placed reliance on the various judicial pronouncements as referred in the finding of ld. CIT(A) as supra. The sequence of events i.e borrowings of fund in the month of October 2015 to buy land, payment of stamp duty towars purchase of land of Rs.925,00,000/- on 21.10.2015, conveyance deed made on 16.02.2016, due to dispute non-execution of conveyance deed, investing the borrowed funds temporarily in mutual funds to reduce interest cost, liquidating the mutual funds in March 2016 and finally purchasing of land and repayment of borrowed funds demonstrate that the impugned transactions were carried out by the assessee because of business expediency. The ld. Counsel has also referred various judicial pronouncements incorporated in the submission of the assessee made before the ld. CIT(A) as follows: In the case of SA Builders Ltd. Vs. CIT (2007) 288 ITR that it is also held that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency. The

P a g e | 16 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. decision of Hon’ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Limited Vs. ITO (2009) 315 ITR 255 wherein it is held that where interest of money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land and such interest earned cannot be treated as income from other sources. The ITAT Delhi in the case of Mason Infrastructure (P) Ltd. Vs. DCIT (2021) 130 taxmann.com 234 that lending the idle funds as the funds were not utilised for assessee ‘s real estate are driven by business consideration and are part of the commercial expediency. The decision of Hon’ble Bombay High Court in the case of CIT(A) Vs. Lok Holdings (2009) 308 ITR 356, wherein assessee was involved in business of development of properties and the money received in advance from customer could not be utilized immediately therefore assessee temporarily invested such money earned interest which was utilized for the purpose of business. The Hon’ble High Court held that the interest income on the investment could be assessable as income from business. The ld. Counsel also referred the other judicial pronouncements on the similar proposition as incorporated in the findings of the ld. CIT(A) as referred supra in this order. The ld. CIT(A) has also referred CBDT Circular No. 6/2016 regarding proposition that where assessee itself treat the shares and securities as stock-in-trade the income arising from transfer of such shares/securities would be treated as business income. It is evident from the facts and findings as discussed that the assessee company has parked funds temporarily because of non finalisation of the deal in order to reduce the borrowing cost and the assessee company has demonstrated from the copies of financial statement that funds were temporarily parked in the mutual fund just to reduce the interest expenditure to be incurred on the borrowed fund because of delay in execution of the purchase deed due to unexpected

P a g e | 17 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. disputes occurred amongst the sale parties. In view of the above facts and finding we don’t find any infirmity in the decision of ld. CIT(A), therefore, ground no. 1 & 2 of the revenue are dismissed.

C.O. No. 67/Mum/2023 7. There was a delay of 35 days in filing of cross objections. To condone the delay the assessee filed Affidavit dated 07.08.2023 and submitted there was no malafide intention in delay in filing of cross objections and same was occurred due to difference in understanding of procedural aspects. After hearing both the sides we consider that reasons for delay mentioned in the affidavit appears to be bonafide therefore, marginal delay in filing the cross objection is condoned. Since, we have dismissed the ground of appeal filed by the revenue, therefore, cross objection filed by the assessee become infructuous and the same stand dismissed. 78. In the result, the appeal filed by the revenue is dismissed and cross objection filed by the assesse is also dismissed.

Order pronounced in the open court on 29.01.2024

Sd/- Sd/- (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 29.01.2024 Rohit: PS

P a g e | 18 ITA No.1134/Mum/2023 CO 67/Mum/2023 DCIT 13(2)(2) Vs. Nandanbala Commercials Pvt. Ltd. आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.

सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.