Income Tax Appellate Tribunal - Mumbai
Ratan Hira Associates, Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "D"
BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI V. DURGA RAO, JM
ITA Nos. 2102 TO 2106/Mum/09
Assessment Years 2000-01, 2001-02, 2002-032003-04 & 2005-06
D.C.I.T. - 17(2),
Room No. 217,
Piramal Chambers, ,
MUMBAI - 400 012.
Vs.
M/s Ratan Hira Associates,
194, Narendra
Station Road, Wadala,
MUMBAI .400 031.
PAN AAEFR 3611C
Appellant
Respondent
Appellant by
Shri P.N. Devadaran
Respondent by
None
ORDER
PER P.M. JAGTAP, A.M.
These five appeals preferred by the Revenue against five separate orders passed by the ld. CIT(A) - XVII, Mumbai dated 27.1.09 involve common issue and the same, therefore, have been heard together and are being disposed of by this single consolidated order for the sake of convenience.
2. The solitary common issue which is involved in these appeals relates to the addition made by the A.O. on account of disallowance of assessee's claim for deduction on account of interest paid on capital borrowed for acquiring tenancy which stands deleted by the ld. CIT(A).
3. The assessee in the present case is a partnership firm which is engaged in multifarious activities including the activity of subletting the tenanted premises on rent. In the P&L account filed along with its returns of income for the years under consideration, interest was debited by the assessee. During the course of assessment proceedings, the assessee was called upon by the A.O. to justify its claim for the said interest. In reply, it was submitted by the assessee that it had taken a loan of Rs. 3 crores from bank out of which Rs. 1.5 crores was paid to the outgoing tenant and the remaining amount of Rs. 1.5 crores was kept as refundable deposit with the landlord as per the agreement. It was also submitted that the tenanted premises in respect of which the said amounts were paid was given on leave and licence basis to Greater Bombay Co-Operative Bank and the rent received from the said party was duly declared by the assessee as its income. Relying on the decision of Hon'ble Bombay High Court in the case of C.I.T. vs. Lokhandwala Construction Industries Ltd., 260 ITR 579, it was contended that interest paid on the moneys borrowed to acquire the capital asset is an allowable expenditure.
3. The A.O. did not find merit in the submissions made on behalf of the assessee before him while justifying its claim for interest expenditure. According to him, the assessee having shown the cost of acquisition of tenancy right as 'nil', it cannot be said that the money borrowed was utilized by it for acquiring any capital asset. He also held that eviction of existing tenant was the responsibility of the landlord and not of the assessee as the incoming tenant. He further held that there was no business need to keep the refundable deposit of Rs. 1.5 crores with the landlord. The A.O. also took note of the fact that both the landlord as well as outgoing tenants were related to the assessee and on the basis of this relationship, he held that it was seemingly a collusive agreement between the said parties. He, therefore, disallowed the claim of the assessee for deduction on account of interest expenditure in the assessments completed u/s. 143(3) r.w.s. 147 for all the five years under consideration.
4. Aggrieved by the orders of the A.O. u/s. 143(3) r.w.s. 147 for all the five years under consideration, appeals were preferred by the assessee before the ld. CIT(A) disputing therein, inter alia, the disallowance made by the A.O. on account of interest expenditure. It was submitted on behalf of the assessee before the ld. CIT(A) that the loan of Rs. 3 crores was taken from Greater Bombay Co-operative Bank for acquiring the premises at Flat No. 1, Baldota Bhawan on tenancy basis. It was submitted that a sum of Rs. 1.5 crores was paid as compensation to the vacating tenant and further amount of Rs. 1.5 crores was kept as security deposit with the landlord. It was contended that borrowed amount of Rs. 3 crores thus was utilized by the assessee to become a tenant with vacant and peaceful possession of the concerned premises. It was also contended that the interest paid on the said borrowed funds thus was an expenditure incurred for acquiring the property as a tenant which ultimately fetched annual rent of Rs. 60 lacs.
5. After considering the submissions made on behalf of the assessee before him as well as material available on record, the ld. CIT(A) found that a similar issue was decided in favour of the assessee by his predecessor in assessee's own case for A.Y. 2004-05 wherein it was held that the assessee having availed and utilized the amount of Rs. 3 crores borrowed from the bank for acquiring the tenancy rights of the premises, the interest paid on the said loan was an allowable expenditure. It was also held by the ld. CIT(A) in A.Y. 2004-05 that without the said payment, the assessee could not have earned the substantial amount of rent from the premises acquired by it on tenancy basis. It was held that the interest paid by the assessee thus was directly related to the said income earned by the assessee and the same, therefore, was allowable as expenses. The ld. CIT(A) while disposing of the appeals of the assessee for the years under consideration agreed with the finding of his predecessor recorded in the appellate order for A.Y. 2004-05 on the similar issue and deleted the disallowance made by the A.O. on account of interest expenditure for all the five years under consideration. Aggrieved by the orders of the ld. CIT(A), the Revenue has preferred these appeals before the Tribunal.
6. At the time of hearing before us, nobody has appeared on behalf of the assessee. These appeals of the Revenue are, therefore, being disposed of ex parte qua the respondent assessee after hearing the arguments of learned D.R. and perusing the relevant material on record. As already noted, the disallowance made by the A.O. on account of assessee's claim for deduction for interest paid on funds borrowed for acquiring tenancy rights in all the years under consideration has been deleted by the ld. CIT(A) by his impugned orders relying on the finding of fact recorded by his predecessor in assessee's own case for A.Y. 2004-05 to the effect that the borrowed funds were utilized by the assessee for acquiring tenancy rights and interest paid thereon was an expenditure incurred for earning rental income. At the time of hearing before us, the learned D.R. has not been able to controvert/rebut these findings of fact recorded by the ld. CIT(A). He has also not been able to bring anything on record to show that the order passed by the ld. CIT(A) in A.Y. 2004-05 on a similar issue and relied upon in the impugned orders for giving relief to the assessee has been disturbed or set aside by the Tribunal. This being so, we find no justifiable reason to interfere with the impugned orders of the ld. CIT(A) deleting the disallowance made by the A.O. on account of interest expenditure and upholding the same, we dismiss these appeals filed by the Revenue.
7. In the result, appeals of the Revenue are dismissed.
Order pronounced on 12th February, 2010.
Sd/- sd/-
(V. DURGA RAO) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated 12th February, 2010.
RK
Copy to...
The appellant
The Respondent
The CIT(A) - XVII, Mumbai
The CIT, - 17, Mumbai
The DR Bench, D
Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
5
ITA 2102 to 2106/M/09
M/s Ratan Hira Associates