Delhi High Court
Principal Commissioner Of Income ... vs Gaursons Realty Private Limited on 17 January, 2019
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL No. 1159/2018
Reserved on : 23rd October, 2018
Date of decision: 17th January, 2019
PRINCIPAL COMMISSIONER OF INCOME TAX-4 ..... Appellant
Through Mr. Sanjay Kumar & Mr. Asheesh Jain,
Advocates.
versus
GAURSONS REALTY PRIVATE LIMITED ..... Respondent
Through Advocate (appearance not given)
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI
SANJIV KHANNA, J.:
This appeal by the Revenue under Section 260A of the Income Tax
Act, 1961 („Act‟, for short) in the case of Gaursons Realty Private Limited
(Respondent-assessee for short) relates to Assessment Year 2014-15 and
arises from the order of the Income Tax Appellate Tribunal („Tribunal‟, for
short) dated 7th May, 2018.
2. By the impugned order, the Tribunal has allowed the appeal of the
respondent-assessee and deleted disallowance of interest expenditure of
Rs.5,68,97,378/- on interest bearing loans, on account of diversion and
advances and interest free loans to sister companies.
3. The respondent-assessee had taken following loans from banks:-
"
Name of the Loans Raised Interest Paid
Bank (Rs.) (Rs.)
Andhra Bank 78,00,00,000/- 7,80,04,772/-
Bank of Baroda 87,50,00,000/- 7,57,71,924/-
Total 16,55,00,00,000/- 15,37,76,696/-
"
4. The respondent-assessee had given interest free loans to its sister
companies as per details given below:-
"
Name Amount outstanding
as on 31.3.2014 (Rs.)
SKA Realtech (P) Ltd 3,00,00,000/-
Gaursons Sportswood (P) Ltd 2,00,00,076/-
Gaursons Realtech (P) Ltd 8,59,44,137/-
Shri Shyam Buildcon (P) Ltd 1,00,00,000/-
Banwari Lal Gaur 1,50,00,000/-
Gaursons Infratech P Limited 18,000/-
"
5. The respondent-assessee had also given following advances to sister
companies for purchase of land:-
"
Name Amount outstanding as
on 31.3.2014 (Rs.)
Gaursons Realtech (P) Ltd 79,65,00,000/-
Gaursons India Limited 2,36,18,780/-
UP Township (P) Ltd 1,00,00,000/-
"
6. In addition, the respondent-assessee had paid share application money
of Rs.53,25,00,000/- to M/s Gaursons Infratech (P) Limited.
7. Issue of disallowance of interest paid and allowable as a deduction
under Sections 36(1)(iii) and 37 of the Act was examined by the Supreme
Court in S.A. Builders versus Commissioner of Income Tax and Another,
(2007) 288 ITR 1 (SC) and it was held:-
"25. Thus in Atherton v. British Insulated & Helsby
Cables Ltd. [(1925) 10 TC 155 : 1 KB 421 : 132 LT 288
(CA)] it was held by the House of Lords that in order to claim
a deduction, it is enough to show that the money is expended,
not of necessity and with a view to direct and immediate
benefit, but voluntarily and on grounds of commercial
expediency and in order to indirectly facilitate the carrying on
of the business. The above test in Atherton case [(1925) 10
TC 155 : 1 KB 421 : 132 LT 288 (CA)] has been approved by
this Court in several decisions e.g. Eastern Investments
Ltd. v. CIT[(1951) 20 ITR 1 : AIR 1951 SC 278]
, CIT v. Chandulal Keshavlal & Co. [(1960) 38 ITR 601 :
AIR 1960 SC 738] , etc.
26. In our opinion, the High Court as well as the Tribunal
and other Income Tax Authorities should have approached
the question of allowability of interest on the borrowed funds
from the above angle. In other words, the High Court and
other authorities should have enquired as to whether the
interest-free loan was given to the sister company (which is a
subsidiary of the assessee) as a measure of commercial
expediency, and if it was, it should have been allowed."
Thus, distinction was made between loans and advances given for
business purposes as distinguished from personal interest. This aspect has
been also highlighted in judgments of Delhi High Court in Punjab Stainless
Steel Industries versus Commissioner of Income Tax and Another, (2010)
324 ITR 396 (Del.), Principal Commissioner of Income Tax-7 versus
Reebok India Company, ITA No. 1130/2017, decided on 25th September,
2018 and ITA No.205/2018, Principal Commissioner of Income Tax-7
versus Basti Sugar Mills Company Limited, decided on 28th September,
2018.
8. However, learned counsel for the appellant-Revenue has relied upon
and referred to submissions made by the respondent-assessee before the
Assessing Officer, which read as under:-
"Assessee Company is a construction company
engaged in construction of flats & selling the same to the
proposed buyers. Short Terms Loans & Advances by
Gaursons Realty Pvt Ltd. to its sister concerns as a part to
manage fund position of the Group. Short Term Loans &
Advances has not been provided by the company from loan
borrowed during the year by the company but it is used for
financing the construction project only, these advances have
been given by the assessee to its group companies as part of
their overall business plan to manage the fund flows of the
group and has no connection with the project loan taken from
Bank which has been incurred entirely for the project
expenditure and as such the expenditure claimed by the way
of interest on project loan are incurred for the business
purpose and are eligible as business expenditure under
section 36(1)(iii) of the Income Tax Act, 1961.
Short Term Loans & Advance is provided to its sister-
concern mainly from companies own fund available with the
enterprise. Booking deposit from flat buyers and Advances
from customers (Rs.1,144,695,481-) available also the
assessee company received the amount from the maturity of
Fixed Deposit.
This means that Advance was not given from the
borrowed fund/interest bearing fund.
It is respectfully submitted that it is a settled position
of law that it is not for the Revenue to dictate to the
businessman how to carryon business. Various Courts have,
repeatedly, held in the following cases that reasonableness of
the expenditure has to be seen from the point of view of
businessman and that the Revenue cannot seek to put itself in
the armchair of the businessman:
i. CIT vs. Walchand & Co.: 65
ii. J.K. Woollen Manufactures vs. CIT: 72 ITR 612 (SC)
iii. CIT vs PanipatWoollen & General Mills Co. Ltd.: 103 ITR
666(SC)
iv. S.A. Builders Ltd. vs. CIT: 288 ITR 1 (SC) approving v.
Dalmia Cement (P) Ltd. : 254 ITR 377 (Del.)
v. CIT vs. Padmani Packaging (P) Ltd.: 155 Taxman 268
(Del.)"
9. It was also alleged that the respondent-assessee had not furnished
copies of alleged agreements with M/s Gaursons India Limited and M/s U.P.
Township Private Limited. The Tribunal in the impugned order has referred
to different amounts paid with reference to other advances and observed as
under:-
"All the above advances even if it is presumed that
they are not given by the assessee for the non-business
purposes they do not exceed the funds available with the
assessee without interest."
10. Keeping in view the assertions made by the Revenue on the findings
recorded by the Tribunal, we feel that the appeal should not be dismissed in
limine at the admission stage itself but should be heard in detail. Therefore,
without expressing any opinion, we are issuing notice in this appeal
returnable on 14th March,2019.
(SANJIV KHANNA)
JUDGE
(ANUP JAIRAM BHAMBHANI)
JUDGE
JANUARY 17th , 2019
VKR
