Bangalore Housing Development and Investments, Bangalore V. DCIT, Bangalore

ITA 1027/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0435 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R RAMAKRISHNAN
• Keywords: Business expenditure

Judgement Text

ITA.1027/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. SUNIL KUMAR YADAVA, JUDICIAL MEMBE R AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.1027/BANG/2015 (ASSESSMENT YEAR : 2010-11) BANGALORE HOUSING DEVELOPMENT & INVESTMENTS, NO.10/1, LAKSHMINARAYANA COMPLEX, PALACE ROAD, BANGALORE .. APPELLANT PAN : AAGFB0819A V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. R. RAMAKRISHNAN, CA REVENUE BY : DR. P. K. SRIHARI, ADDL. CIT HEARD ON : 03.05.2016 PRONOUNCED ON : 06.05.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT IS AGGRIE VED THAT CIT (A)- I, BANGALORE, SUSTAINED DISALLOWANCE OF INTEREST OF RS .19,62,789/- ON LIC LOANS TAKEN BY THE IT. ITA.1027/BANG/2015 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN REAL ESTATE BUSINESS HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR D ECLARING INCOME OF RS.3,53,80,386/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT ASSESSEE HAD CLAIMED INTEREST OF RS.19,62,789/- PAID ON LOANS TAKEN FROM LIC AS AN ALLOWABLE EXPENDITURE . WHEN ASKED TO EXPLAIN, SUBMISSION OF THE ASSESSEE WAS THAT SUCH L OANS WERE TAKEN FOR REMITTING THE INSURANCE PREMIUM FOR ITS PARTNERSHIP INSURANCE. INSURANCE PREMIUM WAS PAID BY THE ASSESSEE FIRM FOR ITS SIX PARTNERS. AO WAS OF THE OPINION THAT THE INSURANCE WAS TAKEN BY THE ASSESSE E IN THE NAME OF THE PARTNERS BASED ON AN UNDERSTANDING BETWEEN PARTNERS , EMBODIED IN A SUPPLEMENTARY DEED OF PARTNERSHIP DATED.01.02.2006 WHICH INTER ALIA STATED THAT SUCH INSURANCE WERE BEING PURCHASED WITH AN EX PRESS UNDERSTANDING TO MAKE THE MONEY AVAILABLE TO THE FIRM FOR SETTLING C LAIMS OF DECEASED PARTNERS. AO WAS OF THE OPINION THAT INSURANCE PRE MIUM PAID FOR PARTNERS INSURANCE WAS NOT DEDUCTIBLE AS BUSINESS EXPENDITUR E U/S.37(1) OF THE ACT. AS PER THE AO, SINCE SUCH EXPENDITURE ITSELF WAS NO T ALLOWABLE UNDER THE ACT THERE WAS NO QUESTION OF ALLOWING ANY INTEREST ON LOANS TAKEN FOR SERVICING THE PREMIUM PAYMENTS. FURTHER AS PER THE AO, THERE WAS NO INSURANCE PAYMENTS EFFECTED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. AO ALSO NOTED THAT ASSESSEES INCOME DURING THE IMPUGNED PREVIOUS ITA.1027/BANG/2015 PAGE - 3 YEAR WAS RENTALS OF RS.6,07,20,000/- FROM A LET-OU T PROPERTY, APART FROM A SMALL COMMISSION OF RS.4,53,309/- RECEIVED FROM A SISTER CONCERN CALLED, CANARA HOUSING DEVELOPMENT CO., FURTHER AS PER THE AO, POLICIES TAKEN WERE ONLY NORMAL POLICIES OF LIC CALLED NEW JEEVANA SRI POLICIES. THOUGH THE ASSESSEE POINTED OUT THAT THE TRIBUNAL HAD IN A N EARLIER YEAR HELD THE INSURANCE PREMIUM PAID BY THE ASSESSEE ON THE POLIC IES IN THE NAME OF THE PARTNERS AS AN ALLOWABLE EXPENDITURE, AO DECLINED T O FOLLOW THAT ORDER ON A REASONING THAT THE TRIBUNAL HAD RELIED ON A JUDGMEN T OF HONBE BOMBAY HIGH COURT IN THE CASE OF CIT V. B. N. EXPORTS (323 ITR 178) WHICH WAS DISTINGUISHABLE ON FACTS. HE THUS HELD THAT ASSESS EES CLAIM FOR INTEREST ON LIC LOANS TAKEN FOR SERVICING THE PAYMENT OF LIC PR EMIUM COULD NOT BE ALLOWED. DISALLOWANCE OF RS.19,62,789/- WAS MADE. 03. IN ITS APPEAL BEFORE THE CIT (A) ASSESSEE ONCE AGAIN RELIED ON TRIBUNAL ORDERS IN ITS OWN CASE FOR A. YS. 2006-07, 2007-08 AND 2008-09 WHEREIN IT WAS HELD THAT PREMIUM PAID TOWARDS PAYME NT OF PARTNERS POLICIES WERE ALLOWABLE AS BUSINESS EXPENDITURE. H OWEVER, CIT (A) WAS OF THE OPINION THAT THESE DECISIONS COULD NOT BE RELIE D UPON SINCE DURING THE RELEVANT PREVIOUS YEAR THERE WAS NO PAYMENT OF ANY INSURANCE PREMIUM. AS PER THE CIT (A) WHEN THERE WAS NO PREMIUM PAID, THE QUESTION OF ITA.1027/BANG/2015 PAGE - 4 ALLOWING INTEREST ON LOANS TAKEN FOR SERVICING SUC H PREMIUM PAYMENTS WOULD NOT ARISE. HE THUS UPHELD THE ORDER OF THE A O. 04. NOW BEFORE US, LD. DR STRONGLY ASSAILING THE OR DERS OF LOWER AUTHORITIES SUBMITTED THAT THE INTEREST OF RS.19,62 ,789/- PAID BY THE ASSESSEE WAS ON A LOAN OF RS.1,85,86,750/-. AS PER THE LD. AR, THE LOAN AMOUNT WAS CARRIED FORWARD FROM PRECEDING YEAR. SUCH LOANS TA KEN IN THE EARLIER YEARS WERE ACCORDING TO THE LD. AR, USED FOR PAYING THE I NSURANCE PREMIUM. AS PER THE LD. AR THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2006-07 IN ITA NO.34/BANG/2010, DT.20.05.2010, AS WELL AS IN I TA NOS.646 & 811/BANG/2012, DT.20.03.2013, FOR A. YS. 2007-08 AN D 2008-09, HELD THE INSURANCE PREMIUM PAID FOR PARTNERSHIP INSURANCE AS AN ALLOWABLE EXPENDITURE. AS PER THE LD. AR WHEN THIS WAS AN AL LOWABLE EXPENDITURE, NO WAY AN INTEREST PAID ON LOANS TAKEN FOR SERVICIN G SUCH INSURANCE PREMIUM PAYMENT COULD BE DISALLOWED. 05. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 06. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NO DOUBT THE TRIBUNAL IN ITS ORDERS IN ITA NO.34/BANG/ 2010, DT.20.05.2010, AS WELL AS IN ITA NOS.646 & 811/BANG/2012, DT.20.03.20 13 (SUPRA) HAD HELD ITA.1027/BANG/2015 PAGE - 5 THAT CLAIM OF PREMIUM PAID ON PARTNERSHIP INSURANCE , TAKEN ON THE LIFE OF THE PARTNERS OF THE ASSESSEE WAS AN ALLOWABLE EXPEN DITURE. THERE CAN BE NO QUARREL ON THIS. HOWEVER THE QUESTION BEFORE US IS WHETHER INTEREST ON LOANS TAKEN FROM LIC WAS ALLOWABLE AS AN EXPENDITUR E. AS PER THE ASSESSEE, THE SAID AMOUNT WAS USED FOR REMITTING IN SURANCE PREMIUM TOWARDS THE ABOVE REFERRED PARTNERSHIP INSURANCE AN D HENCE AN ALLOWABLE OUTGO. THE INTEREST AMOUNT DOES APPEAR IN ITS PROF IT AND LOSS ACCOUNT FOR THE YEAR31.03.2010. HOWEVER, SUCH PROFIT AND LOSS ACCOUNT ALSO SHOWS THAT ONLY INCOME ASSESSEE HAD DERIVED DURING THE RELEVAN T PREVIOUS YEAR WAS RENT ONLY OF RS.6,07,20,000/- AND COMMISSION AND BR OKERAGE OF RS.4,53,309/-. PROFIT AND LOSS ACCOUNT DOES NOT SH OW ANY INSURANCE PREMIUM PAID DURING THE RELEVANT PREVIOUS YEAR. THE RE IS NOTHING ON RECORD TO SHOW THAT THE INSURANCE LOAN OF RS.1,85,86,750/- APPEARING IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.03.2010 WAS RAISED AND UTILISED FOR THE PURPOSE OF SERVICING THE INSURANCE PREMIUM DUE ON THE PARTNERSHIP INSURANCE. ASSESSEE HAD HUGE INVESTMENTS IN LAND A ND BUILDING COMING TO RS.75,61,80,150/-. WHETHER THE LOANS TAKEN WERE US ED FOR FINANCING SUCH ASSETS HAS NOT BEEN VERIFIED BY ANY OF THE AUTHORIT IES BELOW. WE ALSO FIND THAT SUBSTANTIAL INCOME OF ASSESSEES INCOME WAS AS SESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. OR IN OTHER WORDS, B USINESS, IF ANY, DONE BY ITA.1027/BANG/2015 PAGE - 6 THE ASSESSEE WAS INSIGNIFICANT. SO, THE QUESTION T HAT IS TO BE ANSWERED WHETHER THERE COULD BE ANY ALLOWANCE FOR INTEREST O N LOANS WHEN THERE IS NO WORTHWHILE BUSINESS CARRIED ON. IN OUR OPINION, TH E FACTS AND CIRCUMSTANCES SHOW THAT THE ISSUE REQUIRES A FRESH LOOK BY THE AO. WE THEREFORE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING ALLOWANCE OF INTEREST ON LOANS BACK TO TH E FILE OF THE AO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 07. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 6TH DAY OF MA Y, 2016. SD/- SD/- (SUNIL KUMAR YADAV) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTA NT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR