Income Tax Appellate Tribunal - Delhi
Wel Intertrade Pvt. Ltd., New Delhi vs Assessee on 14 August, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "H" NEW DELHI)
BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO
ITA No. 2538/Del/2010 Assessment Year: 2006-07
ITA No.1146/Del/2012 Assessment Year: 2008-09
Wel Intertrade Pvt. Ltd., vs. Income-tax Officer,
Block 5-E, Local Shopping Centre, Ward 18(3),
Masjid Moth, Gr. Kailash, Part-II, New Delhi.
New Delhi.
(PAN: AAACW0187F)
(Appellant) (Respondent)
ITA No.3052/Del/2010 Assessment Year: 2006-07
Income-tax Officer, Vs. Wel Intertrade Pvt. Ltd.,
Ward 18(3), Block 5-E, Local Shopping
New Delhi. Centre, Masjid Moth,
Gr. Kailash, Part-II,
New Delhi.
(PAN: AAACW0187F)
(Appellant) (Respondent)
Appellant by: S/Shri CS Aggarwal, RP Mall, Adv. &
DB Jain, CA
Respondent by: Shri Tarun Seem, Senior DR
Date of hearing : 26.06.2015
Date of pronouncement: 14:08.2015
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER ITA No.2538/Del/2010: The assessee has questioned First Appellate Order on the following grounds:
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1. That the Learned CIT(Appeals) has failed to appreciate that since the assessment framed by the Assessing Officer was in violation of principles of natural justice, the order of assessment had to be quashed or annulled.
2. That without prejudice and in the alternative, the Learned CIT(Appeals) ought to have restored such of the matters to the Assessing Officer to decide those issues, in respect of which additions had been made and were been made admittedly in violation of principles of natural justice i.e., without providing any opportunity whatsoever of being heard e.g. income under the head income from property.
2.1That the Learned CIT(Appeals) has failed to comprehend the rule laid down by the Apex Court in the case of M/s.Tin Box Co. Vs. CIT reported in 249 ITR 216, where in the Apex Court has held that where an opportunity is required to be provided by the Assessing Officer, such an, opportunity has to be provided by him alone and providing of an opportunity by the Learned CIT(Appeals) is not a substitute. 2.2 That the Learned CIT(Appeals) has further erred in failing to appreciate that, income from property had not been correctly computed by the Assessing Officer in accordance with law and as such there was no justification either on facts and on circumstances of the case to hold that, the claim of deduction of Rs.1,12,479 was since made by the assessee at page 110 of the paper book, same cannot be allowed as a deduction. The findings are based on erroneous assumptions and without appreciation of facts that assessee had not 3 made any such claim of Rs.1,12,479 in the computation of income filed by the assessee. The addition has been sustained, despite the fact no such claim was made and the income computed by the assessee at Rs.31,15,773 had correctly been computed.
2.3 That the Learned CIT(Appeals) has thus failed to comprehend the factual substratum of the case in upholding the addition under the head "income from property".
2.4 That further the Learned CIT(Appeals) was not justified in not allowing the deduction of Rs.2,21,879 being the interest paid representing 'late payment of interest' on the monies admittedly borrowed, as allowable deduction while computing the income from property as was utilized for acquiring the property whose income was assessed to tax.
3. That the Learned CIT(Appeals) has further erred in upholding the findings of Assessing Officer who held that the assessee had not commenced its business in the real estate. He has failed to appreciate that admittedly the business had been set up and even otherwise too, it was incorrect to hold both in law and on facts that the business had not commenced which findings were inconsistent with the findings recorded in the preceding years.
4. In fact the Learned CIT(Appeals) ought to have specifically held in view of his findings that the land situated at Bhondsi Village being agricultural land, was not stock in trade and the 4 assessee company carried on the business in respect of real estate other than of agricultural land held at village Bhondsi.
5. That the Learned CIT(Appeals) has further erred in upholding the disallowance of interest and bank charges of a. (i) Rs.26,86,143 Representing interest on
(ii) Rs.3,88,138 monies borrowed for the
(iii)Rs.2,21,879 purposes of business and
(iv) Rs.10,815 and utilized for the same b. ( v) Rs.8,63,651 representing bank charges.
All aggregating to Rs.41,70,626, while computing or determining the total income of the assessee company.
6. That in any case and without prejudice there was absolutely no justification to disallow a further amount of Rs.9,80,103 purported to be proportionate employee cost, on an assumption that such expenses could be held to be capital expenditure. In doing so the Learned CIT(Appeals) has failed to appreciate that, the income may be computable, head wise, yet it is the total income of the assessee which has to be computed and as such the expenditure incurred on the employment of employees and had been employed in the business had to be allowed as a deduction and there can be no proportionate disallowance made on an assumed basis.
7. That the Learned CIT(Appeals) has further erred in sustaining the disallowance of Rs.5,89,433, a sum disallowed by the Assessing 5 Officer out of the travelling and conveyance on ad hoc basis, being 50% of the total expenditure incurred. He has failed to appreciate that there was no dispute that the expenditure has been incurred for the purposes and was allowable and no ad hoc disallowance could thus have been made."
2. Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
3. Ground No.1 is general in nature, hence, does not need independent adjudication.
4. Ground Nos.2, 2.1, 2.2, 2.3 have not been pressed by the Learned AR during the course of hearing. The same are rejected as such.
5. Ground No. 2.4: The facts in brief are that the assessee engaged in the business of consultancy and real estates had purchased 8,927 sq. fts. of built up area on 3rd floor in a building by the name and style of Capital Fort situated at Munirka for a total consideration of Rs.9,37,33,600 besides stamp duty and registration expenses. The property was purchased with effect from 22.9.2005 when the assessee paid a sum of Rs.6,12,98,805 and 6 subsequently requested the seller that since this property was purchased on 22.9.2005 they are also entitled to rent from 23.9.2005. The property was on lease with Lal Bhai Reality Finance Pvt. Ltd. and they paid rent of Rs.4,60,431 for the intervening period. Lal Bhai Reality Finance Pvt. Ltd. had acquired the aforesaid property from Land Mark Builders Pvt. Ltd. It was submitted by the assessee that for purchasing the aforesaid property, the assessee company had borrowed Rs.6.50 crores from HDFC Bank and part of the consideration was financed by the assessee company from its own resources. However, since the amount had to be paid by the assessee company to Lal Bhai Reality Finance Pvt. Ltd. on 22.9.2005, it paid interest on the unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. of Rs.2,21,879 prior to the deduction of tax at source.
6. It was submitted that from 23.9.2005, the assessee received rent from the tenant 'Energy Infra-structure India Pvt. Ltd.'. The rent received in the year under consideration from 23.9.2005 aggregated to Rs.59,45,525. Besides the aforesaid rent, the assessee also received rent of Rs.27,67,500 from another property owned by the assessee company. Thus, the aggregate rent received amounted to Rs.87,13,025 which was duly reflected in the profit and loss account. The assessee claimed deduction of interest paid by 7 the assessee to Lal Bhai Reality Finance Pvt. Ltd. from whom the assessee had acquired the property and paid the consideration for purchase thereof. The Assessing Officer disallowed the same, which has been upheld by the Learned CIT(Appeals) at Rs.2,21,879.
7. In support of the ground, the Learned AR submitted that the disallowance was made by the Assessing Officer without application of mind as he proceeded to compute income on the basis of profit and loss account and not on the basis of computation of income filed by the assessee. Had the Assessing Officer examined the claim under the head "income from property" separately then he would not have committed such an error of disallowing the entire claim debited in the profit and loss account which aggregated to Rs.71,12,593 which was the amount of interest paid as also bank charges, detailed in the profit and loss account.
8. The Learned AR submitted further that Learned CIT(Appeals) in his order has also erred having only allowed a deduction of interest paid on a loan of Rs.6.50 crores paid to HDFC Bank and erred in not allowing interest paid by the assessee to Lal Bhai Reality Finance Pvt. Ltd. by holding that the same represents late interest payment and not interest charges paid to HDFC Bank. He submitted that the Learned CIT(Appeals) has failed to appreciate 8 that the assessee has paid the interest on the amount borrowed from HDFC Bank and has also paid interest on the unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. till the same was paid on 10.2.2006. In this regard, he referred page No.. 364 of the paper book. He submitted that not only interest paid to HDFC Bank of Rs.29,41,967 was allowable as deduction but also unpaid amount to Lal Bhai Reality Finance Pvt. Ltd. represented borrowed amount and as such interest paid on such borrowed amount is also eligible for deduction under sec. 24(b) of the Act.
9. The Learned Senior DR on the other hand placed reliance on the orders of the authorities below. He submitted that the claimed interest was not allowable as it was not an interest paid on the capital borrowed from the HDFC Bank . He submitted further that this amount also cannot be claimed as expenditure incurred for business purposes as the property in question has been assessed to tax under the head 'income-from house property".
10. Having gone through the orders of the authorities below, we find that the claimed deduction has been denied on the basis that the same was not allowable as it was not an interest paid on the capital borrowed from HDFC Bank. There is no dispute that for purchasing the property at Munirka for a 9 consideration of Rs.9,37,33,600, the assessee had taken loan from HDFC Bank for Rs.6.50 crores on which the authorities below have allowed the interest paid by the assessee. The property was acquired from Lal Bhai Reality Finance Pvt. Ltd. and Rs.2,21,879 as interest was paid on the delayed payment of the amount out of the sale consideration to Lal Bhai Reality Finance Pvt. Ltd. The said delayed payment out of the consideration was made on 10.2.2006. Thus, in our view, the interest paid at Rs.2,21,879 cannot be treated differently in comparison to the interest paid to the HDFC Bank as the very purpose for both the interest was to facilitate the payment of amount in consideration for acquisition of the property. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to compute the interest of Rs.2,21,879 claimed as allowable while computing income from property as provided under sec. 24(b) of the Act. The ground No. 2.4 is thus allowed.
11. Ground No.3: It is regarding the finding of the Learned CIT(Appeals) that assessee company has not commenced the business of a real estates.
12. The Learned AR submitted that the assessee had been carrying on various business activities including business of real estates. In fact, the Assessing Officer has himself observed in the assessment order as "assessee 10 engaged in the business of consultancy and real estates" and has computed business income at Rs.18,77,041. The Assessing Officer had denied the claimed deduction on the basis that there was no income from real estates in the year under consideration. The Assessing Officer accordingly disallowed interest and bank charges claimed as deduction. The Assessing Officer could not have arrived at such a conclusion since assessee company had even during the year under consideration given advances for purchase of flats/land, as would be evident from the following table:
Date To whom paid Amount(Rs.) Purpose of
payment
11.11.2005 Repayment to 90,00,000 Repayment of
Sh. S.K. Jatia of amount received
amount received earlier (page 158
on 07.10.2005 in of P.B.)
Kotak Bank.
11.11.2005 Smart Tourism 50,00,000 As advance for
Pvt. Ltd. acquisition of
property (page
160 of P.B.)
20.11.2005 GE Capital 4,00,00,000 Payment made
Services. towards land
advance (pages
161 to 178 of
P.B)
23.11.2005 GE Capital 1,50,00,000 Payment towards
Services land advance
(pages 161 to
178 of P.B)
27.11.2005 GE Capital 1,2,00,000 Payments made
Services towards land
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advance (pages
161 to 178 of
P.B)
13. The Learned CIT(Appeals) in fact has himself accepted that the funds have been admittedly utilized as working capital of the real estates business. The Learned AR referred page No. 26 of the First Appellate Order in this regard. He pointed out that even in the assessment order framed under sec. 143(3) of the Act for the assessment year 2005-06, it is an admitted fact by the Assessing Officer that assessee is engaged in the work of real estates. In support, he referred page Nos. 374 to 282 of the paper book i.e copy of the assessment order for assessment year 2005-06. He pointed out further that in the preceding assessment year, expenditure incurred and as debited in profit and loss account like in the present year has been fully and wholly allowed as deduction. In support, he referred following table showing the aggregate sum of expenditure incurred in the preceding years and in the present year:
Assessment year Expenditure incurred (Rs.)
