Income Tax Appellate Tribunal - Delhi
M/S. Unitech Residential Resorts Ltd., ... vs Acit, New Delhi on 6 February, 2016
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H": NEW DELHI
BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No.3571/Del/2013
(Assessment Year: 2009-10)
Unitech Residential Resorts ltd. ACIT,
6, Community Centre, Circle-18(1),
Saket, New Delhi Vs. New Delhi
PAN:AAACG2305H
(Appellant) (Respondent)
Assessee by :Sh.Gautam Jain, CA
Respondent by:Sh.Kartar Singh, CIT DR
Date of Hearing 09/12/2015
Date of pronouncement 06/02/2016
ORDER
PER PRASHANT MAHARISHI, A. M.
1. This appeal is preferred by the assessee against the order of learned Commissioner of Income-tax (Appeals)-XXI, New Delhi dated 08.03.2013 for the Assessment Year 2009-10, raising the following grounds of appeal:-
"1. That learned Commissioner of Income Tax (Appeals) XXI, New Delhi has grossly erred both in law and on facts in upholding the disallowance of sum of Rs. 40,41,10,9607- representing the expenditure incurred on interest in the course of business of real estate and eligible for deduction u/s 36(1)(iii) of the Act 1.1 That the finding of the learned Commissioner of Income Tax (Appeals) that appellant has failed to justify the claim of expenditure is factually incorrect, contrary to written submissions and evidence on record and therefore, unsustainable. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the borrowed funds on which interest had been paid and claimed as deduction had been utilized for the purpose of business and therefore such sum was eligible for deduction u/s 36(I)(iii) of the Act.
1.3 That the learned Commissioner of Income Tax has overlooked the judgment in the cases of CIT vs. Srishti Securities Pvt Ltd. reported in 321 ITR 498 (Bom) and CIT vs. Rajeeva Lochan Kanoria reported in 208 ITR 616 (Cal) wherein it has been held that interest paid on capital borrowed for business purposes is allowable irrespective of the fact that capital was borrowed to acquire revenue asset or capital asset. Thus, reliance placed on the case of CIT vs Abhishek Page 2 of 8 Industries Ltd. reported in 286 ITR 1 (P&H) is wholly misconceived and therefore, untenable.
2 That the learned Commissioner of Income Tax (Appeals) has further erred both inlaw and on facts in remitting the disallowance of sum of Rs. 26,21,77,3777- u/s 14A read with rule 8D of the Income Tax Rules '1962 to the file of the learned Assessing Officer to be re-decided by considering the additional material and judgment of jurisdictional High Court in the case of Maxopp Investment Ltd. vs. CIT reported in 347 ITR 272. 3.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since no satisfaction was recorded by the learned Assessing Officer u/s 14A(2) of the Act, disallowance made u/s 14A read with rule 8D was wholly untenable more particularly when no expenditure was incurred for earning exemptincome.
4 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an addition of Rs. 27,97,62,1657- u/s 68 of the Act.
4.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sums brought to tax u/s 68 of the Act did not represent sums received as credit on the books of accounts but represented expenditure on interest of Rs. 18.81 crores and outstanding at the close of the year and Rs. 9.15 crores sum outstanding on account of purchase of shares and therefore, section 68 was perse wholly inapplicable.
4.2 That the approach adopted by the learned Commissioner of Income Tax (Appeals) to confirm the disallowance without recording any cogent findings and conclusions is in disregard of the submissions and evidence on record and thus, perverse, wholly unjustified and unsustainable.
5. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the levy of interest u/s 234B of the Act ofRs.3,13,59,834/- which is not leviable at all on the facts of the appellant company."
2. The first grounds of appeal is regarding confirmation of disallowance of sum of Rs.40,41,10,960/- representing the expenditure incurred on the interest in the course of real estate business.
3. Brief facts of this disallowance is that on perusal of the profit and loss account the AO noticed that a sum of Rs.39.16 crores have been debited as interest expenditure therefore the assessee asked to prove its claim u/s 36(1)(iii). In response the assessee submitted that it is engaged in the business of real estate business since incorporation and has purchased land for Rs.55.81crores. He further submitted that interest expenditure of Rs.39.16 crores is eligible for deduction. It was further Page 3 of 8 submitted that it has acquired shares aggregating to Rs.407 crores in various subsidiary companies and therefore these investments are for acquiring controlling stakes in subsidiary companies and all those subsidiaries are also engaged in the business of real estate, therefore the whole of the expenditure on interest is allowable. The AO did not agree to the contention of the assessee for the reason that according to him the assessee has advanced Rs.407 crores out of interest bearing borrowed capital to three of its subsidiaries without charging interest. According to AO these advances could not be taken as advance made for the purposes of the business. The AO was also of the view that assessee has failed to establish that the borrowed capital advanced to subsidiaries was used for business purpose by those companies. The AO relying on the decision of Punjab and Haryana High Court in the case of CIT Vs. Abhishekh Industries Ltd. 156 Taxmann 257 disallowed the total interest expenditure of Rs.404110960/- wihc includes interest and bank charges. The assessee carried this matter before learned Commissioner of Income-tax (Appeals). Before the ld learned Commissioner of Income- tax (Appeals) the ld AR submitted that a. It is for the purpose of business of the assessee and therefore it is allowable u/s 36(1)(iii) of the Act.
b. it was argued that it is excess fund which are interest free than the amount invested in the interest baring advance alleged. He further submitted that there cannot be any disallowance on account of interest expenditure.
However, the ld Commissioner of Income-tax (Appeals) rejected all the contentions of the assessee and confirmed the disallowance of Rs.40,41,10,960/-, therefore the assessee is in appeal on this grounds.
4. The ld AR submitted that now the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of Hero Cycles Ltd. He further submitted that in the past no disallowance has been made and therefore relying on the consistency the AO cannot make the disallowance. He further stated that the assessee is carrying on the Page 4 of 8 business of real estate undisputedly and therefore the amount spent for acquisition of real estate cannot be disallowed as the same has also been shown as inventory of the company and hence the advances are for the purpose of business. He further submitted the nexus that the money is given to the subsidiaries are out of non-interest bearing fundsThe ld DR relied on the orders of lower authorities.
5. We have carefully considered the rival contention we are of the view that section 36(1)(iii) is a code itself if borrowing is for the purpose of business no disallowance of interest can be made. In this case the assessee submitted that the amount of advance is for the purpose of the business and the assessee has invested in associated concerns which are engaged in the business of holding of land. For this assessee submitted at Page 190 of the PB the details of the land holding of such companies. It was further submitted that the interest free funds received by the assessee is Rs.531 crores which is the amount invested in subsidiary companies. It was stated that amount of funds which are loan to subsidiaries are out of debentures issue to Reliance Land Pvt. Ltd. and unsecured loan from Unitech Ltd. Therefore he has proved the nexus of the amount invested in those companies which is from interest free funds. Furthermore regarding the acquisition of land the moment the assessee starts the initial process of acquisition of land the business has been set up. Therefore we are of the view that the amount fo interest is paid for the purposes of the business of the assessee. Further the interest on inventory purchases is apparently for the purposes of the business. Anyway assessee has also shown the nexus of the funds invested in subsidiaries which is from the non-interest bearing advances which is neither disputed by AO, CIT (A) or Ld DR. Hon Supremecourt has held in case of CIT V Hero Cycles Limited [236Taxmann 447] that Once it is established that there is nexus between expenditure and purpose of business revenue cannot justifiably claim to put itself in arm-chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case Page 5 of 8
6. In view of the above we reverse the order of learned Commissioner of Income-tax (Appeals) and hold that interest expenditure of Rs.404110960/- is allowable u/s 36(1)(iii) of the Act.
7. Grounds No.2& 3 of the appeal are against the disallowance of Rs.26,21,77,377/- u/s 14A of the Act. During the course of assessment proceedings the ld AO asked the assessee about the disallowance u/s 14A read with Rule 8D of the Income Tax Act. In response to the assessee submitted that there is no such disallowance as it is not warranted and it was further submitted by the assessee that burden to prove that there is some expenditure is on AO to establish that the expenditure debited has been made for earning exempt income when assessee denies any such expenditure. After considering the explanation of the assessee, AO invoked Rule 8D and disallowed a sum of Rs.26,21,77,377/-. Against this the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals). Before the learned Commissioner of Income-tax (Appeals) the assessee filed an application under Rule 46A of the income tax Rules vide letter dated 22.02.2012. As the additional evidence according to the learned Commissioner of Income-tax (Appeals) are vital documents and therefore after admitting the same learned Commissioner of Income-tax (Appeals) has remitted the issue back to the file of AO directing to the AO to verify the additional material made available during the course of appellant proceedings and allow the claim of appellant after proper verification. Therefore assessee s in appeal. Before us it was contended by the ld AR that no exempt income has been earned by the assessee and therefore there cannot be any disallowance u/s 14A of the Act. The ld DR relied on the orders of lower authorities.
8. We have carefully considered the rival contention in principle we agree with the argument of the ld AR of the assessee that if there is no exempt income there cannot be any disallowance u/s 14A of the Act as held by honourable jurisdictional High Court in the case of Cheminvest Vs. CIT,[378 ITR 33]. We have also perused that the profit and loss account of the assessee does not show any income. However this argument that Page 6 of 8 the assessee has not earned any tax free income is not before lower authorities as well as facts are also not coming out of the orders of them the assessee is well within his right to get this issue verified on this aspect also and therefore we direct the AO also to consider this aspect which has been raised before us for the first time and which is in favour of the appellant by the hon Jurisdictional high court, while disallowing any sum u/s 14A of the Act. We to that extent modify the order of learned Commissioner of Income-tax (Appeals) and allow ground No.2 of the appeal accordingly.
9. The 4th grounds of appeal is against the addition u/s 68 of the Act of Rs.27,97,62,165/-. The brief fact of this ground is that the assessee has a sum of Rs.33,08,05,175/- outstanding as the end of the previous year on account of outstanding liability from two parties. During the course of assessment proceedings the assessee was asked to explain the outstanding liabilities and assessee submitted that these are business liabilities and therefore they cannot be treated as loan and therefore are not covered u/s 68 of the Act. The AO rejected the explanation of the assessee and made an addition of Rs.18,81,79,453/- from M/s. Reliance Land Pvt. Ltd. of Rs.9,15,82,712/- in case of M/s. Prakaushali Investment India Pvt. Ltd. therefore the addition of Rs.27,97,62,165/- is made.
10. The assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) on this ground. The ld CIT(A) dismissed the appeal of the assessee and confirm the addition u/s 68 holding that AO had provided sufficient opportunity to the assessee, however the assessee did not provide the details and therefore assessee is in appeal before us.
11. The ld AR submitted that the assessee has submitted details in case of both these parties such as balance confirmation as on 31.03.2009, copy of the ledger account of both the parties,copy of the account of the parties from the books of the appellant and contra account copies of the account of the assessee from the books of these parties. He took us through Pages 142 and 167C of the Paper Book. He further submitted that details case of Reliance Land Pvt Ltd was submitted on 09.11.2010 Page 7 of 8 and in case Prakaushali Investment India Pvt. Ltd. on 31st December 2009 before the AO. He further argued that the assessee has discharged its onus therefore no addition should be made u/s 68 of the Act.
12. We have considered the rival contentions of both these parties, the assessee is submitted the copy of acknowledgement of return of income, balance confirmation as well as the contra account copy. In view of this the assessee has discharged initial onus cast upon it. Further it can be seen that the assessee has also submitted a copy of balance sheet of those parties and at the end of the year it is only amount of interest debentures in the case of Reliance Land Pvt. Ltd of Rs.18,81,79,453/-. Therefore when the interest expenditure has not been disputed qua its genuineness no addition u/s 68 with respect to this party can be made. In case of Prakaushali Investment India Pvt. ltd the assessee has discharged its onus completely and therefore the addition u/s 68 is wrongly made by AO and confirmed by the learned Commissioner of Income-tax (Appeals). Further on submission of the details of the creditors by the assessee including the return of income field by them , AO has not carried out any inquiry. In view the above we reverse the order of learned Commissioner of Income-tax (Appeals) and delete the addition u/s 68 of the Act of Rs.27,97,62,165/-
13. In the result the appeal of the assessee is partly allowed.
Order pronounced in the open court on 06/02/2016.
-Sd/- -Sd/-
(I.C.SUDHIR) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 06 /02/2016
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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