Income Tax Appellate Tribunal - Mumbai
Anand Shyam Estate Developers Private ... vs Deputy Commissioner Of Income Tax, ... on 16 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL " C" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM
ITA No. 6820/Mum/2017
(A.Y. 2012-13)
M/s Anand Shyam Estate The Dy. Commissioner of
Developers Pvt. Ltd. Income Tax, Central Circle
1, Sunville Bldg, Paper Mill 2(3), Room No. 803, 8 t h
Vs.
Compound, Opp. Green Floor, Old CGO Annexe,
Restaurant, Lamington Road, M.K. Road, Mumbai-400
Mumbai-400 004 020
Appellant .. Respondent
PAN No. AAACA5320J
Assessee by : Hiten Vasant, AR
Revenue by : M.Hemalatha , DR
Date of hearing: 13-03-2018 Date of pronouncement : 16-03-2018
ORDER
PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of Commissioner of Income Tax-48, Mumbai [in short CIT(A)], in appeal No. CIT(A)-48/I.T.- 154/DCCC-2(3)/2015-16 dated 31-10-2017. The Assessment was framed by the Deputy Commissioner of Income Tax, Central Circle-2(3), Mumbai (in short 'DCIT') for the A.Y. 2012-13 vide order dated 11.03.2015 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the claim of interest expenditure on borrowed funds for acquisition of property under section 24(b) of the Act. For this assessee has raised following ground No. 1: -.
"i. "on the facts and in the circumstances of case and in law, the Hon. CIT(A) has erred in holding that the interest of Rs.14,31,517/- on funds borrowed for acquisition of property is not covered u/s. 24(b) of the I.T. Act 1961, and is not allowable expenditure 2 ITA No . 6 8 20 / Mu m /2 0 17 while computing income under the "House Property", without appreciating that the funds had been utilised for acquiring property and that the interest pertained to the period 1.4.2011 to 31.
3.2012."."
3. Brief facts are that the assessee company is engaged in the business of providing services of renting its own property and deriving income under the head 'Income From House Property' and also 'Income From Other Sources'. The assessee claimed deduction under section 24(b) of the Act for interest paid to various persons amounting to ₹ 14,31,517/- on the amount borrowed. The AO disallowed the claim of the assessee on the reasoning that there is no nexus between amount borrowed and interest claimed for house property. The assessee failed to provide any documentary evidence. Aggrieved assessee preferred the appeal before CIT(A).
4. The CIT(A) after considering the submissions of the assessee noted that a sum of ₹ 2.96 crores brought in by new shareholders namely Rasiklal Mehta & Sons HUF, Sudhir R. Mehta & Sons HUF, Sunil R. Mehta & Sons HUF, Anila Mehta, towards cost of purchasing the shares is for purchase of company and not in the nature of loan to acquire property. According to CIT(A), the company has already completed the construction of this property of land and after pulling down the then existing structure obtained occupation certificate/completion certificate. According to CIT(A), thus the sum of ₹ 2.96 crores was brought in by new shareholders as capital cost of purchase of shares as the property for this amount of ₹ 2.96 crores was already constructed after purchasing of land by the erstwhile shareholders/ directors of the company in 1982. This purchase of cost of shares was cost paid by these three new shareholders to buy the company and it cannot be treated as loan for acquisition of property. Thus, he held that once it is not in the nature of loan, interest payable on this amount is not covered under section 24(b) 3 ITA No . 6 8 20 / Mu m /2 0 17 of the Act. Accordingly, he confirmed the action of the Assessing Officer. Aggrieved, now assessee is in appeal before Tribunal.
5. Before us, the learned Counsel for the assessee stated that as per the provisions of section 24(b) of the Act interest payable on loan funds is allowable and this claim is made every year and is allowed in past. According to him, the assessee has obtained this loan from the above mentioned 4 parties namely Rasiklal Mehta & Sons HUF, Sudhir R. Mehta & Sons Huf, Sunil R. Mehta & Sons HUF, Anila Mehta, to acquire the shares from the erstwhile owner of the company. The learned Counsel explained that the company has purchase the land vide agreement dated 12.05.1982 having other shareholders and directors of the company. Thereafter the above mentioned three parties entered into an agreement for the purchase of Assessee Company which had immovable property vide agreement dated 07-08-2003 and as per clause 7 of the agreement as on 31-07-2003 the company has obtained loan from its resident directors/ shareholders to the tune of ₹ 2.96 crores for the purpose of construction. The clause 6 of the said agreement provides that "on or before the completion of the transaction the purchasers shall bring in the company by way of loans and advances from the new Directors Shareholders or relatives a sum not less than ₹ 2,96,00,000/-". In view of this the learned Counsel for the assessee stated that this 2.96 crore paid by these three new shareholders is nothing but repayment of earlier loan. Hence, he urged the Bench to allow the appeal of the assessee.
6. On the other hand, the learned Sr. Departmental Representative argued that this loan of ₹ 2.96 crore is not loan or it is not for the purpose of acquisition of property or construction of property but it is brought in by the three new shareholders above mentioned for purchase of shares of the company and not for the acquisition of the property. According to her, this amount is brought in by these new shareholders to buy the company and purchase the shares of the company and not for the acquisition of 4 ITA No . 6 8 20 / Mu m /2 0 17 the property. According to her, these amounts are brought in by these new share holders to by the company for purchase of shares of the company and not the property. The learned Sr. Departmental Representative stated that the reliance is placed on the case of Kolkata ITAT in the case of DCIT vs. Patton Developers Pvt. Ltd. for AY 2010-11 vide order dated 01.03.2017. The facts are clearly different because, the property in that case was purchase by obtaining loan from Patton International Ltd a subsidiary to Patton Developers Pvt. Ltd and also loan from State Bank of Mysore. In this case, according to her, the assessee is not taken loan but this amount of ₹ 2.96 crores is brought in by three new shareholders as share capital. The alleged loan and interest thereon is just to reduce the taxable income and nothing else. In view of these arguments she supported the order of CIT(A) and that of the AO.
7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee company acquired this property in 1982 and thereafter constructed the immovable property. Vide agreement dated 31.07.2003, the company has changed its shareholding pattern and these three new shareholders entered in the shoes of erstwhile shareholders. These shareholders have actually purchased shares from erstwhile 5 owners of the company issued for face value of 100 & premium at ₹ 540 each. From the facts it is clear that this amount of ₹ 2.96 crores brought in by three new shareholders, as mentioned above, is towards purchase of shares of the assessee company and it is not in the nature of loan for acquisition of property or construction of property. It means that these parties have purchased the company and not the property in question. In view of this, we are of the view that the lower authorities have rightly disallowed the claim of interest as it has no nexus with the acquisition or construction of property. Hence, we confirm the same. This issue of assessee's appeal is dismissed.
8. The next issue in this appeal of Assessee is against the order of CIT(A) in enhancing the total income by disallowing the expenses debited 5 ITA No . 6 8 20 / Mu m /2 0 17 to the profit and loss account amounting to ₹ 2,68,637/-. For this assessee has raised the following ground No. 2:-
"2. "On the facts and in the circumstances of the case and in Law, the Hon. CIT(A) has erred in enhancing the total income of the appellant to the extent of Rs.2,68,637/- by disallowing the entire expenses debited to profit and loss account erroneously holding that the appellant had only house property income, without appreciating that the appellant has been maintaining its office and the expenses incurred were wholly and exclusively for the purpose of maintaining the company and that the said expenses were allowable as deduction."
9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) has enhanced the income of the assessee by this amount of ₹ 2,68,637/- by disallowing the expenses of repair and maintenance, property taxes, security charges, service taxes, water charges etc. We find that to manage this property the assessee has incurred these expenses to retain the status of the company as well as to retain the property. In view of the above, we are of the view that the assessee has rightly claimed the same and CIT(A) without any reason disallowed the same, we delete the disallowances and allow this issue of the assessee's appeal.
10. In the Result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 16-03-2018.
Sd/- Sd/-
(G. MANJUNATHA) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 16- 03-2018
Sudip Sarkar /Sr.PS
6
ITA No . 6 8 20 / Mu m /2 0 17
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI