KUMAR HOUSING CORPORATION PRIVATE LIMITED(PREVIOUSLY KUNOWN AS KUL URBAN DEVELOPMENT PVT. LTD),PUNE vs. THE INCOME TAX OFFICER, WARD-14(2), PUNE

PER RAMA KANTA PANDA, V.P. : This appeal filed by the assessee is directed against the order

dated 25.01.2024 of the CIT(A)/NFAC relating to the Assessment

Year 2016-17.

assessee, however, these all relate to the order of the ld.

CIT(A)/NFAC in confirming the disallowance of interest of

Rs.80,21,369/- made by the Assessing Officer (AO) being the

difference between the rate of interest paid on borrowed capital and

2 ITA No.539/PUN/2024

the rate at which the amount was advanced to the wholly owned

subsidiary.

Limited company engaged in the business of Real Estate

Development & Sales. It filed its return of income on 19.10.2016

declaring total income of Rs.7,86,070/-. During the course of

assessment proceedings, the AO noted from the profit and loss

account that the Revenue from operations is shown at

Rs.44,27,44,823/-, The above said Revenue from operations was

shown as “Other Income”. After considering the expenses debited

to the profit and loss account, the net result disclosed is a profit of

Rs.5,17,626/-. From the total expenses debited of

Rs.44,22,27,197/-, he noted that the major expenditure claimed is

on account of the Finance Cost which is claimed at

Rs.44,22,03,215/- . From the various details furnished by the

assessee, he observed that assessee has borrowed Long Term fund

amounting to Rs.135,27,00,000/- in the F.Y. 2010-11 on interest

@12.16% per annum for the purpose of its project. Since the

project did not materialize till now, therefore, the borrowed funds

were given as Loans and Advances to its sister concern M/s. Kumar

Snew Developers Pvt. Ltd. for interest @12%. He noted that the

assessee during the year under consideration has restructured the

loan scheme and repaid the entire amount borrowed for which the

3 ITA No.539/PUN/2024

assessee had also paid restructuring charges of Rs.4,44,92,090/-.

Thus, the assessee has paid a total amount of Rs.44,19,28,462/-

which includes the interest amount of Rs.39,74,36,372/- and

restructuring charges of Rs.4,44,92,090/-. As against this, the

assessee has received only Rs.43,39,07,093/-. Thus, the assessee

has paid interest and restructuring charges amounting to

Rs.80,21,369/- which is more than the interest received. Since the

amount borrowed by the assessee has been given to sister concern

as it is and the assessee has charged less interest, therefore, he

asked the assessee to explain as to why such excess interest paid

should not be disallowed. Since the assessee could not give any

valid reason and the AR of the assessee agreed for the

disallowance, the AO made addition of Rs.80,21,369/- to the total

income of the assessee.

the addition was agreed by the AR, no addition can be made since

there is no estoppel against law. The assessee relied upon the

decisions of Hon’ble Supreme Court in the case of S.A. Builders

Ltd. Vs. CIT reported in 158 Taxman 74, Hero Cycles Pvt. Ltd. Vs.

CIT reported in 379 ITR 347 and various other decisions in order to

justify its case that the disallowance of interest was not warranted.

It was further submitted that the rate of interest charged by the

4 ITA No.539/PUN/2024

assessee from its sister concern and the rate at which the amount

was borrowed is same and, therefore, there was no reason on the

part of the AO to make the disallowance. The assessee further

submitted that it had interest free funds to advance the funds to its

sister concern and therefore, there was also no reason to make any

disallowance of interest expenditure while computing the income of

the assessee.

advanced by the assessee and upheld the addition made by the AO

by observing as under :

