The Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘SMC’ rendered a crucial decision on November 15, 2019, in the case of Sagar Realtors Private Limited against the Assistant Commissioner of Income Tax, Central Circle 19, New Delhi. The dispute centered on the disallowance of Rs.30,35,945 as interest expenses claimed by the appellant for the Assessment Year 2015-16.
The real estate company, in its filed return, declared a loss while reporting income solely under ‘Income from Business and Profession’. The main contention was the interest expense related to investments in another group company, M/s Minor Hotels Pvt. Ltd., which did not yield immediate income. The Assessing Officer challenged the deduction, arguing that the expenses were not incurred wholly for business purposes, leading to the disallowance.
During the proceedings, the appellant argued that the investments were strategic, aiming to exert control over and expand into the hotel sector, aligning with its business model and the Memorandum of Association. However, the CIT(A) upheld the disallowance, leading to the appeal at the ITAT.
The ITAT examined the nature of the expenses and the appellant’s strategic business intentions. It noted that the investments and interest payments were consistent with the appellant’s long-term business strategy. Citing precedents, the Tribunal reversed the disallowance, emphasizing that the borrowed funds were utilized for legitimate business purposes, thus entitling the appellant to the interest deduction.
This decision is significant for businesses engaged in strategic investments, clarifying the conditions under which related expenses may be considered legitimate business deductions. It highlights the importance of aligning business activities with declared business purposes to substantiate expense claims.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform