ITA 1012/2018 Page 1 of 6

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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INCOME TAX APPEAL NO.1012/2018

Date of decision: 28^th September, 2018

THE PR. COMMISSIONER OF INCOME TAX -3 ..... Appellant

Through: Ms. Vibhooti, Advocate.

versus

DLF HOTEL HOLDING LTD. ..... Respondent

Through

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

HON'BLE MR. JUSTICE CHANDER SHEKHAR

SANJIV KHANNA, J. (ORAL)

This appeal by the Revenue in the case of DLF Hotel Holding Limited

(„respondent-assessee‟ for short) arises from the order dated 9^th April, 2018

of the Income Tax Appellate Tribunal in ITA No. 1750/DEL/2015 and

pertains to the Assessment Year 2010-11.

2.

The facts in brief are that during the period relating to the

Assessment Year 2010-11 an addition of Rs.83,63,03,480/- was made to the

opening balance of the paid up share capital of the respondent-assessee,

enhancing the same to Rs.1259,68,00,000/-. The respondent-assessee had

invested Rs.1165,23,06,015/- in shares of group companies. The respondent-

assessee had also taken unsecured loans of Rs. 223,10,02,165/- on which

interest of Rs. 12,83,76,153/- was paid and claimed as a deduction under

Section 36(1)(iii) of the Income Tax Act, 1961 (the Act, for short). The

respondent-assessee had also given unsecured loans of Rs. 205,20,21,046/-

to subsidiary companies. The respondent-assessee had received Rs.

12,83,76,153/- as interest on unsecured loans given to the subsidiary

companies and others, which was shown as income.

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3.

The Assessing Officer in the Assessment Order dated 23^rd March,

2013 observed and held that the respondent-assessee had maintained

common account for both borrowed funds and capital funds, out of which

investment in shares of the group companies was made. The Assessing

Officer made an addition of Rs. 5,33,01,263/- on the following working:-

S.

No.

Particulars

Amount

(in Lacks)

A.

Total interest paid

1,962.04

B.

Total interest income

1,283.76

C.

Net Interest paid (A-B)

678.28

D.

Average investments

1,16,523.06

E.

Total funds as per Books i.e. total of

Balance

1,48,282.00

F.

Net Interest allocated to average investment

(C*D/E) i.e. addition for (sic)

533.01

4.

Before the Commissioner of Income Tax (Appeals) it was pointed out

by the respondent-assessee that one of the main objects for which the

respondent-assessee was established was to purchase, acquire, hold, trade

and further to dispose of any right, stake or controlling interest in shares,

stocks, debentures etc. Thus making investment was a part of respondent-

assessee’s business. Further, the respondent-assessee was engaged in the

business of hospitality, hotel management services and investment in

companies dealing with retail business. The respondent-assessee was

entitled to borrow capital for purpose of business and interest paid on

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borrowed capital has to be allowed as a deduction under Section 36(1)(iii) of

the Act. The respondent-assessee had made investments in fixed capital net

of depreciation of Rs.2,48,64,604/- and they had made investment of

Rs.257,56,99,484/- by way of current asset, advances and loans including

unsecured loans to subsidiaries of Rs.205,20,21,046/-.

5.

Agreeing with the respondent-assessee, the Commissioner of Income

Tax (Appeals) vide order dated 7^th January, 2015 held that the Assessing

Officer had not taken into account crucial evidence in the form the loans

extended by the respondent-assessee to subsidiary companies and the

intere