“5. Decision: 5.1 It is apposite to refer to para 5 of the impugned order wherein the following has been recorded- “. . . . . .therefore, there is no cause for the assessee to charge less interest. Therefore, during the course of assessment proceedings, the AR was asked to explain the reason for giving loans and advances at lesser rate of interest then the rate of interest paid on funds borrowed. However, the AR could not give any valid reason and therefore, vide order sheet entry dt. 17.12.2018, it was conveyed to the AR that in absence of proper explanation for the difference in the rate of interest, the difference between interest paid and interest received requires to be disallowed. The AR also agreed to this disallowance. Accordingly, an amount of Rs. 80,21,369/- is disallowed and added to the total income of the assessee.” 5.2 As per provisions of sections 246A an appeal can be instituted only if the appellant is aggrieved by the order mentioned in that section. Order u/s 143(3) is one such order against which appeal can be filed. However, in case of an addition which has been agreed by the AR of the appellant at the time of assessment proceedings, it cannot be successfully argued that assessee is agreed by the order. In other words, no cause of action arises out of the impugned order. In deciding so, apart from the plain words of the Act itself, I rely upon the authority of Allahabad High Court in the case of Sterling Machine Tools vs. CIT 123 ITR 181 (All.), Madras High Court in the case of Ramanlal Kamdar vs. CIT 108 ITR 73 (Mad) and that of jurisdictional High Court of Bombay in the case of Rameshchandra & Co. vs. CIT 168 ITR 375 (Bom.). In view of the above the present appeal is rejected at its threshold.

5 ITA No.539/PUN/2024

5.3 As the appeal has been rejected decision on individual grounds of appeal is not required.”

appeal before the Tribunal.

because the AR of the assessee had agreed for the addition, the

CIT(A) was not justified in dismissing the appeal since there is no

estoppel against law. Referring to the decision of Hon’ble Bombay

High Court in the case of Balmukund Acharya Vs. DCIT reported

in 176 Taxman 316 (Bombay) he submitted that the Hon’ble High

Court has held that there is no estoppel against the statute. It has

further been held that Article 265 of the Constitution of India in

unmistakable terms provides that no tax shall be levied or collected

except by authority of law. Acquiescence cannot take away from a

party the relief that he is entitled to where the tax is levied or

collected without authority of law. In the case on hand, it was

obligatory on the part of the Assessing Officer to apply his mind to

the facts disclosed in the return and assess the assessee keeping in

mind the law holding the field.

7.1 Referring to the decision of Pune Bench of the Tribunal in the

case of DCIT Vs. M/s. Phadnis Clinic Pvt. Ltd. in ITA

No.1666/PUN/2018, order dt. 21.09.2022 for the A.Y. 2011-12, he

6 ITA No.539/PUN/2024

submitted that in this case also the addition was agreed by the AR

of the assessee. The Tribunal, referring to the decision in the case

of Bharat Heavy Electricals Ltd. Vs. Mahendra Prasad Jakhmola &

Ors in Civil Appeal Nos. 1799 to 1800 of 2019 wherein the

Hon’ble Supreme Court has held that concessions on mixed

questions of fact and law cannot decide cases as the evidence, as a

whole has to be weighed and inferences drawn therefrom, deleted

the addition made by the AO on the ground that AO cannot

preclude the assessee to agitate the same issue in appeal.

of Rameshchandra & Co. Vs. CIT reported in 35 Taxman 153

(Bombay) is concerned, he submitted that in that case the AO had

asked the assessee to explain the discrepancy in respect of certain

purchases which were not recorded in the books. One of the

partners expressed in writing its inability to explain the said

discrepancy and requested to add the same. Under these

circumstances, the Hon’ble Bombay High Court held that where an

assessee has made a statement in assessment and unless the

assessee points out that it was under mistaken belief of law, no

appeal can be filed. However, in the instant case, the issue is

purely legal and since the assessee can demonstrate that the

7 ITA No.539/PUN/2024

addition was agreed under mistaken belief of fact or law, the said

decision cannot be applicable to the facts of the present case.

in the instant case has raised the funds which were advanced to its

100% wholly owned subsidiary. The assessee had charged interest

and restructuring charges but there was short recovery of

Rs.80,21,369/-, the reasons of which were also explained as per

page 61 of the paper book which is due to the number of days, i.e.

while making the payment of interest to FMO as 360 days which is

as per the agreement whereas the assessee while recovering the

same from the subsidiary company has considered the total interest

period of 366 days as the F.Y. 2015-16 was a leap year.