2001-02 23,98,19,794
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2002-03 4,99,45,393
2003-04 1,07,37,854
2004-05 86,30,243
2005-06 2,11,44,312
2006-07 1,35,44,011
14. The Learned Senior DR on the other hand placed reliance on the orders of the authorities below with this contention that under the facts of the present case, the Learned CIT(Appeals) has rightly come to the conclusion that the assessee company had not commenced the business of real estates. The assessee was in several business activities and it was not clear that as to which business was commenced during the year.
15. Considering the above submission, we find that in the assessment year 2005-06 in the assessment framed under sec. 143(3) of the Act, the Assessing Officer himself has admitted that the assessee is engaged in the work of real estates development. The relevant extracts thereof is being reproduced hereunder for a ready reference:
"As in the past, the company is engaged in the work of real estates development. In addition to the same company also derived income in 13 the business of sale, purchase of wood and related items and also from the management consultancy."
Besides, it is an established position of law that any expenditure incurred after the date of setting up of the business is allowable deduction and it is an unrebutted fact of the present case that in the preceding assessment years, as submitted by the Learned AR hereinabove, the expenditure incurred and as debited in profit and loss account like in the year under consideration, has been fully and wholly allowed as deduction. The Learned CIT(Appeals) has himself held at page No. 26 para No. 7.13 of the First Appellate Order that admittedly the loan amount was used as working capital in its real estates business. Under these facts, we are of the view that the Learned CIT(Appeals) was not justified in arriving at a conclusion that the assessee company has not commenced the business of real estates. This conclusion of the Learned CIT(Appeals) is set aside with this finding that during the year the assessee had commenced the business of real estates. The ground No.3 is thus decided in favour of the assessee.
16. Ground No.4: This ground has been raised as an alternative and without prejudice to the above submissions that in view of finding of Learned CIT(Appeals) agitated above in ground No.3, the Learned 14 CIT(Appeals) ought to have held that the land held and owned by the assessee in Village: Bhondsi measuring 38.09 hector is an agricultural land despite the fact that the same was shown in the balance sheet, under the head "stock in trade" of the value of Rs.3,11,24,826.
17. The learned Senior DR, however, tried to justify the First Appellate Order that the assessee had not commenced the real estates business.
18. Having gone through the orders of the authorities below, we find that the Learned CIT(Appeals) has given his finding on the issue in para No. 7.14 of the First Appellate Order at page No. 27. The Learned CIT(Appeals) has stated that receipt from real estates business cannot be considered as sufficient or adequate test to determine whether the business has been set up or has commenced. He has, however, noted that the assessee is holding 38.09 hectors of agricultural land for which land use conversion had not been granted by the concerned authorities for residential and commercial purposes. Thus, the land in possession of the assessee remained agricultural only and no construction development activity has obviously been started on it or can be started on it in the absence of the requisite permission. He accordingly held that the land is not ready for commencement of business or 15 to be used for business purpose and thus assessee has not set up or commenced the business of real estates. In our opinion, the ground No.4 is unsustainable, since the assessee had not either shown the agricultural land as an investment nor is there any material brought on record to establish that it was an investment. On the contrary, it was contended by the assessee that it had set up the business when it had purchased the land. Otherwise also, as the land was part of the stock in trade since the aforesaid land had been acquired in the course of its business which is an admitted fact and so admitted by when it had been contended by the assessee that it is a developer in real estates and as such in our opinion the said land was a stock in trade. The approach of the assessee is apparently contradictory which cannot be upheld. Thus, in our view, the Learned CIT(Appeals) was right both on facts and in law in not holding that the said land was not a stock in trade as has been contended by the assessee. The assessee has also taken the ground as an alternative contention and was without prejudice as the Revenue had taken the stand that the assessee has not commenced the business in real estates. In view of our findings hereinabove on the issues raised in ground No.3 and the admitted position by the Revenue in the preceding years that the assessee had not only set up the business but had also commenced the same, the contention raised in support of ground No.4 as discussed above 16 does not stand and the same is accordingly rejected, with this finding that the land in question was actually stock-in-trade.
19. Ground No.5: It is in respect of disallowance out of interest paid to HDFC Bank and the bank charges of Rs.39,37,932. The break-up of the charges is as under:
SNo. Particulars Amount (Rs.)
1. Interest paid on HDFC 26,86,143
loan Rs.800 lacs.
2. Interest paid ICICI 3,88,138
Home Loans
3. Bank Charges 8,63,651
Total 39,37,932
20. The figure stated in the ground of appeal is Rs.41,70,626 which includes Rs.2,21,879 separately challenged in ground No.2.4 above and Rs.10,815 representing interest paid on car loan deleted by the Learned CIT(Appeals).
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21. In respect of remaining amount, the Learned AR submitted that interest has been paid on money borrowed for the purpose of business and utilized in the business. Taking up interest of Rs.26,86,143, he submitted that assessee had borrowed a sum of Rs.8 crores from HDFC Bank for the purpose of business as would be clear from the details discussed earlier. The Learned AR submitted that the Learned CIT(Appeals) has failed to appreciate that assessee in the course of its business had borrowed funds for the purpose of its business and made advances towards acquisition of land and properties. In fact, the Learned CIT(Appeals) has himself admitted that the funds have been admittedly utilized as working capital of the real estates business (Page No. 26 of the First Appellate Order), however, he has not allowed the same on his contradictory finding that the assessee has not set up and commenced the business of real estates. He submitted that the assessee company is engaged in the development of property and purchase and sale thereof. During the year, it had since paid advances for the purpose of the business, as such , interest paid for money borrowed for real estates business is eligible for deduction under sec. 36(1)(iii) of the Act. He pointed out that the amount of interest paid to ICICI Bank of Rs.3,88,138 was for purchase of two flats in Vatika Limited, which flats were delivered in the financial year 2007-08 and was duly reflected in the balance sheet and out of the two 18 flats one is sold in financial year 2009-10 and income accruing on the sale thereof has been shown as business income. He referred copy of loan agreement with ICICI Bank made available at page No. 179 to 197 of the paper book and agreements for purchase of flats with Vatika Ltd. have been made available at page Nos. 198 to 363 of the paper book. Learned AR submitted that the Learned CIT(Appeals) has failed to appreciated that the amount of interest paid to HDFC Bank of Rs.26,86,143 and interest paid to ICICI Bank of Rs.3,88,138 in respect of investment made in stock in trade ought to have been held as allowable deduction in computing the income earned by the assessee for the year under consideration. In any case, it is undisputed that assessee was also engaged in the business of consultancy, trading of products and business income had been assessed at Rs.18,77,042, thus, there was business of assessee company and the interest paid was allowable as deduction, contended the Learned AR.
22. In respect of remaining sum, the Learned AR submitted that Rs.8,63,651 represents bank charges in respect of loan raised for the acquisition of the property, where advance was paid to M/s. GE Capital Services and Smart Tourism Pvt. Ltd., since the bank charges were paid to the Bank in respect of the money borrowed in the course of business. He 19 submitted that there is absolutely no justification to have held the same is not allowable deduction. The Learned AR referred contents of page No. 21 of the First Appellate Order with this contention that the Learned CIT(Appeals) has though noticed that the assessee has incurred expenditure of Rs.8,63,582 as bank charges which is being claimed by it as business deduction, however, he has not specifically dealt with the same in his order. In fact, since he held that the amount of interest paid to HDFC Bank of Rs.26,86,143 on loan of Rs.8 crores and interest paid to ICICI Bank of Rs.3,88,138 cannot be regarded as business expenditure, he sub-silentio upheld the disallowances made of the bank charges paid to the HDFC Bank. The Learned AR accordingly prayed that the amount of interest paid of Rs.26,86,143, Rs.3,88,138 and of Rs.8,63,582 as bank charges aggregating to Rs.39,31,938 be directed to be allowed.
23. The learned Senior DR on the other hand tried to justify the orders of the authorities below.
24. Considering the above submissions, we are of the view that when Learned CIT(Appeals) himself has admitted that funds have been utilized as working capital of the real estates business in his finding in para No. 7.13 at page No. 26 of the order, he was not justified in denying the claimed 20 deduction of interest payments on the borrowed amounts for the investment made in stock in trade. The Learned CIT(Appeals) has disallowed the claimed interest payment on the basis that the business for the purpose of which loan was raised and interest was paid was not commenced. We have decided this issue hereinabove in ground No. 3 that keeping in view the facts and circumstances of the case and the approach of the Assessing Officer in preceding assessment years in allowing the claimed expenditure, the Learned CIT(Appeals) was not justified in coming to the conclusion that the real estates business had not commenced. We thus while setting aside orders of the authorities below direct the Assessing Officer to delete the disallowance of Rs.39,31,938 claimed on account of interest and bank charges paid against the loan raised for investment in the acquisition of the property. The ground No. 5 is accordingly allowed.
25. Ground No.6: It is in respect of disallowance sustained by the Learned CIT(Appeals) at Rs.9,80,103 out of the expenditure of Rs.12,31,084 as debited in the profit and loss account under the head "employees cost".
26. At the outset of hearing, the Learned AR submitted that similar expenditure had been incurred in the preceding years 2001-02 21 (Rs.22,24,713), 2002-03 (Rs.23,13,054), 2003-04 (Rs.13,77,196), 2004-05 (Rs.9,83,823) and 2005-06 (Rs.12,38,588) have been held allowable. The Learned AR submitted that in each of the preceding years including in the assessment years 2001-02 and 2005-06 when assessments were made under sec. 143(3) of the Act, the said expenditure incurred has been held allowable. Hence, the finding of the Learned CIT(Appeals) in sustaining the disallowance is based on factual misconception and is in disregard of the fact that after the business has set up, the expenditure incurred is an allowable deduction. The Learned AR submitted that the Assessing Officer had disallowed the claim on proportionate basis on an erroneous assumption that there is no income from business of real estates and as such, only expenses to the extent there is business income is allowable. We, thus computed the disallowance accordingly. The stand taken by the Assessing Officer has no legal basis. He placed reliance on the following decisions:
i) 91 ITR 544 (S.C) - CIT vs. Dhanrajgirji Raja Narshingji;
ii) 118 ITR 261 (S.C) Sassoon J David and Co. (P) Ltd.; &
iii) 254 ITR 377 (Del) CIT vs. Dalmia Cement (P) Ltd.
iv ) 265 ITR 77 (Allahabad) - Abbas Wazir (P) Ltd. vs. CIT;
27. The Learned AR submitted further that the Learned CIT(Appeals) has upheld the disallowance based on factual misappropriation of facts. The 22 assumption of Learned CIT(Appeals) that assessee had not incurred the expenditure for the purpose of its business is based on no material. He also failed to appreciate that in the preceding year, similar expenditure has been held fully allowable. He placed reliance on the following decisions:
i) 56 ITR 27 - CIT vs. Indian Bank Ltd.;
ii) 219 ITR 563 (S.C) - Waterfall Estates Ltd. vs. CIT;
iii) 242 ITR 450 (S.C) - Rajasthan State Warehousing Corporation vs. CIT;
iv ) 128 ITR 189 (P&H) - Punjab State Cooperative Supply & Marketing Federation Ltd. Vs. CIT.
28. The learned Senior DR on the other hand placed reliance on the orders of the authorities below.
29. Considering the above submission, we find that in the preceding years, similar expenditure has been allowed and out of these assessment years 2001-02 to 2005-06 in the assessment years 2001-02 and 2005-06 the assessments have been framed under sec. 143(3) of the Income-tax Act, 1961. It is a trite law that after the business has been set up, the expenditure incurred is an allowable deduction. The Assessing Officer has disallowed the claim on proportionate basis on an erroneous assumption that there is no 23 income from business of real estates as such, only expenses to that extent there is business income which is allowable. He accordingly computed the disallowance. Besides, there is no material on record to support the allegations of the authorities below that assessee had not incurred the claimed expenditure for the purpose of its business. In absence of such evidence and especially when in the preceding years, similar expenditure has been allowed, we are of the view that there was no justification on the part of the authorities below to make and uphold the disallowance out of the claimed expenditure. We thus while setting aside orders of the authorities below in this regard, direct the Assessing Officer to delete the disallowance of Rs.9,18,103 made out of the claimed expenditure of Rs.12,31,084. Ground Nos. 6 is accordingly allowed.
30. Ground No.7: It is in respect of disallowance of expenditure of Rs.5,89,433 out of aggregate expenditure of Rs.11,78,186 incurred on conveyance and travelling.
31. The relevant facts are that the assessee claimed expenditure on travelling and conveyance of its employees at Rs.11,78,186. The Assessing Officer made disallowance of 50% of the claimed expenditure on the assumption that the aforesaid expenditure could not have been incurred to 24 earn a receipt of Rs.22.36 lacs. The Learned CIT(Appeals) has upheld the disallowance.
32. In support of the ground, the Learned AR submitted that details of claimed travelling and conveyance expenses of its employees incurred at Rs.11,78,186 were furnished before the Assessing Officer and a copy thereof has been made available at page No. 367 of the paper book. The Learned CIT(Appeals) while upholding the action of the Assessing Officer has noted that out of the expenditure incurred, Rs.4,55,847 had been incurred by the two employees for meeting for procuring business for the assessee company and for consultancy contract for company. He submitted that incurring of expenditure, genuineness thereof in fact has not been found having not been established. However, the Learned CIT(Appeals) in his order at page No. 31 in para 8.4 has summarily rejected the claim of deduction without any justification. He submitted that it is not a case where the Assessing Officer or Learned CIT(Appeals) has disputed either of incurring of expenditure or genuineness thereof. The only objection of the authorities below remained that no prudent businessman would have incurred expenses on travelling and conveyance to the tune of Rs.11.78 lacs to earn receipts of Rs.22.36 lacs since many other expenses overheads would also be there. Both the 25 authorities have noted that fringe benefit tax has been paid on travelling and conveyance expenses. Thus, it is evident that aforesaid expenditure since have been incurred in the course of business on employees and for the purpose of business, no disallowance would have been sustained. He submitted that even otherwise ad hoc disallowances are not tenable in law and placed reliance on the following decisions:
i) Goodyear India Ltd. vs. ITO - 73 ITD 189 (Del.); ii) Dinesh Mills Vs. CIT - 254 ITR 673 (Guj.);
33. The Learned AR submitted further that even otherwise, there is no basis to disallow 50% of the eligible business expenditure incurred by the assessee company and placed reliance on the decision of Hon'ble Supreme Court in the case of State of Orissa vs. Maharaja Shri B.P. Singh Deo (1970)
- 76 ITR 690 (S.C).
34. The Learned DR on the other hand placed reliance on the orders of the authorities below.
35. Considering the above submission, we find substance in the contention of the Learned AR that a disallowance of the claimed expenditure cannot be made on the basis that no prudent businessman would have 26 incurred expenses on travelling and conveyance to the tune of Rs.11.78 lacs to earn receipts of Rs.22.36 lacs, especially when no fault has been found in the vouchers and bills furnished in support of the claimed expenditure nor is there any dispute regarding the genuineness of the expenditure of the assessee. We thus while setting aside orders of the authorities below in this regard direct the Assessing Officer to delete the disallowance of Rs.5,89,433 made out of the claimed expenditure of Rs.11,78,186 incurred on conveyance and travelling. The ground No. 7 is accordingly allowed.
36. In result, the appeal is allowed.
ITA No. 3052/Del/2010:
37. The Revenue has questioned First Appellate Order on the following grounds that Learned CIT(Appeals) has erred in:
i) allowing deduction under sec. 24 of the Income-tax Act, 1961 of Rs.27,70,088 to the assessee on account of interest paid on borrowed capital used for the business purposes; &
ii) holding that legal and professional expenses of Rs.15,24,479 are of Revenue in nature.
Ground No. (i):
38. We have discussed the related facts on the issue raised in this ground in ground No. 2.4 of the appeal preferred by the assessee hereinabove. The 27 Revenue is disputing the allowability of the claim of Rs.27,20,088, whereas the Learned CIT(Appeals) has allowed Rs.29,41,967 out of the claim made by the assessee towards interest on the amount borrowed by it for the purchases of Property No.103A, Third Floor, Capital Court at Munirka, New Delhi, while computing its income from property.
39. In support of the ground, the Learned DR placed reliance on the assessment order. The Learned AR on the other hand adopted similar arguments as advanced by him in support of ground No.2.4 of the appeal preferred by the assessee hereinabove. He tried to justify the First Appellate Order with this submission that the said amount of interest has been paid at the amounts borrowed for the purchase of property and was allowable under sec. 24(b) of the Act. The Learned CIT(Appeals) was thus right in allowing the same.
40. Considering the above submissions and following the decisions taken on an identical issue hereinabove while disposing of Ground No. 2.4 of the appeal preferred by the assessee, we hold that interest paid to HDFC Bank and on unpaid amount ( out of the sale consideration ) to Lal Bhai Reality Finance Pvt. Ltd. from whom the property was purchased, an interest on the unpaid amount was paid to them represented borrowed amount and as such 28 it was eligible for deduction under sec. 24(b) of the Act. The Learned CIT(Appeals) was thus justified in allowing the claimed deduction of Rs.27,20,088. The same is upheld. Ground No (i) is accordingly rejected. Ground No.(ii):
41. The Revenue has disputed the allowability of the claim of expenditure of Rs.15,24,479 representing expenditure under the head "legal and professional charges".
42. In support of the ground, the learned Senior DR submitted that the assessee had incurred substantial expenses to earn almost similar receipts which no prudent businessman would have incurred.
43. The Learned AR on the other hand reiterated submissions made before the authorities below with this further contention that details of the expenses were made available before the Assessing Officer which were duly supported by bills. He pointed out that a copy of the said details has been made available at page No. 368 of the paper book. He submitted that the purpose of incurring the aforesaid expenditure was to pay consultancy charges incurred to various professionals for the purpose of business. He pointed out that similar expenditure incurred in past in the course of business had been held allowable as such. In this regard, he referred the assessment years 2001-02 to 2006-07 wherein expenditure incurred in this regard has 29 been allowed. He submitted further that the assessee is the best judge of its own business affairs and it is who incurs expenditure for the purpose of business may be at times, it may not result into immediate benefit or at time no benefit or differed benefit but the same cannot be treated as not incurred for the purpose of the business so as to disallow the same under sec. 37 of the Act.
44. Considering the above submission, we find substance in the contention of the learned AR that there would be no justification to disallow any expenditure incurred by the assessee when the expenditure was incurred by it in the course of business and the claim is supported with complete details with evidence mainly on the basis that the assessee did not act prudently while incurring such expenditure. We thus do not find infirmity in the First Appellate Order deleting the disallowance in question. The same is upheld. Ground No.(ii) is accordingly rejected.
45. In result, the appeal is dismissed.
ITA No. 1146/Del/2012:
46. The First Appellate Order has been impugned by the assessee on the following grounds:
1. That the Learned CIT(Appeals) has erred both on facts and in law in confirming the findings and the order of the Assessing Officer, when he held that, the " interest income" of Rs.83,65,124 is not an 30 income derived from the 'business', instead the same was assessable under the head income from 'other sources', despite the fact that such income derived has been held in the preceding years, as income from 'business' and there was no change in the facts and the circumstances.
2. That the Learned CIT(Appeals) has further failed to appreciate that, the assessee is engaged in the various business activities namely as a developer of real estate and dealer in real estate etc., and only one of it, was from income by way of interest.
3. That the Learned CIT(Appeals) has erroneously held, that merely because, in the instant year, that a part of the interest of Rs.13,46,708 had been earned, by way of interest of fixed deposits, whereas, substantial part of interest i.e. of Rs.70,18,416 had been earned by advancing funds to various companies to whom the amounts were advanced in the preceding year(s), the same is not sufficient to conclude, either in law or facts that the income derived by the assessee was not an income assessable under the head "business income". He has further failed to appreciate that the assessee has also advanced further amounts to such parties in addition to advances made in earlier years .
4. That the Learned CIT(Appeals) has further failed to comprehend the facts of the instant case in its proper and correct prospective. In fact, he has failed to comprehend that, assessment for the assessment years 2005-06 and 2006-07 were completed u/s.
143(3) of the Income-tax Act, and incorrectly been stated in the table at page 15 of his order u/s. 143(1) of the Income-tax Act, 1961.
5. That the Learned CIT(Appeals) has erred in his conclusion that, as two of the activities since were inoperative during the year, the 31 assessee did not maintain in the business, more particularly after having held that, in respect of Real Estate business there was no change in the inventory and it remained stock-in-trade. The Learned CIT(Appeals) while holding so has further erred in not appreciating that in the instant assessment year inventories under the real estate business have increased by a sum of Rs.1,20,56,497.
6. That the Learned CIT(Appeals) has also failed to appreciate that, so long the business carried did not cease to be carried on, any expenditure incurred in the course of such business, is an allowable deduction u/s. 37(1) of the Income-tax Act, 1961 which expenditure had to be set off from income under any other head of income, as has been held by the Apex Court in the case of CIT vs. R.P. Mody reported in 115 ITR 519 and as such the aggregate disallowance of expenditure incurred of Rs.2,09,62,446 was erroneous both on facts and in law. In doing so the Learned CIT(Appeals) has overlooked that the assessee had claimed a deduction only Rs.1,79,09,346 and in any case and without prejudice addition of Rs.30,53,100 was wholly erroneous being without any basis.
7. That in any case and without prejudice the Learned CIT(Appeals) was not justified in upholding the partial allowance of the claim of expenditure incurred by the assessee of Rs.2,77,77,591 in the profit and loss account without holding any part of the expenditure was either unverifiable or was unsubstantiated, claim of expenditure. The entire sum of expenditure of Rs.1,79,09,346 was thus ought to have been allowed as a deduction, while computing the total income of the assessee. That even otherwise and without prejudice the 32 disallowance of the expenditure is neither logical nor is based on valid material and is highly arbitrary being excessive.
8. The Learned CIT(Appeals) has further erred in upholding the disallowance of a sum of Rs.66,750 subject to verification by the Assessing Officer made by the Assessing Officer at Rs.1,36,798 by invoking the provisions of sec. 14A of the Income-tax Act, 1961 and without appreciating the amount disallowed by the Assessing Officer was in respect of an amount of dividend earned which aggregate to Rs.66,750, whereas the disallowance made by the Assessing Officer far exceeded the amount and such expenditure as disallowed showed no nexus with the expenditure incurred and was nor in relation to the income derived from the dividend.
9. In any case and without prejudice the disallowance made could not have exceeded the sum of Rs.8,497 which was calculated by the assessee in accordance with rules.
10. That the Learned CIT(Appeals) ought to have held that, no interest was leviable on the assessee u/s. 234B of the Income-tax Act, 1961 and as such interest levied of Rs.15,61,030 ought to have been deleted."
47. In ground Nos. 1 to 7: We have discussed the facts of the case in brief while disposing the appeal for the assessment year 2006-07 hereinabove. The assessee company was incorporated on 28.2.1973. It is engaged in the business of development of real estates, sale and purchase of wood and related items. It is also engaged in the business of providing consultancy, 33 earning service income by providing infra-structure facility for maintenance of property and earning of interest income on the advances made.
48. During the year, assessee had offered income from sales of Rs.19,917, rental income of Rs.1,98,31,020 and other income of Rs.84,31,874 which included the interest income of Rs.83,65,124 and dividend income of Rs.66,750. Against the aforesaid, the assessee had claimed expenditure of Rs.2,77,77,591. The Assessing Officer framed the assessment under sec. 143(3) at the income of Rs.1,51,50,290 as against the returned income at nil. The Assessing Officer held that interest income is taxable under the head 'income from other sources' as against the business income offered by the assessee. The Assessing Officer further held that since no business activity was undertaken by the assessee as such no expenses can be allowed to the assessee and in view thereof the Assessing Officer disallowed the expenditure to the extent of Rs.2,09,62,446 as against Rs.1,79,09,346 claimed in the computation of income. The Learned CIT(Appeals) has upheld the same, which has been questioned in ground Nos.1 to 7.
49. The Learned CIT(Appeals) with regard to disallowance made under sec. 14A of the Act by the Assessing Officer has, however, set aside the 34 matter to the file of the Assessing Officer for verification, which has been questioned by the assessee in ground Nos. 8 and 9.
50. In ground No.10, the assessee has questioned validity of charging of interest under sec. 234B of the Income-tax Act, 1961 at Rs.15,61,030.
51. We thus find that following three issues have been raised in the above grounds:
i) As to whether the Learned CIT(Appeals) was justified in treating the interest income of Rs.83,65,124 as income from other sources? (Ground Nos. 1 to 7 ).
ii) As to whether the Learned CIT(Appeals) was justified in setting aside the issue of validity of disallowance made under sec.14A of the Act at Rs.66,750 to the file of the Assessing Officer? ( Ground Nos. 8 and 9 ).
iii) As to whether the Learned CIT(Appeals) was justified in upholding the validity of charging of interest at Rs.15, 61,030 under sec. 234B of the Act? (Ground No. 10)
52. Issue No. (i) - Ground Nos. 1 to 7: In support of these grounds involving the issues, the Learned AR submitted that the assessee had been engaged in the earning income from advancing money on interest since last many preceding assessment years and the interest income earned in each of 35 such assessment years had been offered as business income and same has also been accepted in all the preceding assessment years i.e. 2002-03 to 2007-08 and 2009-10. He pointed out that even in the assessment framed under sec. 143(3) of the Act for the assessment years 2005-06 and 2006-07, the interest income offered as business income has duly been accepted. Hence, even on the principles of consistency, aforesaid interest income as was offered by the assessee is liable to be taxed as business income and not as income from other sources. The authorities below have failed to appreciate that facts and circumstances of the present years are identical to the preceding assessment years and they have overlooked that it is not a case wherein all the preceding assessment years, the interest income was accepted as business income under sec. 143(1) of the Act. As such Revenue cannot take a stand that assessee is not engaged in advancing the money and earning interest as business income. In support, he placed reliance on the following decisions:
i) CIT vs. Neo Poly Pack Pvt. Ltd. - 245 ITR 492 (Del.);
ii) CIT vs. Excel Industries Ltd. (2013) - 358 ITR 295 (S.C);
iii) CIT vs. J.K. Charitable Trust - 308 ITR 161 (S.C).
53. Without prejudice to the above submissions, the Learned AR submitted that section 56 of the Income-tax Act, 1961, provides that income 36 of every kind which is not to be excluded from the total income under the Act shall be chargeable to income-tax under the head "income from other sources", if it is not chargeable to income-tax under any of the heads specified in sec. 14, item A to E. He cited following decisions in support:
i) SG Mercantile Corporation (P) Ltd. vs. CIT - 83 ITR 700 (S.C);
ii) CIT vs. Bokaro Steel Ltd. - 236 ITR 315 (S.C);
54. The Learned AR submitted that the assessee is in the business of development of real estates, sale and purchase of woods and related items, business of providing consultancy, earning service income by providing infra-structure facility for maintenance of property and earning of interest income. He submitted that it is not denied that during the year under consideration apart from interest income earned to Rs.83,65,124 and Rs.19,917 earned from the sale of timber, no other business income was earned, however, merely because business income was not earned from its activity of real estates and consultancy business, it cannot be held that no business was undertaken during the year. He submitted that the business of assessee had never ceased to exist. The Learned AR placed reliance on the following decisions:
i) CIT vs. Vikram Cotton Mills Ltd. - 169 ITR 597 (S.C);37
ii) Additional CIT vs. Rajender Flour & Allied Industries Pvt. Ltd.
- 128 ITR 402 (Del.);
iii) CIT vs. Jacobs - 160 ITR 570 (Ker.);
55. Without prejudice to the above submissions, the Learned AR submitted that even for the sake of arguments, if it is presumed that the assessee did not carry out any business activity during the year, though the assessee seriously dispute the same, then too, it is submitted that expenditure incurred by the assessee during the normal course of activities is an allowable expenditure.
56. In alternative and without prejudice to the above submissions, the Learned AR submitted further that the Assessing Officer has erred in computing the expenditure to be disallowed at Rs.2,09,62,446 as against Rs.1,79,09,346 claimed in the computation of income, as such, at best disallowance could be restricted to Rs.1,79,09,346 and not at Rs.2,09,62,446 as was made by the Assessing Officer. He submitted further that the Assessing Officer had proceeded to compute the income not from profit and loss account but from the computation of income, while making the disallowance to adopt the figure as per profit and loss account by disregarding the computation of income filed by the assessee. He, in fact, 38 had not computed income from business on the ground that the assessee had not carried any business and thus he did not even allow the set off the unabsorbed loss as claimed by the assessee, submitted the Learned AR as an alternative plea.
57. The learned Senior DR on the other had relied upon the orders of the authorities below. He submitted that under the facts of the case, the authorities below have rightly treated the claimed interest income as income from other sources. He submitted further that principles of res-judicata is not applicable in the matters of income-tax.
58. Considering the above submission, we find that in the assessment years 2002-03 to 2007-08 and 2009-10, the interest income offered as business income has duly been accepted. It has not been denied by the Revenue that facts of the case on the issues during the year are similar to that of earlier assessment years. Principles of maintenance of consistency in the approach of the revenue on an identical issue under similar facts and circumstances are well established proposition of law. In its recent decision, the Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. (supra) has been pleased to hold that Revenue cannot be allowed to flip flop on the issue and having accepted the order in preceding years, Revenue cannot be allowed to take a contrary view in subsequent assessment years. 39 Further, in the case of CIT vs. J.K. Charitable Trust (supra) the Hon'ble Supreme Court has been pleased to hold that if the facts for the years under assessment are identical to the facts of the immediately preceding years then in such a situation, the Revenue would not be permitted to deviate from the position it had accepted in the preceding assessment years. Hon'ble Delhi High Court in the case of CIT vs. Neo Poly Pack Pvt. Ltd. - (supra) has been pleased to hold that there would be no specification to alter the head of income once in past such head of income was accepted to be the head under which the income had been earned. In the case of CIT vs. Rajender Flour & Allied Industries Pvt. Ltd. (supra), the Hon'ble Delhi High Court upheld the view taken by the ITAT that the lease was essentially a temporary measures to tide over a period of difficulties and letting must be taken as one possible way available to the assessee for exploiting its commercial assets and had to be treated as part and partial of its carrying on the business and, therefore, the income from lease should be assessed as profits and gains of business. Therefore, the income from lease should be assessed as profits and gains of business. In our view, the business is continuing process and merely because there may not be any income from all resources, of course, which is not the case herein, does not by itself mean that the assessee is not engaged in the business and is not carrying on business activities in that year. Under these 40 facts and circumstances, we are of the view that the Assessing Officer was not justified in treating the interest income of Rs.83,65,124 as income from other sources against the claimed income from business. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to accept the claimed income in question as business income. Ground Nos. 1 to 7 involving the issues are thus allowed.
59. Issue No. (ii) - Ground Nos. 8 & 9: The Assessing Officer made disallowance of Rs.1,36,798 under sec. 14A of the Act by invoking Rule 8D of the Income-tax Rules, 1962. The Learned CIT(Appeals) has remanded the issue to the file of the Assessing Officer to consider the issue afresh.
60. In support of the grounds, the Learned AR submitted that no expenses have been incurred by the assessee to earn the exempt income; and the Assessing Officer has not recorded any satisfaction vis-à-vis books of account of the assessee that any expenditure has been incurred by the assessee to earn the exempt income. In support, he placed reliance on the following decisions:
i) CIT vs. Taikisha Engg. India Ltd. - ITA No. 114 of 2014 and 119 of 2014 dated 25.11.2014 (Delhi High Court);
ii) HPP Energy (P) Ltd. vs. ACIT - ITA No. 4138/Del/2013 dated 20.3.2015.41
60. Without prejudice to the above submissions, the Learned AR contended that disallowance under sec. 14A of the Act can be made only in respect of the shares on which assessee has erred dividend income and since in the present case the assessee has earned dividend of Rs.66,750 only, as such disallowance at page under sec. 14A read with Rule 8D can be made only in respect of such shares and such disallowance if at all has to be made to the extent of Rs.8,497 only. In this regard, he placed reliance on the decision of Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT- ITA No. 117 of 2015 dated 25.2.2015.
61. The learned Senior DR on the contrary tried to justify the orders of the authorities below with this further submission that there is no grievance to the assessee on the issue since the Learned CIT(Appeals) has set aside the matter to the file of the Assessing Officer.
62. Considering the above submissions and having gone through the above cited decisions, we are of the view that for making disallowance under sec. 14A read with Rule 8D, it is a pre-condition for the Assessing Officer to record his satisfaction that the submissions made by the assessee in relation to the expenditure if any incurred for earning the exempt income is not correct. In absence of recording of such satisfaction by the Assessing 42 Officer, the only option available with the Learned CIT(Appeals) was to delete the disallowance. We thus respectfully following the ratios laid down in the above cited decision in the case of CIT vs. Taikisha Engg. India Ltd. (supra) of the Hon'ble jurisdictional High Court of Delhi, hold that the disallowance in question made by the Assessing Officer was not justified, and the Learned CIT(Appeals) was not right in setting aside the matter to the file of the Assessing Officer to decide the issue afresh. The said order is set aside. The grounds involving the issue are thus allowed.
63. Issue No.(iii) - Ground No.10 : In this ground, the validity of charging of interest under sec. 234B of the Income-tax Act, 1961 has been questioned, which is consequential in nature. Hence, does not need independent adjudication.
9. In result, the appeal is allowed.
10. In summary, ITA Nos. 2538/Del/2010 and 1146/Del/2012 are allowed and ITA No. 3052/Del/2010 is dismissed.
Order pronounced in the open court on 14 .08.2015
Sd/- Sd/-
( INTURI RAMA RAO ) ( I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14 /08/2015
Mohan Lal
43
Copy forwarded to:
1) Appellant
2) Respondent
3) CIT
4) CIT(Appeals)
5) DR:ITAT
ASSISTANT REGISTRAR
Date
Draft dictated on computer 11.08.2015
Draft placed before author 11.08.2015
Draft proposed & placed before the second
member
Draft discussed/approved by Second Member.
Approved Draft comes to the Sr.PS/PS 15.08.2015
Kept for pronouncement on 14.08.2015
File sent to the Bench Clerk 17.08.2015
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.