IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No.3585/Del/2025, A.Y. 2025-26 New Star System Solution Dy. Commissioner of Private Limited Income Tax

109 DLF Tower-A, Vs. Circle-18(2), 1st Floor Jasola, New Delhi New Delhi PAN: AACCN6135C (Appellant) (Respondent)

Appellant by Sh. Vijay Kumar Singla, Advocate, Ms. Airik Singla, Advocate Respondent by Ms. Ankush Kalra, Sr.DR Date of Hearing 09/12/2025 Date of Pronouncement 21/01/2026 O R D E R PER RAJ KUMAR CHAUHAN (J.M.):

1. This appeal is directed against the order dated 15.05.25 of passed by Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] wherein assessment order dated 31.12.2016 was upheld and disallowance of expenses under section 36(1)(iii) of Rs.

3,46,87,318/- was confirmed.

2. The facts in brief as culled out from the order of the authorities below are that the appellant/assessee is a company and as per the Memorandum of Association (‘MOA’). It was dealing with the software development and trade along with buying/ selling of stocks, bonds, derivatives etc. The assessee has filed e-return on 28.09.2015 for the relevant year declaring Nil income and current year loss of Rs. 22,957/-. The case was selected for scrutiny through CASS by issuing notice u/s 143(2) of the Act dated 12.04.2016. Subsequent notice u/s 142(1) of the Act dated 27.07.2017 along with detailed questionnaire was also issued and sent to the assessee. The assessee file reply/ details from time to time during the assessment proceeding. It was noticed in the P&L account, the assessee had reflected revenue of Rs. 2,95,26,558/- from operation and that of last year at Nil and has declared other income on account of interest income amounting to Rs. 40,92,798/- for the current year and Nil for last year. In the last year, the assessee has declared Nil income and had claimed expenditure of Rs. 2,69,37,437/-. The assessee was asked to furnish the details in respect of business activities, interest expenditure and investment in shares. In response to query raised, the assessee furnished replies on various dates and from the details supplied, it was observed that the assessee company was not a non- banking finance company and was not into business of borrowing and lending money and thus has shown interest income credited to the Profit and Loss account under the head ‘other income’. The assessee company had made investment in equity shares during the year under consideration. Hence, show cause was issued as to why interest expenses may not be disallowed u/s 36(1)(iii) of the Act as there was no business income. In reply, the assessee claimed that the interest on loan of Rs. 3,46,87,318/- debited to profit & loss account should not disallowed u/s 36(1)(iii) of the Act as the same was not used for business purpose because during the relevant year, the assessee company was engaged in the business of buy and sell/ invest in all kind of securities including shares, stocks, bonds, derivatives etc. It has earned business income of Rs. 2,95,26,558/- from derivatives and which has been clearly indicated under the head ‘Revenue from operation’. The reply of the assessee was not found acceptable because it was reflected from the financials of the company that the borrowed funds are used for investment and not for business purpose and as per Section 36(1) sub section (iii) of the Act, the deduction shall be allowed in respect of the amount of interest paid if the capital is borrowed for the purpose of business or profession. It was further observed that the factual metrix of the assessee shows that the assessee has made investment amounting to Rs. 30,66,00,600/- in the form of equity shares and it has not earned any dividend income on such inve