Income Tax Appellate Tribunal - Delhi
Nirja Guleri,, vs Assessee on 23 March, 2005
ITA NOS. 2662 & 2987/DEL/2005
A.Y. 2001-02
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "E" NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 2662/Del/2005
A.Y. : 2001-02
ACIT, CIRCLE-24(1), vs. Smt. Nirja Guleri,
R.NO. 238B, C.R. Bldg., Prop. Prime Channel,
New Delhi A-2/30, Safdarjung Enclave,
New Delhi
(PAN: AALPG4019P)
AND
ITA NO. 2987/DEL/2005
A.Y. 2001-02
Smt. Nirja Guleri, vs. ACIT, CIRCLE-24(1),
Prop. Prime Channel, R.NO. 238B, C.R. Bldg.,
A-2/30, Safdarjung Enclave, New Delhi
New Delhi
(PAN: AALPG4019P)
(Appellants) (Respondents)
Asseessee by : SH. V.K. GARG, ADV.
Department by : Sh. N.K. CHAND, Sr. D.R.
ORDER
PER BENCH These appeals by revenue and assessee emanate out of order of the Ld. Commissioner of Income Tax (Appeals) dated 23.3.2005 pertaining to assessment year 2001-02.
1ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 REVENUE'S APPEAL
2. The issue raised is that Ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition amounting to ` 5,62,252/- disallowed by Assessing Officer for utilizing the borrowed funds for non-business use.
2.1 At the threshold, we note that the total addition made in this case is ` 5,62,252/- and the tax effect in this case is below ` 2 lakhs, fixed by the CBDT for filing the appeal before the Tribunal vide Instruction No. 5 dated 16.7.2007. While considering the effect of CBDT Instructions in this regard, ITAT Delhi Benches are consistently taking the view that revenue authorities must give respect to the C.B.D.T. Circulars and should not file appeal in small and petty cases. The whole idea of the circular is not to waste energy of the department on small matters and save it for high-tax yielding cases.
2.2 In our above view, we find support from the recent decision of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Pithwa Engg. Works, [2005] 197 CTR (Bom) 655 : [2005] 276 ITR 519 (Bom) wherein their Lordships following their order in the case of CIT vs. Camco Colour Co. [2002] 173 CTR (Bom) 255 : [2002] 254 ITR 565 (Bom) held that "Instruction dt. 27th March, 2000 reflect the policy decision taken by the Board not to raise questions of law where the tax effect is less than the amount prescribed with a view to reduce litigations before the High courts and the Supreme Court. The said circular is binding on the Revenue. One fails to understand how the 2 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 Revenue can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than ` 2 lakhs, but the same approach is not adopted with respect to the old referred cases even if the tax effect is leas than ` 2 lakhs.
There is no logic behind this approach. Board's circular dt. 27th March, 2000 is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect."
2.3 For similar proposition, we also find support from the decision of High Court of Delhi in the case of Commissioner of Income Tax vs. Pradeep Kumar Gupta, [2007] 207 CTR (Del) 115 wherein their Lordships held that tax effect being less than ` 2 lakh, the appeal filed by the Revenue against the CBDT Instruction was not maintainable.
2.4 In this view of the matter and respectfully following the decisions (supra), it is held that since the tax effect involved in the instant appeal of the revenue is less than ` 2 Lac, the same is against the instructions issued by the CBDT and, hence, not maintainable before the Tribunal. Accordingly, the appeal filed by the revenue is liable to 3 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 be dismissed on this ground alone and the same is dismissed accordingly.
ASSESSEE'S APPEAL
3. The first issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of ` 122090/- out of total disallowance of ` 6873842/- being interest paid on loans borrowed and utilized by the assessee for its business purposes in earlier years.
3.1 The assessee is proprietor of M/s Prime Channel, which is engaged in the production of tele-serials. During the year under consideration the assessee declared income from house property and business. The P&L account filed by the assessee shows an amount of ` 23,80,000/- debited as interest paid. Further, the balance sheet showed an amount of ` 1,93,80,000/- as unsecured loans on which interest at the rate of 14% was paid during the year. The details of investment shown in the balance sheet show that during the year fresh investments were made for ` 1,70,00,000/-. On enquiry as to why the interest paid on loans to the extent of this investment may not be disallowed as these were invested in instruments from which income earned was not chargeable to tax. In response assessee stated that loans from which interest was paid was taken in earlier year to meet the requirement of business. Assessing Officer proceeded to hold as under:-
"Thus, from the above discussion it is amply clear that interest on borrowed capital cannot be allowed on the amount, which is utilized for non-business purpose and for the period for which the fund is utilized as such. Thus, in 4 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 the present case the disallowance is calculated @ 14% on such amount and for such period as the business funds were utilized for non-business purpose. The disallowance is shown in the table below:-
Investment Amount Date No. of Interest
days disallowed @
for 14%
which
intere
st
disall
owed
Alliance 2500000 11.01.2001 80 76712.33
Equity
Growth
Mutual
Fund
Franklin 2500000 11.01.2001 80 76712.33
Templeton
Index Div.
Option
Meryll 10000000 11.01.2001 80 306849.32
Lynch
Bond
Funds
Fixed 2000000 09.06.2000 296 227068.49
Deposit UTI
TOTAL 687342.47
In view of the above discussions, out of the total
interest payment of ` 23,80,000/- an amount of `
6,87,342.47 is disallowed for utilizing the borrowed funds for non-business use."5
ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 3.2 Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) elaborately considered the issue and held as under:-
"In the light of the above observations, it is seen that the appellant's stand is that loans taken in A.Y. 1997-98 had been utilized for the business in that year itself and the investments made in this year were out of its own funds, and there was no nexus between the interest bearing old loans and the investments. To examine this claim the appellant's balance sheet for that year and subsequent years has been examine. It is seen that in the period relevant to A.Y. 1997-98 the appellant had taken unsecured loans of ` 2,03,51,709/- and it had also utilized its existing current assets to the extent of about ` 2.70 crores to acquire new fixed assets of about ` 1.20 crores, and to reduce its current liabilities by about ` 3.12 crores. Thus most of the funds raised as unsecured loans had been utilized in that year. No interest bearing loans were taken in subsequent years. But, it is also seen that even after such utilization of funds in A.Y. 1997-98, the appellant still had an amount of ` 30,18,611.73 as cash in hand and cash in bank, as seen in its current assets as on 31.3.1997. That is to say that the appellant's plea that all its funds raised as interest bearing loans in A.Y. 1997-98 had been used up in that year itself is not found to be entirely correct. It is further seen that this amount was not fully depleted in the subsequent years as well, that could indicate that all the non business investment in A.Y. 2001-02 was made out of 6 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 the current year's capital, profits etc. It is seen that in the intervening years also the appellant had cash in hand and in bank of about ` 66.06 lakhs on 31.3.09, ` 73.27 lakhs as on 31.3.2000 and ` 2.83 crores as on 31.3.2001. thus it is not correct to say that all the borrowed funds had been used up in A.Y. 1997-98 or even in the subsequent and intervening years, since the appellant always had a part of the unutilized funds out of the interest bearing loans, at least of ` 30,19,611,73 coming down since A.Y. 1997-98 , which could be said to have been invested towards the non business investments in A.Y. 2001-02 out of the old interest bearing loans. It may be added here that in the preceding A.Y.s, especially in A.Y. 99-00 the fact that the interest payments were allowed as a deduction would indicate that it was accepted by the Assessing Officer in that year that the interest expenditure was for the appellant's business and hence allowable. But during these proceedings no case has been made out by the appellant to show that this amount too had been used up for business in the intervening years. But the balance investment out of ` 1.70 crores has to be taken to have been invested out of the appellant's income and capital of the present A.Y., as the same for exceeded the amounts invested in FDRs etc. Thus, there was a nexus between the interest bearing loans taken in A.Y. 1997-98 and the investments made in the present A.Y., to the extent of ` 30,19,611.73 only and not in respect of the balance investment. In view of this position, the disallowance made by the Assessing Officer has to be 7 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 partly sustained. Out of the claim of ` 23.80 lacs, the Assessing Officer had disallowed a sum of ` 6,87,342/-, in the present A.Y. when it was treated that the entire investments of ` 1.70 crores was made out of interest bearing loans. Now since the investment out of interest bearing loans is taken to be of ` 30,1,611.73 / ` 1.70 cores x ` 6,87,342, which comes to ` 1,22,090/-. This is made for the same reasons mentioned by the Assessing Officer, namely that the investments were for non-business purpose and also that the investments were made to earn income that was not chargeable to tax. The disallowance out of the interest claimed by the appellant thus comes to ` 1,22,090/- and the appellant gets a relief of the balance amount i.e. ` 5,62,252/- [ ` 6,87,342 - ` 1,22,090]."
