2021 (7) TMI 52 - AT - Income Tax

Disallowance being 20% of total travelling expenses - as argued these expenses have been incurred on tour and traveling of officers and employees of the company and the purpose of travel was meeting prospective buyers, sellers, visits to difference sites and prospective markets etc. - CIT-A deleted the addition - HELD THAT - DR has not brought on record any justifiable reason requiring any interference with the conclusions recorded by the Ld CIT (A) in the impugned order on this issue. As noted above, the assessee has filed requisite details of travel expenses not only before the AO but also before Ld. CIT (A). We find no merit in the case of the AO for making an ad hoc disallowance @ 20%. The AO has not even highlighted or pointed out any deficiency in the details submitted by the assessee. Considering this, we find no reason to interfere in the conclusions recorded by the Ld. CIT (A). Grounds 1 2 are hence dismissed. Disallowance of interest expenses - expense on loan taken from its 100% Holding Company - CIT-A deleted the addition - HELD THAT - We find no merit in the observations of the AO that the assessee has not carried out its business of real estate and infrastructure development during the year under consideration. - DR has not been able to demolish the facts recorded by Ld. CIT (A) wherein it is noted that during the year under consideration, the assessee had made various efforts to enter into business activities. It had undertaken more than 9 projects and also carried inventory of 53.87 crores of traded goods in the form of apartments which was ready for sale and which were also sold subsequently in the future years. The assessee had also participated in joint venture projects outside India. These activities of the assessee were in consonance with its Memorandum of Association. During the year under consideration, the assessee had made fresh borrowings from its holding company. The assessee had submitted details of utilization of this sum which is on record and noted by the Ld CIT (A) - Once these details are perused, the obvious conclusion is that there is a clear connection between the money borrowed and its utilization for purposes of business of real estate and infrastructural development carried on by the assessee. We, therefore, find no merit in the disallowance made by the AO and the impugned order is therefore upheld. Ground No.3 is, therefore, dismissed.

Summary

Issues Involved:
1. Disallowance of ?2,73,209/- being 20% of total travelling expenses.
2. Disallowance of ?5,35,90,353/- out of interest expenses on borrowed funds.

Issue-wise Detailed Analysis:

1. Disallowance of ?2,73,209/- being 20% of total travelling expenses:

The Revenue challenged the deletion of the disallowance of ?2,73,209/- made by the Assessing Officer (AO) on account of 20% of total travelling expenses. The AO had disallowed the expenses citing inadequate justification for the business purpose of the travel and lack of evidence that the persons who traveled were employees of the assessee company. The AO also noted that similar disallowances were confirmed in earlier assessment years.

Before the Commissioner of Income Tax (Appeals) [CIT (A)], the assessee provided detailed submissions, including names of the travelers, costs of tickets, boarding and lodging expenses, conveyance, period of travel, places visited, and purposes of travel. The CIT (A) found substantial merit in the assessee's claims, noting that the disallowance was made on an estimated basis without cogent reasoning. The CIT (A) observed that the assessee had justified the expenses as being incurred in the regular course of business and allowed the claim.

The Tribunal upheld the CIT (A)'s decision, noting that the AO had not highlighted any deficiencies in the details submitted by the assessee and had made an ad hoc disallowance without justifiable reasons. Grounds 1 and 2 of the Revenue's appeal were dismissed.

2. Disallowance of ?5,35,90,353/- out of interest expenses:

The Revenue also challenged the deletion of the disallowance of ?5,35,90,353/- made by the AO out of interest expenses. The AO observed that the assessee had borrowed funds from its holding company and incurred significant interest expenses, but had not carried out any business operations during the year. The AO concluded that there was no nexus between the borrowed funds and business purposes, as the assessee had invested in shares and given out loans from the borrowed funds without any business activity.

The assessee argued before the CIT (A) that it was engaged in the business of real estate and infrastructure development and had made various efforts to enter into business activities during the year, including participating in joint ventures and promoting subsidiary companies. The CIT (A) found merit in the assessee's submissions, noting that the assessee had demonstrated business activities and the utilization of borrowed funds for business purposes. The CIT (A) allowed the claim for deduction under section 36(1)(iii) of the Income Tax Act, 1961.

The Tribunal upheld the CIT (A)'s decision, finding no merit in the AO's observations that the assessee had not carried out its business during the year. The Tribunal noted that the assessee had undertaken multiple projects, carried inventory of traded goods, and participated in joint ventures, all in line with its Memorandum of Association. The Tribunal concluded that there was a clear connection between the borrowed funds and their utilization for business purposes. Ground No. 3 of the Revenue's appeal was dismissed.

Additional Grounds:

Grounds 4, 5, and 6 were general in nature and no specific grievances were addressed by the Departmental Representative. These grounds were also dismissed.

Final Result:

The appeal of the Department was dismissed in its entirety. The order was pronounced on 30th June, 2021.