Investment Expenditure In Subsidiary Was Incurred For Business Expediency: Delhi ITAT Deletes Addition U/s 37 Of I-T Act

On finding sufficient evidence for establishing that expenditure was incurred for business expediency, the Delhi ITAT deleted the addition made by AO u/s 36(1)(iii) and u/s 37 of the Income Tax Act, 1961.

The Bench comprising Anubhav Sharma (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) observed that, “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 that when business expediency in regard to the expenditure is established how far it fetches revenue in the relevant assessment year is not of much consideration unless there is specific evidence of wasteful or excessive expenditure, which is not the case here.” (Para 6)

As per the brief facts of the case, the Assessee's return was selected for scrutiny, wherein AO questioned the loans given to related parties and, finding no commercial expediency or business interest in giving such loans. Accordingly, AO 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. The CIT(A) also deleted the loan processing charge in that regard which was disallowed by the AO.

The Coram noted that the borrowed funds have been advanced to subsidiary by the assessee, and said investment in the subsidiary has to be prima facie considered to be out of business expediency unless established otherwise by the AO.

The Bench also noted the agreement entered into between assessee and the firm, which is a special purpose company (SPV) of assessee, and found that the 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 Bench observed that in the financials, the advances to the firm was issued under the head 'Enterprises owned or significantly influenced by key management personnel or their relatives including fellow subsidiaries.'

Therefore, on finding the assessee's firm as a fellow subsidiary, the ITAT rejected the Revenue's appeal.

Counsel for Appellant/ Department: Subhra Jyoti Chakraborty

Counsel for Respondent/ Taxpayer: Gaurav Jain

Case Title: ACIT verses Noida Cyber Park Pvt. Ltd.

Case Number: ITAs No.2135 & 2136/Del/2022

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