3.3 We have heard both the counsel and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has made a factual analysis and found that only a part of the interest can be disallowed. He has given a finding that out of ` 1.70 crores considered by the Assessing Officer investment out of interest bearing funds was ` 30,19,611.73. The ld. counsel of the assessee could not controvert the finding. Hence, in our considered opinion his order does require any interference on our part. Hence the disallowance of ` 1,22,090/- stands affirmed.
4. The next issues raised read as under:-
"i) That the Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in sustaining the assessment of rateable value of Property NO. 41-A, Royal Accord, Mumabi, 8 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 at ` 5,00,000/- without appreciating the appellant's claim that the said property was used for business purposes and as such, no rateable value was assessable.
ii) That without prejudice and in the alternative, if income from property No. 41A, Royal Accord, Mumbai, be assessable as income from house property, the same is incorrectly computed without proper allowance, outgoings and deductions there from, including because rateable value has been taken on non-comparable basis without adopting standard rent in view of the decisions of the Hon'ble Apex Court. As such too, the said addition is liable to be substantially reduced, if not deleted.
iii) That the Ld. Commissioner of Income Tax (Appeals) has erred on facts in law in sustaining the non-allowance of depreciation on property no. 41-A, Royal Accord, Mumbai used by the assessee for the purposes of its business. The same was duly claimed during the course of assessment proceedings though inadvertently not claimed in return."
4.1 During the course of assessment assessee was required to furnish the details of properties owned by her. In the details filed it was observed that the property no. 41-A, Royal Accord, Mumbai was mentioned as used for business and its annual value was taken at Nil. However, from the Schedule of fixed assets furnished by the assessee along with the returns, it was observed that no depreciation was claimed on this property. The assessee could not explain why depreciation was not claimed on this property if the same was used for the purpose of business. Assessing Officer opined that property no.
9ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 41-A, Royal Accord, Mumbai was not used for the business purpose of the assessee. Further, in the case of the assessee for A.Y. 1999-2000 the Assessing Officer held that the property was not used for business and the income was chargeable under the head 'house property'. For determining the annual value, Assessing Officer found the same to be equal to that of property no. 41-B, Royal Accord, Mumbai from which, the assessee showed annual rent of ` 5,00,000/-. Thus, the annual value of this property is also taken at ` 5,00,000/-.
4.2 Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) affirmed the addition.
4.3 Against this order the assessee is in appeal before us.
4.4 Ld. counsel of the assessee submitted that the in assessee's own case, the Tribunal had earlier deleted the addition made for A.Y. 1999-2000 in ITA No. 1865/Del/2005.
4.5 We have heard both the counsel and perused the records. We find that in the said order the tribunal on the said issue had held as under:-
"We have carefully considered the rival submissions in the light of the material placed before us. The bills of furniture and fixture which was added during the year under consideration, the claim of depreciation of the assessee has not been disturbed. Those bills clearly shows that the furniture installed or brought was belonging to that property. It is also not shown by the revenue that assessee used the said property for her personal use. As against that the assessee has been 10 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 able to show that the said property was business property and the said facts was clearly stated in the wealth tax return so filed. It has not been shown by the revenue that the claim of the assessee that the said property is business property was not accepted in wealth tax proceedings. Thus, it is difficult to reject the submissions of the assessee that the said property was being used as business property without bringing any material on record to suggest that the fact stated by the assessee in the wealth tax return or on the bills of furniture was wrong. The assessee had brought the material on record before the Assessing Officer to show that the said property was being utilized for the purpose of business. The said record has been rejected without any cogent reasons or by bringing some adverse material on record to suggest that the facts stated by the assessee was false or incorrect. In these circumstances, the ALV could not be assessed as the said property was not self- occupied property. However, so as it relates to claim of the assessee with regard to depreciation on the said property, Ld. C.I.T.(A) has not given any finding despite the fact that the grievance was stated by the assessee before him in ground no. 5. In the circumstances, we hold that ALV could not be assessed as house property income as the assessee was using the property for the purpose of business. If it is so, the claim of depreciation is consequential.11
ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 However, neither the Assessing Officer nor the Ld. Commissioner of Income Tax (Appeals) has quantified the depreciation available, therefore, we direct the Assessing Officer to compute the admissible depreciation on the value of the said property.
In the result, the addition made of ` 4,32,000/- (` 5,76,000 - ¼ for repair and maintenance, ` 1,44,000/-) assessing net annual letting value of the property is deleted and the Assessing Officer is directed to allow depreciation as directed above. Thus, ground no. 3 and 3.1 are allowed in the manner aforesaid."
4.6 The facts in the present case are identical, hence, following the above precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee in accordance with above tribunal decision.
5. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of ` 112409/- on account of electricity charges in respect of property no. 41-A, Royal Accord, Mumbai used by the assessee for the purpose of business.
5.1 This issue is consequential to the above and as such this issue is also decided in favour of the assessee.
6. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in sustaining the addition of income from house property in respect of Property No. W-97, Greater Kailash-II, New Delhi which has been erroneously assessed on a net annual value of ` 413610/-.
12ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 6.1 On this issue Assessing Officer observed that in the chart furnished by the assessee the property at Greater kailash-II, New Delhi was shown as dilapidated property and not in use. Moreover, the size of the property was not mentioned by the assessee as required. From the schedule of the fixed assets, it was observed that the WDV was shown at ` 1,43,25,000/- and no depreciation was claimed on this property. Since the value shown in the balance sheet was quite high it is clear that the same cannot be dilapidated as claimed by the assessee. Further, the Assessing Officer mentioned that in A.Y. 1999- 2000 also, the Assessing Officer had taxed rental income from this property under the head 'income from house property'. Hence, taking the same step in this year the annual value was taken at ` 4,13,610/- which was treated by the Assessing Officer rateable value of the property as per the property tax bill issued by the assessment and collection department of MCD.
6.2 Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) confirmed the addition.
6.3 We have heard both the counsel and perused the records. We find that no evidence whatsoever has been furnished by the assessee for the claim that the said property is in dilapidated condition and was not let out. In the earlier year the tribunal had decided the issue in favour of the assessee by holding the last titled deed was registered on 12th April, 1999 and tribunal has held that unless it was established that the assessee has got the possession of the main property before the execution of the last title deed, it cannot be said that with certainty that any ALV was assessable with regard to that property. Therefore, tribunal had directed the Assessing Officer to delete the 13 ITA NOS. 2662 & 2987/DEL/2005 A.Y. 2001-02 same. For the present year under consideration, there is no doubt regarding the possession of the property by the assessee. In the absence of the any evidence produced by the assessee that the same was in a dilapidated condition, we do not find any infirmity or illegality in the order of the authorities below and, therefore, we affirm the same.
7. In the result, the appeal filed by the revenue stands dismissed and appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 22/10/2010.
Sd/- Sd/-
[A.D. JAIN] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 22/10/2010
SRB
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches
14