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TMI Blog2021 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... D 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of ₹ 5,35,90,353/- made on account of disallowance of interest expenses made on borrowed funds without appreciating the fact that the assessee failed to establish the nexus between the borrowed funds and business purposes. 4. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law. 5. That the grounds of appeal are without prejudice to each other. 6. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. 3.0 It is seen that in Grounds 1 2, the department is aggrieved by the action of the Ld. CIT (A) in deleting disallowance of ₹ 2,73,209/- made out of total Travelling Expenses. Relevant facts in this regard are that during the year under consideration the assessee had claimed a deduction u/s 37(1) of the Income Tax Act, 1961 (hereinafter called the Act ) on account of Travelling Expenses of ₹ 13.66 lakhs. During assessment it was claimed that 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gone through the above submissions of the appellant and have considered the facts and evidences on record. I have also perused the case laws relied upon by the appellant. It has been observed that the addition has been made on estimate basis @ 20% of the total travelling expenditure which includes domestic as well as foreign travel and conveyance to the employees. The AO has not provided any cogent reasoning or working, based on which such disallowances has been made. During assessment stage, the appellant had provided the submissions/details of such travelling expenditure, justifying the allowability of the same. The addition has been made on the reasoning that appellant failed to explain the purpose of travel, name of the persons who have undertaken the travel and nature of work to justify the business need. Further, disallowance is also made as the same was confirmed by the CIT (A) in the earlier assessment years. In this regard the detailed submission made during assessment proceedings as well as appellate proceedings were perused, as reproduced earlier. The appellant company has provided the name of the persons who have travelled with its justifications and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite 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. 5.0 In Ground No.3, the department is aggrieved by the action of Ld. CIT (A) in deleting the disallowance of ₹ 5,35,90,353/- made by the AO out of interest expenses. Relevant facts in this regard are that during course of assessment it was observed by the AO that one of the major items of expense incurred and claimed as deduction by the assessee was of ₹ 5,35,90,353/- incurred as expense on loan taken from its 100% Holding Company M/s Uflex Ltd. It was observed by the AO that during the year under consideration assessee had own funds amounting to ₹ 10,85,97,807/- and it had taken loans of ₹ 116 crore on which it had to incur interest expenses of more than ₹ 5 crores. The AO further observed that from a perusal of the Profit Loss A/c of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumed that the assessee has nothing to prove that these loans were given for any business purpose. From the foregoing discussion it is concluded that i) Assessee has not carried out any business activities during the year ii) it has borrowed funds from outside on which it has incurred interest expenses of ₹ 5,35,90,353/- iii) There is no nexus between the utilization of borrowed funds and the business activities of the assessee. 5.1 Aggrieved, the assessee submitted before the Ld. CIT (A) that it was engaged in the business of real estate and infrastructure development. It was submitted that Assessment Year (AY) 2009-10 was the third year of the operation of the assessee company. In the first financial year i.e., FY 2006-07, the assessee had carried out business operations for only 3.5 months and had recorded sales of ₹ 14.25 crores and in the second year of existence i.e., FY 2007-08 it had recorded revenue from business operations of ₹ 68.27 crores. It was also submitted that in the year under consideration, although, the assessee was not able to make any sale but it continued to pursue its business by way of holding stock of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. The appellant having dealings in development and sales in real estate business cannot be stated to be having no business activity during the year, simply because there is no revenue receipts shown in the profit and loss account. It is also contended that AO himself has considered the travelling expenditure and made certain disallowances which clearly indicates that the appellant has not stopped its business or no business during the year. The other business expenditures are allowed by the AO thereby recognizing the business activities for the year under consideration. Further, being in real estate there cannot be an abrupt discontinuation of business in one year. The appellant has demonstrated that it has made various efforts to enter into various business activities during the year under consideration. It has undertaken more than 9 projects and also carrying inventory of ₹ 53.87 crores of traded goods in the form of apartments, which is ready for sale and has been sold subsequently. The appellant had also participated in joint venture partner in two projects outside India and also indulged into promoting subsidiary for retail chain business. The various activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto various joint ventures or become part of consortium, bringing financial and technical resources together with co-participants in various projects in the real estates. This type of arrangement is very common, especially with the Government and semi Government projects, where the bid can be made through consortium also. Further, it is the prerogative of the appellant to conduct its business in the manner it finds appropriate or expedient. It is not open for revenue authorities to challenged the same, as also held in various judicial pronouncements. The AO has relied upon the judgement in CIT vs. HR Sugar Factory P. Ltd. 187 ITR 363, while making disallowance. In this regard, the appellant has submitted, as reproduced earlier, that the facts of the case relied upon by the appellant is not applicable in the instant case due to the reason that the appellant has given advance to the various parties, not related to it and for the business projects being undertaken by the appellant. Therefore, this cannot be treated as interest free loans and advances given for non business purposes. Looking to the facts of this case I tend to agree with the submissions of the appellant in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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