2024 (2) TMI 583 - AT - Income Tax

Nature of expenses - Disallowance under the head 'Delay in security charge on loan' when loan itself was not utilized for business purpose and was given to its sister concerns without any basis, moreover, it is a capital expenditure - CIT(A) was convinced that the impugned expenditure has been made by the assessee wholly and exclusively for the purpose of business and allowed the same - HELD THAT - We find that the ld. CIT(A) has deleted the addition on proper appreciation of facts and the ld. DR could not bring any distinguishing facts. We, therefore, decline to interfere. Ground No. 1 is dismissed. Disallowance of the addition on account of interest paid to M/s Bhayana Builders Pvt Ltd and M/s Logix Infrabuild Pvt Ltd. - HELD THAT - Due to certain defects in the project, the assessee refused to pay second 50% of the retention amount to M/s Bhayana Builders Pvt Ltd. and the quarrel travelled upto the Arbitration Tribunal and the Arbitration Tribunal decided the quarrel in favour of M/s Bhayana Builders Pvt Ltd. Thereafter, the assessee carried the matter to the Hon'ble High Court 2017 (8) TMI 1720 - DELHI HIGH COURT directed the assessee to return the money along with interest @ 6%. This interest has been claimed by the assessee, which has been disallowed by the AO. On the given facts, we do not find any reason/merit in the disallowance as the same has been paid as per the directions of the Hon'ble High Court. The ld. CIT(A) has rightly deleted the same and thus, calls for no interference. Interest paid to M/s Logix Infrabuild Pvt Ltd - There is no denying that the said advance was given for the acquisition of land in furtherance of the objects of the assessee s business. There is also no denying that both the assessee and M/s Logix Infrabuild Pvt Ltd. were engaged in the development of real estate projects. These undisputed facts go on to show that the impugned advance was purely a business advance and by no stretch of imagination it can be considered that the assessee has transferred borrowed funds as interest free advances - no merit in the disallowance made by the Assessing Officer. The ld. CIT(A) has rightly deleted the addition which calls for no interference. Disallowance on account of professional charges - HELD THAT - CIT(A) was of the opinion that any expenditure incurred for obtaining loan is allowable as revenue expenditure and correctly deleted the addition. Disallowance on account of foreign currency fluctuation expenses - HELD THAT - By looking into the documentary evidences filed the appellant, it is clear that the total expenses incurred by the appellant on account of the termination of loan agreement however, due to hedging of loan through swap currency agreements, the appellant got benefit due to foreign exchange rate. Accordingly, net amount charged by the appellant in P L A/c is duly allowable. The disallowance made by the AO on account of foreign currency loan is hereby deleted. Adhoc disallowance being 20% of the facility management charges - CIT(A), after verifying the ledger account, audited balance sheet, sample invoices and agreement with respective parties, came to the conclusion that disallowance cannot be made on adhoc basis without identifying specific default and without putting forth any cogent evidence, thus addition was deleted - HELD THAT - Since the addition was made on adhoc basis without pointing out any defect, we do not find any reason to interfere with the findings of the ld. CIT(A). This ground is dismissed. Disallowance u/s 36(1)(iii) on account of advance outstanding - HELD THAT - We find that the undisputed fact is that the said money was given in F.Y. 2014-15 and not in the year under consideration and no adverse interference has been taken in earlier A.Ys. Therefore, on identical set of facts, there is no reason why a different view is taken during the year under consideration. We, accordingly, direct the Assessing Officer to delete the impugned disallowance.

Summary

Issues Involved:
1. Deletion of disallowance under 'Delay in security charge on loan'
2. Deletion of addition under section 36(1)(iii) related to retention money and interest paid
3. Deletion of disallowance under section 36(1)(iii) for interest-free advance
4. Deletion of disallowance on account of professional charges
5. Deletion of disallowance on account of foreign exchange loss
6. Deletion of adhoc disallowance of facility management charges
7. Restriction of disallowance under section 36(1)(iii) on account of advance outstanding

Summary:

1. Deletion of disallowance under 'Delay in security charge on loan':
The CIT(A) deleted the disallowance of Rs. 1,64,33,201/- made by the Assessing Officer (AO) for delay in security charge on loan, stating that the expenditure was incurred wholly and exclusively for business purposes. The Tribunal upheld this decision, finding no distinguishing facts brought forth by the Revenue.

2. Deletion of addition under section 36(1)(iii) related to retention money and interest paid:
The CIT(A) deleted the disallowance related to interest paid to M/s Bhayana Builders Pvt Ltd, which was directed by the Hon'ble High Court. The Tribunal found no merit in the AO's disallowance as the payment was made as per court directions.

3. Deletion of disallowance under section 36(1)(iii) for interest-free advance:
The CIT(A) deleted the disallowance of Rs. 23,92,13,830/- related to interest-free advance given to M/s Logix Infrabuild Pvt Ltd. The Tribunal agreed, noting that the advance was for business purposes and both parties were engaged in real estate development.

4. Deletion of disallowance on account of professional charges:
The CIT(A) deleted the disallowance of Rs. 2.93 crores paid to M/s India Bulls Commercial Credit Ltd for professional services. The Tribunal upheld this decision, noting that the expenditure was for obtaining a loan and allowable as revenue expenditure.

5. Deletion of disallowance on account of foreign exchange loss:
The CIT(A) deleted the disallowance of Rs. 10,34,53,437/- related to foreign currency fluctuation expenses. The Tribunal upheld this decision, noting that the expenses were incurred due to the termination of a loan agreement and were allowable.

6. Deletion of adhoc disallowance of facility management charges:
The CIT(A) deleted the adhoc disallowance of Rs. 64,62,073/- made by the AO for facility management charges. The Tribunal found that the disallowance was made without identifying specific defaults or providing evidence.

7. Restriction of disallowance under section 36(1)(iii) on account of advance outstanding:
The CIT(A) restricted the disallowance of Rs. 25,16,24,782/- to Rs. 13.86 lakhs related to an advance outstanding from Shri Vikram Nath. The Tribunal directed the AO to delete the disallowance, noting that the advance was given in earlier years and no adverse inference was made in those years.

Conclusion:
The appeal by the Revenue was dismissed, and the cross objection by the assessee was allowed. The Tribunal upheld the CIT(A)'s decisions on all grounds, finding no merit in the Revenue's contentions. The order was pronounced in the open court on 08.02.2024.