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TMI Blog2024 (1) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be transfer of capital asset generating capital gains. However, with regard to applicability of section 50C, the capital asset is to be of the nature of land or building or both and, on that basis, the coordinate Bench has given relief to the assessee which has been followed by CIT(A) and we see no reason to deviate from and interfere in the order of the ld.CIT(A). Ground No.1 to 3 are not sustainable. Disallowance u/s 36(1)(iii) - borrowed funds have been advanced to subsidiary by the assessee - AO questioned the loans given to related parties and, finding no commercial expediency or business interest in giving such loans, made the addition which was deleted by the CIT(A) by accepting the plea of the assessee that the amounts were given to the subsidiary for the purpose of development of projects in which the assessee also had substantial interest - HELD THAT:- It came up during the argument that presently the project is going on and loan is standing. We find no merit in the argument of the ld. DR that unless some revenue is shown from the project, the assessee cannot justify the loan and the interest expenditure was rightly disallowed. We are of the considered view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out a finding of the A.O as to what as per him, is the fair market value. Even if it is assumed that the payment made is excessive and unreasonable, such arbitrary and baseless, adhoc disallowances cannot be upheld. The ld. AO was supposed to give a factual analysis of the evidences to establish that the expenditure is excessive or unreasonable having regard to the fair market value of the services of Shri Shakti Nath. On the one hand, the ld. AO observed that the assessee has not filed any evidences justifying the payment and, on the other hand, he allowed 70% of the remuneration. This itself is arbitrary and the CIT(A) has rightly deleted the same. Thus, this ground of the Revenue has no substance. - Shri Narendra Kumar Billaiya, Accountant Member And Shri Anubhav Sharma, Judicial Member For the Assessee : Shri Gaurav Jain, Advocate And Ms Shweta Bansal, CA For the Revenue : Shri Subhra Jyoti Chakraborty, CIT, DR ORDER PER ANUBHAV SHARMA, JM: The appeals are preferred by the Assessee against the orders dated 28.06.2022 of the Commissioner of Income Tax (Appeals)-29, New Delhi, (hereinafter referred to as the Ld. First Appellate Authority or in shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the ld.CIT(A) restricted to the extent of 25% deleting the remaining 75%. 2.4 Further, the ld. CIT(A) on his own has made a disallowance u/s 36(1)(iii). 2.5 Accordingly, the Revenue is in appeal in AY 2016-17, with the following grounds:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 22,51,67,000/- u/s 50C by following the decision of Hon ble ITAT in the own case of the assessee wherein it was held that provisions of section 50C are not applicable in the case of assessee when assessee himself adopted the sale proceeds as capital gain income. It also admits that the sale consideration were for Rs. 63,41,22,000/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 22,51,67,000/- u/s 50C when the transfer of lease hold rights of property for life long period assumes the character of deemed sale as held by the Hon ble Chennai High Court in the case of M/s Foxconn India Developer Limited (Tax Case appeal No. 801/2013). 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of loan advanced to M/s Logix Infrabuild (P) Ltd., questioning the commercial expediency and also travelling allowances as done in the previous year. 3.1 Further made a disallowance of Rs. 54 lakhs on account of alleged excess remuneration paid to Shakti Nath, who was the director as the assessee allegedly failed to explain the nature of services provided by him with documentary evidences of giving salary equivalent to directorship period even after his resignation as director. The same was deleted by Ld. CIT(A) to the extent of Rs. 54,00,000. 3.2 The Revenue has filed the appeal with the following grounds:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 19,87,10,976/- u/s 36(1)(iii) when the assessee failed to brought on record any income from the loan advanced to M/s Logix Infrabuild (P) Ltd. even in the succeeding years during the appellate proceedings. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 54,00,000 on account of excessive remuneration paid to Sh. Shakti Nath when assessee failed to explain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 50C of the Act, the capital asset is to be of the nature of land or building or both and, on that basis, the coordinate Bench has given relief to the assessee which has been followed by ld.CIT(A) and we see no reason to deviate from and interfere in the order of the ld.CIT(A). Ground No.1 to 3 are not sustainable. 5. In regard to the second issue, grounds No.4 and 5 for AY 2016-17 and ground No.1 for AY 2017-18, it comes up that the borrowed funds have been advanced to subsidiary by the assessee. We are of the considered view that investment in the subsidiary has to be prima facie considered to be out of business expediency unless established otherwise by the AO. The ld.CIT(A) has taken into consideration the agreement dated 02.07.2015 entered into between the assessee and M/s Logix Infrabuild (P) Ltd., which is a special purpose company (SPV) of the assessee and the fact that advance was given for the purpose of development of the projects by the special purpose company on the basis of the land allotted to this company by the Yamuna Expressway Industrial Development Authority. The assessee is, admittedly, entitled to the revenue of 10% of the gross receipts. The ld.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the fact that the books of account of the assessee are duly audited. However, he also observed that, But, it is also a fact that appellant failed to establish any link of such expenses with the business of appellant. The ld. AR has submitted that to rent out the spaces available in Noida, Director/employeees in offices of the assessee had to travel abroad. It was submitted that the earning is from rental income and the ld. AR has shown that there is an increase in the rental income during the year by letting out the premises to foreign brands. 8. After taking into consideration the orders of the ld. tax authorities below, it comes up that the ld. AO had called for certain information about the events organized, the persons these Directors/employees met abroad, minutes of the meetings or any communications with the foreign clients, correspondences with intermediaries or other persons and the same was not provided. The AO had disallowed the travelling expenses to the extent of Rs. 57,32,076/-. 8.1 We are of the considered view that the ld.CIT(A) has self contradicted himself by recording satisfaction on basis of audited financial and also while considering the plea of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s 36(l)(iii). Therefore, the interest corresponding to the said loan to Sh Vikram Nath is disallowed amounting to Rs. 13,57,125/- (1,15,50,000 * 11.75%), since the said loan is not for the purpose of the business. Accordingly, the disallowance of Rs. 7,76,00,485/- on account of interest on term loans u/s 36(l)(iii) of IT Act, 1961 is modified and restricted to Rs. 13,57,125/-. Thus, Ground no. 5 is partly allowed and Ground no. 6 is allowed. 9.1 ld. AR has pointed out that this advance was not given in the present year and that this was also a business advance. We are of the considered view that as without giving assessee an opportunity of hearing this variation in the order of AO is made by the Ld. CIT(A) the matter needs to be restored to the files of Ld. CIT(A) to consider the same again after giving opportunity of hearing to the assessee. The ground no. 1 in cross-objections of assessee are accordingly allowed for statistical purposes. 10. In A.Y. 2017-18, vide ground no 2, the Revenue has challenged the disallowance of Rs. 54 lakhs on account of excessive remuneration paid to Shakti Nath. The ld.CIT(A) considered the fact that the AO has invoked section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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