M/S. SHRI SIDDESHWAR ORGANIC FOODS PVT. LTD., JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, JAIPUR

ITA 110/JPR/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3194 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 30-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONISHA CHOUDHARI DR DHK
• Keywords: Capital asset; Rule of consistency; Cost of acquisition; Corroborative evidences; Capital Gains
• Section: 143(3); 143(2); 13

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO.110/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEARS : 2014-15 M/S. SHRI SIDDHESHWAR ORGANIC FOODS PVT. LTD. J-6, HIMMAT NAGAR, TONK ROAD, JAIPUR CUKE VS. ACIT CIRCLE-1, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCD 3162 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY:SHRI MANISH AGRAWAL (AR) JKTLO DH VKSJ LS@ REVENUE BY : SMT, MONISHA CHOUDHARI (DR) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 17/11/2020 MN?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 19/11/2020 VKNS'K@ ORDER PER: KUL BHARAT, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)(LD. CIT(A)-1, JAIPUR DATED 07/11/2017 FO R THE ASSESSMENT YEAR 2014-15. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GROSSLY ERRED IN ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 2 CONFIRMING THE ACTION OF LD. AO IN RECOMPUTING THE LONG TERM CAPITAL GAIN BY NOT ALLOWING DEDUCTION TOWARDS COST ON ACCOUNT OF INTEREST CAPITALIZED TO COST OF ASSET AMOUNTING TO RS.77,04,728/- ARBITRARILY. APPELLANT PRAYS COST OF ASSET SOLD AS CLAIMED BY ASSESSEE DESERVES TO BE ALLOWED AS CLAIMED INCLUDING INTEREST PAID. 1.1. THAT LD. CIT(A) HAS FURTHER ERRED IN CONFIRMIN G THE DISALLOWANCE OF INTEREST WITHOUT APPRECIATING T HE FACT THAT THE FUNDS BORROWED WERE UTILIZED IN ACQUISITION OF ASSET AND FURTHER ERRED IN IGNORING THE SUBMISSION MADE BY ASSESSEE AND EVIDENCES ADDUCED. APPELLANT PRAYS INTEREST CLAIMED BY ASSESSEE DESERVES TO BE ALLOWED WHILE COMPUTING CAPITAL GAIN. 1.2. THAT LD. CIT(A) HAS FURTHER ERRED IN CONFIRMIN G THE ACTION OF LD. AO IN RECOMPUTING THE COST OF ASS ET SOLD BY THE ASSESSEE, BY IGNORING THE FACT THAT THE TOTAL COST OF ASSET CLAIMED BY ASSESSEE WAS ACCEPTED AS DECLARED IN SCRUTINY ASSESSMENT OF A.Y. 2012-13 COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961. APPELLANT PRAYS THAT INTEREST CAPITALIZE D FOR PREOPERATIVE PERIOD DESERVES O BE ACCEPTED AS CLAIMED. 2. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE FACTS IN BRIEF ARE THAT THE CASE OF THE ASSE SSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS. ACCORDINGLY, A NOTICE U/S 143(2) OF THE INCOME TAX ACT ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 3 1961(HEREINAFTER REFERRED AS THE ACT) WAS ISSUED ON 31.08.2015. IN RESPONSE TO THE NOTICE THE AUTHORISE D REPRESENTATIVE (AR) OF THE ASSESSEE APPEARED AND FI LED THE SUBMISSIONS AND OTHER SUPPORTING EVIDENCES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER CALLED UPON THE ASSESSEE TO EXPLAIN ABOUT THE LOAN WHICH WAS TAKEN FROM ICICI BANK. THE INTEREST SO PAID ON THIS LOAN WAS CAPITALIZED, THE ASSESSEE WAS ASKED TO JUS TIFY ALLOWABILITY OF THE INTEREST AND WAS FURTHER ASKED TO ESTABLISH THE NEXUS BETWEEN THE LOAN SANCTIONED AND ITS UTILIZATION FOR PROPERTY UNDER CONSIDERATION. THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER AND PRECEDED TO MAKE ADDITION OF RS.77,04,728/-. 