case of S.A. Builders Ltd. reported in 288 ITR 1, he submitted that

the Hon’ble Supreme Court has held that where funds are advanced

by the holding company to its subsidiary and even if interest was

not charged, advancement of such funds to the wholly owned

subsidiary company would be for commercial expediency and no

disallowance of interest is warranted. Referring to various other

decisions, the ld. Counsel for the assessee submitted that under

identical circumstances such disallowance of interest was held to

be not in accordance with law. He accordingly submitted that the

8 ITA No.539/PUN/2024

order of the ld. CIT(A) be set-aside and the addition made by the

AO be deleted.

the AO and the CIT(A).

perused the orders of the AO and the CIT(A) and the paper book

filed on behalf of the assessee. We have also considered the

various decisions cited before us. We find the AO in the instant

case made addition of Rs.80,21,369/- being the difference between

the amount of interest paid on borrowed capital and the amount of

interest charged from the sister concern on account of loans

advanced out of the borrowed capital. We find the ld. CIT(A)

sustained the addition made by the AO, the reasons of which have

already been reproduced in the preceding paragraphs. It is the

submission of the Ld. Counsel for the assessee that merely because

the assessee had agreed for the addition before the AO there is no

estoppel against law. It is also his submission that the assessee had

sufficient funds of its own. Further, the amount was advanced to a

wholly owned subsidiary and therefore, such advancement would

amount to commercial expediency and therefore, no disallowance

of interest is warranted. It is also his submission that the case law

9 ITA No.539/PUN/2024

relied on by the ld. CIT(A) is distinguishable and not applicable to

the facts of the present case.

for the assessee. So far as the case of the Revenue that the assessee

had agreed for the addition before the AO and therefore cannot

agitate the matter before the CIT(A) is concerned, we find the

Hon’ble Supreme Court in the case of Bharat Heavy Electricals

Ltd. Vs. Mahendra Prasad Jakhmola & Ors in Civil Appeal Nos.

1799 to 1800 of 2019 has held that concessions on mixed questions

of fact and law cannot decide cases as the evidence, as a whole has

to be weighed and inferences drawn therefrom.

Krishnanand Govindanand Vs. Managing Director, Oswal Hosiery

reported in (2002) 3 SCC 39 has held that even a concession on

facts disputed by a respondent in its written statement cannot bind

the respondent, on an occasion, that the statement made by the

counsel cannot be accepted as an admission so as to bind the

respondent.

Arumugam Vs. S. Rajgopal reported in (1976) 1 SCC 863 has held

that a question involving mixed question of law and fact and a

10 ITA No.539/PUN/2024

concession made by the party on such a question at the stage of

argument before the High Court, cannot preclude him from re-

agitating it in the appeal before the Supreme Court.

of the Tribunal in the case of DCIT Vs. M/s.Phadnis Clinic Pvt.

Ltd. (supra) while deciding an identical issue at para 8 and 9 of the

order has observed as under :

“8. Heard both the parties and perused the material available on record. The ld. DR vehemently contended that the assessee has no right to agitate before the CIT(A) as well as this Tribunal regarding the disallowance made by the AO on account of interest payment. We note that according to ld. DR that the assessee itself agreed for the disallowance before the AO and is precluded from contesting the issue before the authorities challenging the same. The ld. AR placed on record the decision of Hon’ble Supreme Court in the case of Bharat Heavy Electricals Ltd. (supra) wherein the Hon’ble Supreme Court observed that concessions on mixed questions of fact and law cannot decide cases as the evidence as a whole has to be weighed and inferences drawn therefrom. We note, further, the Hon’ble Supreme Court referred to a decision in the case of Swami Krishnanand Govindananad Vs. Managing Director, Oswal Hosiery (Regd.) reported in (2002) 3 SCC 39 which held, even a concession on facts disputed by a respondent in its written statement cannot bind the respondent, on an occasion, that the statement made by the counsel cannot be accepted as an admission so as to bind the respondent. Further, the Hon’ble Supreme Court referred to a decision in the case of C.M. Arumugam Vs. S. Rajgopal reported in (1976) 1 SCC 863 which held that a question involving mixed question of law and fact and a concession made by the party on such a question at the stage of argument before the High Court, cannot preclude him from reagitating it in the appeal before the Supreme Court. The relevant portion of the findings of the Hon’ble Supreme Court reads as under: “What is clear from the evidence that was led by the parties is that the aforesaid gate passes were issued, as has been stated by the appellant’s witness, only at the request of the contractor for the sake of safety and also from the administrative point of view. The idea was security, as otherwise any person could enter the precincts of the factory. This evidence was missed by the Labour Court when it arrived at a conclusion that a direct relationship ought to be inferred from this fact alone. Further, as has been correctly pointed out by Shri Sudhir Chandra, the appellant has, not only in the first review, but also in the writ petition filed, taken the plea that no such concession was ever

11 ITA No.539/PUN/2024

made. Moreover, quite apart from this plea and the counter plea of Ms. Jain that the person who has made such concession should have stated that he did not do so, concessions on mixed questions of fact and law cannot decide cases as the evidence as a whole has to be weighed and inferences drawn therefrom.

Even a concession on facts disputed by a respondent in its written statement cannot bind the respondent. Thus, in Swami Krishnanand Govindananad v. Managing Director, Oswal Hosiery (Regd.) [(2002) 3 SCC 39, this Court held:

“2. ……. It appears that when the case was posted for trial, the learned counsel appearing for the respondent conceded the facts disputed by the respondent in his written statement before the Court. That statement of the advocate was recorded by the Additional Rent Controller thus: “The respondent’s learned counsel has admitted the ground of eviction and also the fact that the applicant is a public charitable institution and for that purpose it required the premises.” ……….

Equally, where a question is a mixed question of fact and law, a concession made by a lawyer or his authorised representative at the stage of arguments cannot preclude the party for whom such person appears from re-agitating the point in appeal. In ‘C.M. Arumugam v. S. Rajgopal’ [(1976) 1 SCC 863], this Court held:

“8. ………. That question is a mixed question of law and fact and we do not think that a concession made by the

12 ITA No.539/PUN/2024

first respondent on such a question at the stage of argument before the High Court, can preclude him from reagitating it in the appeal before this Court, when it formed the subject-matter of an issue before the High Court and full and complete evidence in regard to such issue was led by both parties……….” It would be perverse to decide based only on a concession, without more, that a direct relationship exists between the employer and the workmen. Equally perverse is finding that the extended definition of ‘employer’ contained in the Act would automatically apply. The extended definition contained in section 2(i)(iv) of the Uttar Pradesh Industrial Disputes Act reads as follows: “2. Definitions. ………………………………………………………………… ………………………………………………………………… …………………………

(i)’Employer’ includes- ………………………………………………………………… ………………………………………………………………… …………………………

(iv) where the owner of any industry in the course of or for the purpose of conducting the industry contracts with any person for the execution by or under such person of the whole or any part of any work which is ordinarily part of the industry, the owner of such industry;” 9. Therefore, the finding rendered by the Hon’ble Supreme Court in the case of Bharat Heavy Electricals Ltd. (supra) by referring to decisions in the cases of Swami Krishnanand Govindananad (supra) and C.M. Arumugam (supra) is applicable to the facts on hand and we hold a concession made by the authorized representative before the AO in the assessment proceedings cannot preclude the assessee in reagitating the same point in the appeal. Therefore, we are unable to accept the contention of ld. DR in submitting that the assessee has no role to challenge the disallowance made on the admission of assessee before the CIT(A).”

cited (supra) and the decision of the Coordinate Bench of the

Tribunal cited (supra), the decision relied on by the ld. CIT(A) in

13 ITA No.539/PUN/2024

our opinion is distinguishable and not applicable to the facts of the

present case.

sister concern is concerned, we find the assessee in the instant case

has advanced the amount to its wholly owned subsidiary which is

not in dispute. The Hon’ble Supreme Court in the case of S.A.

Builders (supra) has held that where the funds are advanced by the

holding company to its subsidiary and even if interest was not

charged, advancing of funds to the wholly owned subsidiary would

be for commercial expediency and no disallowance of interest is

warranted.

Moonrock Hospitality Pvt. Ltd. Vs. ACIT reported in 139

taxmann.com 378 (Delhi) while deciding an identical issue has

held that where assessee had advanced the funds to its wholly

owned subsidiary company for the purpose of business, no interest

paid on borrowed funds could have been disallowed u/s.36(1)(iii)

of the I.T. Act. The relevant observation of the Tribunal from para

12 to 14 reads as under :

“12. 1 have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case, made addition of Rs.10,88,438/- u/s 36(1)(iii) of the Act on the ground that the assessee has diverted its interest bearing funds towards non-

14 ITA No.539/PUN/2024

interest bearing advances to a related concern. I find, the ld.CIT(A) upheld the action of the AO disregarding the argument of the assessee that loan had been advanced on account of commercial expediency and, therefore, no disallowance could be made in the light of the decision of the Hon'ble Supreme Court in the case of SA Builders Ltd. (supra). It is the submission of the Id. Counsel that when the assessee has borrowed money and invested the same in its subsidiary companies with a view to acquire control of a new asset, such interest paid on borrowed capital has to be allowed u/s 36(l)(iii) of the Act. 13. I find merit in the above arguments of the Id. Counsel for the assessee. The Hon'ble Delhi High Court in the case of Tulip Star Hotels Ltd. {supra) has held that where assessee is engaged in the business of owning, renting and managing hotels, borrowed money and invested the same in iis subsidiary company with a view to acquire control of a new hotel, such interest paid on borrowed capital is allowable u/s 36(1)(iii) of the IT Act, 1961. 14. 1 find, the Hon'ble Bombay High Court in the case of Reliance Communications Infrastructure Ltd. (supra) has held that where the assessee, for furthering its business had utilized borrowed funds for making investments in its subsidiary company and for making interest free advances to a related company, no disallowance of interest paid on borrowed funds could be made. I find, the Hon'ble Supreme Court in the case of Hero Cycles (P.) Ltd. (supra) has held that once it is established that there is nexus between expenditure and purpose of business, Revenue cannot justifiably claim to put itself in the arm chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case. The various other decisions relied on by the Id. Counsel for the assessee in the case law compilation also supports the case of the assessee to the proposition that where interest free advances made to a wholly owned subsidiary company, no disallowance of interest paid on borrowed fund could be made. Since, in the instant case, admittedly, the assessee has extended funds to its wholly owned subsidiary company for the purpose of business, therefore, in view of the decisions cited supra, I hold that no interest paid on borrowed funds could have been disallowed u/s 36(1)(iii) of the IT Act, 1961. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the disallowance of Rs. 10,88,438/- . The grounds raised by the assessee are accordingly allowed”.

the loan to its wholly owned subsidiary company, therefore, in view

of the decision of Hon’ble Supreme Court in the case of S.A.

Builders (supra) and the decision of Delhi Bench of the Tribunal in

the case of Moonrock Hospitality (P) Ltd. Vs. ACIT (supra) we are

of the opinion that no disallowance of interest paid on borrowed

15 ITA No.539/PUN/2024

funds could have been disallowed. We, therefore, set-aside the

order of the CIT(A) and direct the AO to delete the addition.

Grounds raised by the assessee are accordingly allowed.

Order pronounced in the open Court on 23.07.2024.

Sd/- Sd/- [MS. ASTHA CHANDRA] [RAMA KANTA PANDA] JUDICIAL MEMBER VICE PRESIDENT Pune, Dated : 23rd July, 2024 satish

Copy to : 1. The applicant 2. The respondent 3. The Pr. CIT, Pune concerned 4. D.R. ITAT, A-Bench, Pune 5. Guard File.

By Order //True Copy // Sr. Private Secretary, ITAT, Pune Benches, Pune.