Akarshan Builders V. The Income Tax Officer W 2, R.No.19/20, Central Revenue Building, Attavara, Mangalore-575 0001

ITA/407/2009

AI Insights

The case involves M/s. Akarshan Builders, a partnership firm engaged in real estate and building contracts, which appealed against the ITAT's decision disallowing interest deductions on certain advances. The advances were made to Mrs. Zubida and Mrs. Rukiya during the assessment years 1993-94, 1995-96, and 1996-97, claimed to be for acquiring properties for the firm. However, the assessing authority and later the ITAT found no evidence that these advances were made for business purposes. The High Court, after considering the arguments and evidence, agreed with the ITAT's conclusion that the advances were not made in the course of business and thus the interest on them was not deductible.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 819825 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: JINITA CHATTERJIE
• Keywords: Income tax appeal; Interest-bearing funds; Interest deduction; Non-business purpose; Real estate business
• Section: 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 2nd DAY OF DECEMBER, 2014 PRESENT THE HON' BLE MR. JUSTICE N.KUMAR AND THE HON' BLE MR. JUSTICE B. MANOHAR INCOME TAX APPEAL No. 407 to 409/2009 BETWEEN: M/s. Akarshan Builders, M.T. Road, Puttur, Represented by its Partner Mr. K.P. Ahmed, Aged about 49 years, Son of Sri S. Mohideen. ... APPELLANT (By Sri Jinita Chatterjie, advocate for Sri S. Parthasarathi) AND: The Income Tax Officer W 2, R.No.19/20, Central Revenue Building, Attavara, Mangalore-575 0001 … RESPONDENT (By Sri K.V. Aravind, advocate) … These Income Tax Appeals are filed under Section 260-A of the Income Tax Act, 1961 arising out of Order dated 31.3.2009 passed in ITA No.437, 438 and 439/BNG/99 for the assessment years 1994-95, 1995- 96 and 1996-97 praying that this Hon’ble Court may be pleased to formulate the substantial questions of law stated therein and allow the appeal and set aside the 2 order passed by the ITAT Bangalore in ITA No.437, 438 and 439/BNG/99 dated 31.3.2009 in the interest of justice and equity. These Income Tax Appeals coming on for Hearing this day, N. Kumar J., delivered the following: JUDGMENT These appeals are preferred by the assessee against the order passed by the Tribunal holding that the funds are given by the assessee without interest and for non business purposes and therefore, the said amounts cannot be deducted out of the total income. 2. The assessee is a partnership firm mainly carrying on real estate business and building contract. The assessing authority noticed that an amount of Rs.3,56,000/- and Rs.1,07,000/- was paid to Mrs. Zubida and Mrs. Rukiya during the assessment year 1993-94. The assessee had claimed the interest expenditure on borrowings in the returns furnished for the assessment years 1993-94, 1995-96 and 1996-97. When explanation was sought for, the assessee replied 3 by saying that the said payments were made to acquire properties to the firm in the course of business. However, no evidence was produced before the assessing authority to justify the said stand. Therefore, the assessing authority held that, the amounts advanced to ladies out of the interest bearing funds was not for business purpose and hence, the claim was rejected. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). 3. The Appellate Commissioner accepted the case of the assessee and allowed the appeal. The said order was challenged before the Tribunal. 4. The Tribunal allowed the appeals and set aside the order passed by the First Appellate Authority against which, the assessee had preferred appeals to this Court. This Court after hearing the parties, was of the view that, the Tribunal had not at all considered the availability or otherwise of interest bearing funds with the assessee for advancing the alleged amounts and 4 therefore, remanded the matter to the Tribunal for fresh consideration. After such remand, the Tribunal went into the case over again and by the impugned order has held that the advances are made to the ladies without interest from the interest bearing funds and the assessee has failed to establish its case that the said loans were advanced for the purpose of business and therefore, the appeals preferred by the revenue were allowed. Aggrieved by the said order, the assessee is before this Court. 5. The substantial question of law which is framed at the time of admission is as under: “Whether Tribunal was justified in disallowance of interest when the alleged advances made by Appellant was in the course of and for the purpose of business especially when Appellant had adequate non-interest bearing funds during the relevant assessment years?” 6. We have heard the learned Counsel for the parties. 5 7. From the material placed on record, it is not in dispute that the assessee advanced money to the ladies out of interest bearing funds. The case of the assessee is that those ladies were expected to enter into an agreement to purchase the land properties for the benefit of it. In fact that has been done, but no material is placed on record to show that the ladies entered into an agreement to purchase the lands as mentioned in the letter which they have given in those circumstances. The case of the assessee is not established and once the amounts were advanced to these ladies not in the course of business, the assessee was not entitled to claim any deduction of interest paid on the amount borrowed. That is precisely what the Tribunal has held and what the authorities have upheld. 8. In that view, we do not see any merit in these appeals and the substantial question of law is answered in favour of the revenue and against the assessee. Hence, we pass the following: 6 ORDER No merit. Dismissed. Sd/- Judge Sd/- Judge Nsu/- "