3. AGGRIEVED AGAINST THIS ADDITION, THE ASSESSEE FI LED AN APPEAL BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, DISMISSED THE APPEAL. NOW THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSION AS MADE IN THE WRITTEN SUBMISSION. THE SUBMISSION O F THE ASSESSEE ARE REPRODUCED AS UNDER: GROUNDS OF APPEAL NO. 1 & 1.2: ALL THESE GROUNDS OF APPEAL, ASSESSEE HAS CHALLENGE D THE ACTION OF LD. AO OF NOT ALLOWING THE INDEXED COST O F INTEREST ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 4 PAID OF RS. 77,04,728/- ON BORROWED FUNDS CLAIMED U /S 48(II) AS CAPITALIZATION AGAINST THE LONG TERM CAPI TAL GAINS ARISEN FROM THE SALE OF PROPERTY. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT COMP ANY PURCHASED A PROPERTY R-63, RAJ ANGAN, NRI COLONY, SANGANER, JAIPUR FOR A TOTAL SUM OF RS. 90,57,235/- . OUT OF TOTAL SALE CONSIDERATION RS. 23,43,375/- WERE PAID AS ON THE DATE OF AGREEMENT MADE AND EXECUTED ON 30.5.200 6 TO THE SELLER AND THEREAFTER THE BALANCE PAYMENTS WERE MADE IN VARIOUS YEARS PRIOR TO FY 2009-10 AND AFTER MAKI NG THE ENTIRE PAYMENT IN FY 2009-10 THE SAME WAS GOT REGIS TERED IN ITS OWN NAME IN TERMS OF REGISTERED SALE DEED DT . 13.1.2010. SINCE THE FUNDS FOR THE ACQUISITION OF P ROPERTY WERE BORROWED FUNDS INTEREST PAID THEREON WAS INCLU DED IN THE TOTAL COST OF ACQUISITION OF PROPERTY. DURING T HE YEAR UNDER APPEAL THE APPELLANT COMPANY SOLD THE SAID PR OPERTY AND CLAIMED THE AMOUNT PAID FOR ACQUIRING ASSET, ST AMP DUTY AND INTEREST PAID AS COST OF ACQUISITION FROM SALE CONSIDERATION FOR COMPUTING THE LONG TERM CAPITAL G AINS IN TERMS OF THE PROVISIONS OF SECTION 48(II) OF THE IN COME TAX ACT, 1961 AND PAID DUE TAXES. LD. AO WITHOUT GIVING ANY PLAUSIBLE REASON AND IGNORING THE CASE LAWS CITED M ADE THE DISALLOWANCE OF THE INTEREST PAID IN ARBITRARY MANN ER . IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSEE CO MPANY SOLD THE PROPERTY OWNED BY IT FOR A TOTAL CONSIDERA TION OF RS 7,65,00,000/- AND AFTER REDUCING INDEXED COST OF ACQUISITION OF RS 2,20,31,767/-, LONG TERM CAPITAL GAIN OF RS 5,44,68,233.00 WAS OFFERED FOR TAX IN THE RETURN OF INCOME FILED. THE INDEXED COST OF ACQUISITION AS CL AIMED IS TABULATED AS UNDER : PARTICULARS YEAR AS PER BOOKS OF ACCOUNTS INCOME FR OM CAPITAL GAINS SALE PROCEEDS 7,65,00,000.00 7,65,00,000.00 LESS: COST/INDEXED COST ACTUAL COST INDEXED COST ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 5 COST OF PURCHASE TILL DATE 2009-10 90,57,235.00 1,34,56,873.00 STAMP DUTY 2009-10 4,00,100.00 5,94,452.00 REGISTRATION FEES 2009-10 1,85,570.00 2,75,713.00 INTEREST PAID TILL ACQUISITION 2009-10 19,09,227.00 28,36,652.00 INTEREST CAPITALIZED 2010-11 9,65,764.00 12,75,460.0. INTEREST CAPITALIZED 2011-12 14,46,718.00 17,30,533.00 INTEREST CAPITALIZED 2012-13 16,89,559.00 1,56,54,173.00 18,62,084.00 2,20,31,767.00 CAPITAL GAIN 6,08,45,827.00 5,44,68,233.00 IT IS RELEVANT TO STATE THAT INDEXATION OF THE COST INCURRED PRIOR TO REGISTRATION IS NOT CLAIMED FROM THE YEAR FROM WHIC H IT IS PAID AND WAS CLAIMED FROM THE YEAR WHEN THE TITLE OF THE SAI D PROPERTY HAS TRANSFERRED IN THE NAME OF APPELLANT AS PER REGISTE RED SALE DEED AND THE INTEREST PAID ON THE AMOUNT BORROWED FOR THE AC QUISITION WAS CAPITALIZED EVERY YEAR AS THE ASSET WAS NOT PUT TO USE. ALL THE AMOUNT DEBITED TO THE COST OF ASSETS ARE DULY VERIF IABLE FROM THE AUDITED BALANCE SHEETS OF THE COMPANY (APB 6,8,13,27 & 28) . THE AGREEMENT FOR PURCHASE OF PROPERTY WAS MADE IN 2006 AND PAYMENTS WERE MADE IN INSTALLMENTS FROM TIME TO TIME. AS THE COMPANY HAD NO FUNDS, LOANS WERE TAKEN TO PAY THE INSTALLMENTS AND INTEREST WAS PAID TO THE RESPECTIVE LENDER. INITIALLY THE LOAN W AS TAKEN FROM DIRECTORS AND THEIR RELATIVES FOR ACQUIRING THE PRO PERTY. HOWEVER AFTER REGISTRATION OF SALE DEED IN JAN. 2010, LOAN OF RS 215.00 LACS WAS TAKEN FROM ICICI BANK IN FEB 2010 ( APB 21-21 ). AFTER PAYING OFF THE LOAN TO DIRECTORS AND THEIR RELATIVES, SURPLUS LOAN AMOUNT WAS ADVANCED TO GROUP CONCERNS. THE LOANS WERE GIVEN IN FEBRUARY 2010 AND INTEREST WAS RECOVERED FROM THEM AND ONLY NET I NTEREST WAS CAPITALIZED. THE LD. AO, WITHOUT ASSIGNING ANY REASONS, DISALLOW ED THE INTEREST AND PRE OPERATIVE EXPENSES BEING INTEREST WHICH WER E CAPITALIZED IN THE YEAR OF PAYMENT. COPY OF LOAN SANCTION LETTER O F ICICI BANK, BALANCE SHEETS FOR THE EARLIER YEAR, BANK STATEMENT SHOWING CREDIT OF LOAN PROCEEDS WERE SUBMITTED TO THE LD. AO DURING T HE COURSE OF ASSESSMENT PROCEEDINGS AND ITS NEXUS WAS ALSO VERIF IABLE FROM THE BALANCE SHEETS. THE COMPANY HAD ONLY ONE ASSET AND ON EXCESS LOAN ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 6 WHICH WAS ADVANCED TO GROUP CONCERNS, INTEREST WAS RECOVERED AND ONLY NET INTEREST WAS CAPITALIZED. IT WAS ALSO SUBM ITTED THAT THE ASSESSMENT FOR AY 2012 -13 WAS COMPLETED U/S 143(3) WHEREIN THE INCOME RETURNED WAS ACCEPTED. IN THAT YEAR ALSO APP ELLANT HAS CLAIMED THE CAPITALIZATION OF INTEREST PAID ON LOAN . LD. CIT(A) WHILE CONFIRMING THE DISALLOWANCE HAS AL LEGED THAT THE LOAN TAKEN WAS NOT HOUSING LOAN AND FURTHER PAYMENT TO ONE OF THE DIRECTOR WAS NOT PAID IMMEDIATELY AFTER THE LOAN TA KEN. HE FURTHER OBSERVED THAT INTEREST PAID UPTO THE REGISTRATION I S NOT APPEARING IN FINANCIAL RECORDS SEPARATELY. WHILE ALLEGING SO LD. AO HAS FAILED TO APPRECIATE THE FACT THAT THE INTEREST PAID WAS INCL UDED IN THE TOTAL COST OF THE PROPERTY ON YEAR TO YEAR BASIS AND INDE XATION OF THE SAME IS CLAIMED ONLY AFTER THE DATE WHEN THE APPELLANT H AS BECOME THE OWNER OF THE PROPERTY UPON REGISTRATION. FURTHER LO AN TAKEN WAS TAKEN AFTER THE ACQUISITION OF THE PROPERTY AND IT IS AN ADMITTED FACT THAT LOAN BORROWED FOR THE ACQUISITION OF THE PROPE RTY WERE PAID OFF FROM THE FUNDS SO BORROWED FROM BANK. ONCE THE INTE REST IS ALLOWABLE ON THE FUNDS BORROWED FOR PURCHASES OF PROPERTY, IN TEREST PAID ON SUBSEQUENT LOAN FOR REPAYMENT OF SUCH LOAN IS ALSO ALLOWABLE AS PART OF COST OF ASSET SO PURCHASED. THE BORROWED FUNDS W ERE EITHER UTILIZED TOWARDS ACQUISITION OF PROPERTY OR WERE AD VANCED AS LOANS TO IT GROUP CONCERNS AND INTEREST WAS RECOVERED FRO M SUCH LOANS AND ONLY NET INTEREST WAS CAPITALIZED. IT IS IMMATERIAL WHETHER IT IS HOUSING LOAN OR MORTGAGE LOAN AND IT HAS TO BE ESTA BLISHED THAT THE FUNDS BORROWED ARE UTILIZED IN THE ACQUISITION OF P ROPERTY OR FOR MAKING PAYMENT OF THE FUNDS BORROWED FOR ACQUISITIO N. BY FILING EACH INDIVIDUAL DETAILS THE ASSESSEE COMPANY HAD ESTABLI SHED THE NEXUS OF LOAN TAKEN WITH THE ACQUISITION OF THE PROPERTY. REGARDING THE ASSESSMENT FOR AY 2012-13 COMPLETED U/S 143(3), LD. CIT(A) HAS OBSERVED THAT SINCE THE INTEREST IS NOT ROUTED THRO UGH P&L ACCOUNT AND FURTHER PRINCIPLE OF RESJUDICATA IS NOT APPLIC ABLE IN INCOME TAX PROCEEDINGS, HE DID NOT ACCEPTED THIS CONTENTION. I N THIS REGARD IT IS SUBMITTED THAT LD. CIT(A) FAILED TO UNDERSTAND THE ACCOUNTING PRINCIPAL ACCORDING TO WHICH ANY COST INCURRED ON F IXED ASSET IS DIRECTLY DEBITED TO ITS ACCOUNT AND NOT TO BE ROUTE D THROUGH P&L ACCOUNT THUS APPELLANT HAS MADE NO MISTAKE IN DOING SO. MOREOVER, ONCE THE ASSESSMENT WAS COMPLETED AFTER PROPER VERI FICATION OF ALL THE DETAILS AND COST INCURRED DURING THE YEAR, IT IS PR ESUMED THAT A PRUDENT ASSESSING OFFICER BEFORE PASSING THE ASSESS MENT ORDER HAS MADE PROPER VERIFICATION OF ALL THE FACTS TO THE BE ST OF HIS WISDOM. ONCE DEPARTMENT HAS ACCEPTED THE COST OF INTEREST T O BE CAPITALIZED, FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE SAME SH OULD HAVE BEEN ALLOWED AS COST U/S 48(II) AGAINST THE SALE CONSIDE RATION FOR COMPUTING THE LONG TERM CAPITAL GAINS. ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 7 IN THIS REGARD RELIANCE IS PLACED ON THE DECISION O F HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V/S SRI HARI RAM HOTE LS PVT LTD (2010) 325 ITR 136 WHEREIN IT HAS HELD THAT INTEREST PAID IS TO BE TREATED AS PART OF COST OF ACQUISITION OF THE ASSETS FROM YEAR TO YEAR AND IS ENTITLED TO THE BENEFIT OF INDEXATION WHILE COMPUT ING THE INDEXED COST OF ACQUISITION. THIS PREPOSITION IS ALSO HELD BY VA RIOUS COURTS IN FOLLOWING CASES ALSO: - DELHI HIGH COURT IN THE CASE OF CIT V/S MITHILESH K UMARI 92 ITR 9 - ITAT CHANDIGARH BENCH IN THE CASE OF DCIT V/S SUNEN A GARG HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS . MAITHREYI PAI REPORTED IN 152 ITR 247, HELD THAT INTEREST PAID ON THE BORROWINGS FOR THE ACQUISITION OF AN CAPITAL ASSET COULD NOT BE DE DUCTED FOR THE PURPOSE OF COMPUTATION UNDER SECTION 48, IF THE SAM E WAS ALREADY THE SUBJECT MATTER OF DEDUCTION UNDER OTHER HEADS L IKE THOSE UNDER SECTION 57. IN THE CIRCUMSTANCES, IT IS HUMBLY PRAYED THAT THE DISALLOWANCE OF INDEXED COST OF INTEREST PAID ON THE FUNDS BORROWED FOR THE ACQUISITION OF PROPERTY/ REPAYMENT OF EARLIER LOANS TAKEN FOR SUCH PURPOSE DESERVES TO BE ALLOWED AS EXPENDITURE U/S 4 8(II) OF THE INCOME TAX ACT, 1961 AND THE APPELLANT HUMBLY PRAYS FOR DELETION OF THE SAME. 5. ON THE CONTRARY, LEARNED. DEPARTMENTAL REPRESENT ATIVE (DR) VEHEMENTLY OPPOSED THESE SUBMISSIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. LD. DR SUBMITTED THAT THE CLAIM OF THE ASSESSEEE IS NOT AL LOWABLE, AS THE ASSESSEE HAD FAILED TO PROVE NEXUS AND FURTH ER THE ASSESSEEE FAILED TO PRODUCE THE RELEVANT MATERIAL B EFORE AUTHORITIES BELOW. LD. DR SUBMITTED THAT THE LD. CI T(A) HAS RIGHTLY OBSERVED THAT PRINCIPLE OF RES JUDI CATA WOULD NOT APPLY IN THE PROCEEDINGS UNDER THE INCOME TAX A CT. EVERY ASSESSMENT YEAR IS INDEPENDENT ASSESSMENT YEA R. ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 8 LD. DR FURTHER SUBMITTED THAT THE RELIANCE IS PLACE D UPON THE DECISION OF THIS TRIBUNAL IN ITANO. 975/JP/2016 RENDERED IN THE CASE OF SHRI JAGDISH WADHWANI VS. I TO. 6. IN REJOINDER LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT CASE LAWS RELIED BY THE REVENUE ARE NOT APPLIC ABLE IN THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT IT IS INCORRECT TO SAY THAT THE ASSESSEE HAD FAILED TO PR OVIDE RELEVANT MATERIAL ON RECORD. HE DREW OUR ATTENTION TO THE PAPER BOOK TO BUTTRESS THE ARGUMENT THAT THE MATERI AL WAS PLACED BEFORE THE ASSESSING OFFICER. FURTHER, H E SUBMITTED THAT THE ASSESSEEE HAS NOWHERE RELIED ON THE PRINCIPLE OF RES JUDI CATA . HE SUBMITTED THAT RULE OF CONSISTENCY IS TO BE FOLLOWED. THERE IS NO CHANGE I NTO FACTS AND CIRCUMSTANCES, HENCE THE AUTHORITIES BELOW OUGH T TO HAVE TAKEN A CONSISTENT VIEW. HE CONTENDED THAT THE INTEREST IS TO BE CAPITALIZED AND TO BE TREATED AS A PART OF COST OF ACQUISITION. IN SUPPORT OF THIS THE RELIANC E IS PLACED ON THE DECISION OF HONBLE KARNATAKA HIGH CO URT IN THE CASE OF CIT VS. SHRI HARI RAM HOTELS PVT. LTD. (2010) 325 ITR 136 . ON THE SAME RATIO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHILESH KUMARI 92 ITR 9 AND THE JUDGMENT OF HONBLE KARNATAKA ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 9 HIGH COURT IN THE CASE OF CIT VS. MAITHREYI PAI 152 ITR 247 ARE ALSO RELIED BY THE LD. COUNSEL FOR THE ASSESSE E. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. CIT( A) HAS DECIDED THE CASE IN PARA 3.1.2 ARE AS UNDER: (I) THE BRIEF FACTS OF THE CASE ARE THAT DURING TH E YEAR UNDER CONSIDERATION, THE APPELLANT COMPANY HAS SOLS A PIECE OF LAND FOR A CONSIDERATION OF RS.7.65 CRORE. THE AO REQUIRED THE APPELLANT TO FILE THE DETAILS OF CO ST OF ACQUISITION AND IT WAS OBSERVED BY THE AO THAT THE APPELLANT HAS CAPITALIZED THE AMOUNT OF INTEREST PA ID ON LOAN TAKEN FROM ICICI BANK IN THE COST OF ACQUIS ITION, THE INDEXED VALUE OF WHICH WAS CLAIMED AT RS.77,04,728/-. SINCE THE APPELLANT HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE LOAN SANCTIONED BY THE ICICI BANK AND ITS UTILIZATION FOR THE ACQUISITION OF THE PROPERTY UNDER CONSIDERATION, THE AO HAS NOT ALLOWE D THE AMOUNT OF RS.77,04,728/- AS A PART OF INDEXED C OST OF ACQUISITION. (II) DURING THE APPELLATE PROCEEDINGS, IT WAS SUBMI TTED BY THE APPELLANT THAT IT ACQUIRED A PIECE OF LAND I N FY 2009-10 OUT OF BORROWED FUNDS AND CAPITALIZED THE INTEREST PAID ON FUNDS BORROWED FOR ACQUISITION OF PROPERTY AS THE PROPERTY WAS NOT PUT TO USE AND ACCORDINGLY CLAIMED INDEXED COST OF ACQUISITION. TH E AO WITHOUT GIVING ANY PLAUSIBLE REASON, HAS DISALLOWED INTEREST PAID AFTER INDEXATION AMOUNTING TO RS.77,04,728/-. THE APPELLANT HAS ALSO FURNISHED TH E INDEXED COST OF ACQUISITION AS UNDER: ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 10 PARTICULARS YEAR AS PER BOOKS OF ACCOUNTS INCOME FR OM CAPITAL GAINS SALE PROCEEDS 76500000 76500000 LESS; COST/INDEXED COST ACTUAL COST INDEXED COST COST OF PURCHASE 2009-10 9057235 13456873 STAMP DUTY 2009-10 400100 594452 REGISTRATION FEES 2009-10 185570 275713 INTEREST AND PRE OP EXPENSES 2009-10 1909227 2836652 INTEREST CAPITALIZED 2010-11 965764 1275460 INTEREST CAPITALIZED 2011-12 1446718 1730533 INTEREST CAPITALIZED 2012-13 1689559 15654173 1862084 22031767 PROFIT/CAPITAL GAIN 60845827 54468233 (III) IT WAS FURTHER STATED THAT IT HAD TAKEN LOAN FOR ACQUISITION OF PROPERTY AND THE INTEREST PAID WAS CAPITALIZED EVERY YEAR AS THE ASSET WAS NOT PUT TO USE. THE AGREEMENT FOR PURCHASE OF PROPERTY WAS MADE IN 2006 AND PAYMENTS WERE MADE IN INSTALLMENTS FROM TIME TO TIM E. AS THE COMPANY HAD NO FUNDS, LOANS WERE TAKEN TO PAY T HE INSTALLMENTS AND INTEREST WAS PAID THEREON. INITIAL LY, THE LOAN WAS TAKEN FROM DIRECTORS AND THEIR RELATIVES F OR ACQUIRING THE PROPERTY. HOWEVER, AFTER REGISTRATION OF SALE DEED IN JANUARY, 2010, LOAN OF RS.215 LAC WAS TAKEN FROM ICICI BANK IN FEBRUARY, 2010. AFTER PAYING OF THE L OAN TO DIRECTORS AND THEIR RELATIVES, SURPLUS LOAN AMOUNT WAS ADVANCED TO GROUP CONCERNS. THE LOANS WERE GIVEN IN FEBRUARY 2010 AND INTEREST WAS RECOVERED FROM THEM AND ONLY NET INTEREST WAS CAPITALIZED AND THUS, IT HAD ESTABLISHED THE NEXUS OF LOAN TAKEN WITH THE ACQUIS ITION OF ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 11 THE PROPERTY. IT WAS ALSO STATED THAT INCOME WAS AS SESSED U/S 143(3) FOR AY 2012-13 AT THE RETURNED INCOME. I T WAS THE CONTENTION OF THE APPELLANT THAT THE AO SHOULD HAVE ACCEPTED THE FIGURES OF INTEREST CAPITALIZED AS PER AUDITED BALANCE SHEETS WHILE COMPUTING THE COST OF ACQUISIT ION AND THERE WAS NO OCCASION FOR THE AO TO DISTURB THE AUD ITED RESULTS. (IV) I HAVE DULY CONSIDERED THE SUBMISSION THE APPE LLANT ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS NOTICED FROM THE BALANCE-SHEET OF THE APPELLANT COM PANY AS AT 31.03.2010 THAT AS ON 31.03.2009, ITS ISSUED AND PAID UP SHARE CAPITAL WAS TO THE TUNE OF RS.1 LAC ONLY A ND IT HAS SHOWN FREE HOLD LAND AS A FIXED ASSET AT RS.80,04,8 92/- THEREOF AND THE SOURCE OF SUCH INVESTMENT IN LAND A PPEARS TO BE OUT OF UNSECURED LOANS TAKEN FROM THE DIRECTO RS OF THE APPELLANT COMPANY. IT MAY NOT BE OUT OF PLACE TO ME NTIONED HERE THAT THE AGREEMENT FOR PURCHASE OF THE LAND WA S EXECUTED IN THE YEAR 2006 AND THE PAYMENTS WERE STATED TO BE MADE IN INSTALLMENTS OVER A PERIOD OF TIME. HOWEVER, THE APPELLANT HAS FAILED TO BRING ON RECOR D ANY MATERIAL WHICH MAY SUGGEST THAT THESE UNSECURED LOANS FROM ITS DIRECTORS WERE INTEREST-BEARING AND IT HAD PAID INTEREST THEREON PRIOR TO 30.01.2010, WHEN THE LOAN OF RS. 2.15 CRORE WAS SANCTIONED BY THE IC ICI BANK. IT IS INTERESTING TO NOTE THAT THE COST OF ACQUISITION OF THE LAND WAS TO THE TUNE OF RS. 96,42,905/- ONLY INCLUSIVE OF STAMP DUTY AND REGISTRATION CHARGES. IT MAY BE MENTIONED THAT AS O N 31/03/2010, THE INVESTMENT IN FREEHOLD LAND WAS SHOWN AT RS. 1,15,52,132/- AND IT APPEARS THAT FOR THE FIRST TIME, A SUM OF RS. 19,09,227/- WAS CAPITALIZE D ON ACCOUNT OF PREOPERATIVE EXPENSES AND INTEREST DURIN G THE FINANCIAL YEAR 2009-10 I.E. PRIOR TO THAT, NO I NTEREST WAS CAPITALIZED. DURING THE APPELLATE PROCEEDINGS, THE AR WAS REQUIRED TO EXPLAIN WHY LOAN OF RS. 2.15 CRO RE WAS TAKEN WHEREAS THE COST OF ACQUISITION OF LAND W AS TO THE TUNE OF RS. 96,42,905/- ONLY BUT NO EXPLANAT ION ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 12 COULD BE SUBMITTED BY THE AR. I FAIL TO UNDERSTAND WHY THE APPELLANT HAS TAKEN A HUGE LOAN OF RS. 2.15 CRO RE FOR REPAYMENT OF OUTSTANDING LOANS TAKEN BY IT EARL IER FOR ACQUISITION OF THE SAID PROPERTY. (V) IT WOULD NOT BE OUT OF PLACE TO MENTION HERE TH AT AS ON 31.03.2009 AND 31.03.2010, THE UNSECURED LOANS FROM SHRI RAJENDRA KUMAR JAIN AND SHRI SANJAY GODHA, THE DIRE CTORS OF THE APPELLANT COMPANY, WERE SHOWN AT RS. 41,58,3 95/- & RS. 38,30,000/- AND RS. 0/-AND RS. 43,50,000/- RESPECTIVELY, WHEREAS AS ON 31.03.2010, THE APPELLA NT COMPANY HAS PROVIDED LOANS AND ADVANCES TO THE TUNE OF RS. 1,17,82,880/- AND RS. 24,33,120/- TO M/S RUBY BUILDCON P LTD AND M/S ROYAL CLASSIC BUILDMART P LT D RESPECTIVELY. THUS, IT IS CRYSTAL CLEAR THAT THE BO RROWED FUNDS FROM ICICI BANK WERE NOT USED FOR REPAYING TH E LOANS TAKEN BY THE APPELLANT COMPANY FROM ITS DIREC TORS FOR THE PURCHASE OF THE PROPERTY UNDER CONSIDERATIO N, AS CLAIMED BY THE APPELLANT. (VI) THE CONTENTION OF THE APPELLANT THAT IT HAS CAPITALIZED ONLY THE NET INTEREST ON THE LOAN TAKEN FROM ICICI BANK HAS ALSO BEEN EXAMINED VERY CAREFULLY AN D IT HAS BEEN OBSERVED THAT THE INTEREST PAID LEDGER ACC OUNT WAS SUBMITTED FOR THE FY 2011-12 AND FY 2012-13 ONL Y AND NOT FOR THE FY 2009-10 AND FY 2010-11, WHEREAS THE LOAN FROM ICICI BANK WAS TAKEN DURING FY 2009-1 0 AND SUBSTANTIAL AMOUNT WAS ALSO ADVANCED BY THE APPELLANT DURING THE FY 2009-10 TO OTHER PARTIES, W HICH MEANS THAT THE APPELLANT HAS NOT CHARGED ANY INTERE ST FROM THESE PARTIES FOR FY 2009-10 AND 2010-11. THES E FACTS CLEARLY PROVE THAT THE APPELLANT HAS TRIED TO REDUCE ITS TAX LIABILITY ON SALE OF THE LAND UNDER CONSIDE RATION. THUS, THIS CONTENTION OF THE APPELLANT DESERVES TO BE REJECTED. (VII) IT HAS BEEN NOTED FROM THE SANCTION LETTER OF ICICI BANK THAT THE LOAN WAS SANCTIONED FOR 'HOME EQUITY (HE) + RESIDENTIAL' I.E. APPARENTLY, THE LOAN OF RS . 2.15 ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 13 CRORE WAS TAKEN FOR THE PURPOSE OF CONSTRUCTION OF RESIDENTIAL PROPERTY(IES) ON THE SAID PIECE OF LAND AND NOT FOR THE PURPOSE OF ACQUISITION OF THE PROPERTY UNDER CONSIDERATION. IT HAS ALSO BEEN NOTED THAT THE LOAN UNDER CONSIDERATION WAS A MORTGAGE LOAN AS MAXIMUM LOAN T O VALUE RATIO WAS SHOWN AT 59.94% OF VALUATION OF PROPERTY IN THE ABOVE REFERRED SANCTION LETTER OF I CICI BANK. (VIII)THE APPELLANT HAS RELIED UPON THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) OF THE ACT FOR TH E AY 2012-13 STATING THAT THE RETURNED INCOME WAS ACCEPT ED THEREIN. IT IS NOTED THAT SINCE THERE WERE NO BUSIN ESS ACTIVITIES DURING THAT YEAR, THE AO HAS ACCEPTED TH E RETURNED INCOME AND IT APPEARS THAT THE ISSUE OF CAPITALIZATION OF INTEREST WAS NOT EXAMINED BY THE AO AS THE APPELLANT HAS CAPITALIZED THE INTEREST WITHO UT ROUTING IT THROUGH ITS PROFIT AND LOSS ACCOUNT. FUR THER, THE PRINCIPLE OF RES JUDI CATA DO NOT APPLY TO INCO ME TAX PROCEEDINGS AND EACH ASSESSMENT YEAR IS INDEPENDENT OF THE OTHER ASSESSMENT YEARS. (IX) IN VIEW OF THE ABOVE DISCUSSION AND LOOKING TO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE AO WAS JUSTIFIED IN NOT INCLUDING THE INTE REST PAYMENT ON THE LOAN TAKEN BY THE APPELLANT FROM ICI CI BANK AS COST OF ACQUISITION OF THE PROPERTY SOLD BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION AND T HUS, THE ADDITION OF RS. 77,04,728/- MADE BY THE AO IS HEREBY SUSTAINED . 8. WE FIND THAT THE ASSESSING OFFICER DID NOT ASSIG N ANY REASON AS TO WHY THE EXPLANATION OF THE ASSESSEE WA S NOT ACCEPTABLE WHEN UNDER THE SIMILAR FACTS AND CIRCUMSTANCES, CLAIM OF THE ASSESSEE REGARDING CAPITALIZATION OF INTEREST WAS ALLOWED IN THE EARLI ER YEAR. ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 14 WE ARE OF THE CONSIDERED VIEW THIS APPROACH OF THE ASSESSING OFFICER IS CONTRARY TO THE SETTLED PRINCI PLES OF LAW. IT IS INCUMBENT UPON THE ASSESSING OFFICER AT LEAST ASSIGN THE REASON AS TO WHY HE WAS ADOPTING A DIFFE RENT VIEW THEN THE ADOPTED BY ITS PREDECESSOR IN EARLIER YEARS. FURTHER, THE LD. CIT(A) RECORDED THE FINDING THAT T HE ISSUE OF CAPITALIZATION WAS NOT EXAMINED BY THE ASSESSING OFFICER AS THE ASSESSEE CAPITALIZED THE INTEREST WITHOUT RO UTING THROUGH ITS PROFIT AND LOSS ACCOUNT AND THE CASE AS RELIED BY THE LD. DR IS ON A DIFFERENT SET OF FACTS ARE NO T APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. WE CANNOT AFFIRM THIS VIEW OF THE LD. CIT(A) WHERE HE MADE GUESSWORK BY USING WORD IT APPEARS THAT MEA NS THE FINDING IS NOT BASED UPON CORRECT APPRECIATION OF THE FACTS. THERE IS NO DISPUTE SO FAR ISSUE REGARDING ALLOWABILITY OF INTEREST PAID ON THE BORROWED CAPIT AL USED FOR ACQUISITION OF PROPERTY. HENCE COST OF ACQUISIT ION WOULD ALSO INCLUDE THE INTEREST PAID ON SUCH BORROW ED CAPITAL. HOWEVER, BOTH THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM OF THE ASSESSEE, ON THE GROUND THAT THERE IS NO NEXUS BETWEEN THE CAPITAL BORROWED AND ITS UTILIZATION FOR ACQUISITION OF THE PROPERTY. IT IS NOT IN DISPUTE THAT THE PROPERTY WAS ACQUIRED BY A BORROWE D CAPITAL INITIALLY BORROWED FROM THE RELATIVES OF TH E ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 15 DIRECTORS. THEREAFTER, THE LOAN TAKEN FROM SUCH PER SONS WAS REPAID OUT OF THE LOAN RECEIVED FROM ICICI BAN K. THEREFORE, IT CANNOT BE CONSTRUED THAT THERE IS NO NEXUS BETWEEN THE ACQUISITION OF THE PROPERTY AND THE UTI LIZATION OF THE CAPITAL SO BORROWED. UNDER THESE UNDISPUTED FACTS, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEEE . HOWEVER, THE INTEREST PAID ON THE CAPITAL UTILIZED FOR REPAYMENT OF LOAN, WE ALLOW AS COST OF ACQUISITION. THEREFORE, THE ASSESSING OFFICER IS HEREBY DIRECTED TO ALLOW CAPITALIZATION OF INTEREST TO THE EXTENT THAT THE A SSESSEE HAD UTILIZED BORROWED FUNDS FOR REPAYMENT OF LOAN T AKEN FROM DIRECTORS AND OTHER RELATIVES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2020. SD/- SD/- (VIKRAM SINGH YADAV) ( KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED:- 19 TH NOVEMBER, 2020 *PATEL ITANO.110/JP/2018 SHRI SIDDHESHWAR ORGANIC PVT. LTD. 16 VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- 2. IZR;FKHZ@ THE RESPONDENT- 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR