M/s. Celica Developers(P)Ltd, Kolkata V. CIT, Central-1, Kolkata, Kolkata

ITA 1101/KOL/2012

• Counselvise Citation: 110123514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 25-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A S MONDAL CIT SR D R DEPARTME
• Assessee Lawyers: RAVI TULSIYAN
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Earning of tax free income; Revenue expenditure
• Section: 50C; 14A

Judgement Text

I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA CORAM : SHRI ABRAHAM P. GEORGE (ACCOUNTANT MEMBER) AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO.: 1101/KOL./ 2012 ASSESSMENT YEAR : 2008-2009 M/S. CELLICA DEVELOPERS PVT. LTD.,................. ....APPELLANT 24, PARK STREET, KOLKATA-700 016 [PAN : AABCC 3820 C] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ...RESPONDENT CENTRAL CIRCLE-VI, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -AND- I.T.A. NO.: 1528/KOL./ 2012 ASSESSMENT YEAR : 2008-2009 DEPUTY COMMISSIONER OF INCOME TAX,................. ......APPELLANT CENTRAL CIRCLE-VI, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. CELLICA DEVELOPERS PVT. LTD.,................. ....RESPONDENT 24, PARK STREET, KOLKATA-700 016 [PAN : AABCC 3820 C] APPEARANCES BY: SHRI RAVI TULSIYAN, FCA, FOR THE ASSESSEE SHRI A.S. MONDAL, ADDL. CIT, SR. D.R, FOR THE DEPAR TMENT DATE OF CONCLUDING THE HEARING : FEBRUARY 13, 2014 DATE OF PRONOUNCING THE ORDER : FEBRUARY 19, 2014 O R D E R PER ABRAHAM P. GEROGE : 1. THESE ARE APPEALS FILED BY THE ASSESSEE AND REVE NUE RESPECTIVELY DIRECTED AGAINST AN ORDER DATED 08.06.2012 OF LD. C OMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-1, KOLKATA. I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 2 2. APPEAL OF REVENUE IS TAKEN UP FIRST FOR DISPOSAL . 3. IN ITS GROUND NO. 1, GRIEVANCE RAISED BY THE REV ENUE IS THAT LD. CIT(APPEALS) DELETED AN ADDITION MADE BY THE ASSESS ING OFFICER UNDER SECTION 14A OF THE ACT. 4. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE B USINESS OF REAL ESTATE, GUEST HOUSE, AND TRADING IN SHARE AND SECUR ITIES, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING A N INCOME OF RS.1,26,00,660/-. ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR RECEIVED DIVIDEND OF RS.1,10,79,771/- WHICH WAS CLA IMED AS EXEMPT. A NOTICE WAS ISSUED BY ASSESSING OFFICER REQUIRING TH E ASSESSEE TO SHOW WHY THE EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INC OME SHOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE ACT. ASSESSEE I N ITS REPLY STATED THAT MAJOR CHUNK OF THE DIVIDEND WAS RECEIVED FROM ONE M /S. MAGMA SHRACHI FINANCE LTD.. AS PER THE ASSESSEE, NO EXPENDITURE W AS INCURRED BY IT FOR EARNING SUCH INCOME EXCEPT SALARY PAID FOR A PERSON WHO HAD DEVOTED PART OF HIS TIME FOR MONITORING THE DIVIDEND INCOME , BESIDES DEMAT CHARGES. AS PER THE ASSESSEE, SUCH AMOUNT CAME TO R S.88,732/- OF WHICH RS.84,000/- WAS THE PROPORTIONATE SALARY AND RS.4,7 32/- WAS DEMAT CHARGES. ASSESSING OFFICER WAS, HOWEVER, NOT IMPRES SED BY THIS SUBMISSION. ACCORDING TO HIM, INVOLVEMENT OF TOP MA NAGEMENT WAS REQUIRED FOR TAKING DECISIONS OF INVESTMENTS. SUCH DECISIONS WERE STRATEGIC IN NATURE AND, THEREFORE, AS PER THE ASSE SSING OFFICER, PROPORTIONATE MANAGEMENT AND ADMINISTRATIVE EXPENDI TURE WERE REQUIRED TO BE DEDUCTED WHILE COMPUTING THE EXEMPT INCOME. ACCORDING TO THE ASSESSING OFFICER, EVEN IF ASSESSEE HAD NOT EARNED ANY DIVIDEND, STILL SECTION 14A WOULD APPLY. HE, THEREFORE, COMPU TED THE AVERAGE VALUE OF INVESTMENTS AND APPLIED HALF PERCENT THEREOF REL YING ON RULE 8D AND MADE A DISALLOWANCE OF RS.54,86,350/-. I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 3 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESESE WAS THAT THE TOTAL INVESTMENT IN SHARES AS ON 31.03.200 8 CAME TO RS.109,32,88,180/- OUT OF WHICH RS.107,35,58,387/- REPRESENTED SHARES HELD IN MAGMA SHRACHI FINANCE LTD. ASSESSEE FURTHER SUBMITTED THAT THESE SHARES WERE ACQUIRED BY VIRTUE OF MERGER OF ONE M/S . STRATUS DEVELOPERS (P) LTD. WITH ASSESSEE, WHO WERE HOLDING THE SHARES OF M/S. MAGMA SHRACHI FINANCE LTD. ACCORDING TO ASSESSEE ONLY SHA RES WORTH RS.1,96,69,793/- WERE ACQUIRED DIRECTLY BY IT. ASSE SSEE ALSO BROUGHT TO THE ATTENTION TO LD. CIT(APPEALS) THAT ASSESSING OF FICER HAD NOT MADE ANY DISALLOWANCE OF INTEREST EXPENDITURE. AS PER ASSESS EE IT HAD VOLUNTARILY DISALLOWED RS.88,732/- BEING THE EXPENDITURE INCURR ED IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME. ASSESSEE ALSO PO INTED OUT THAT ASSESSING OFFICER HAD NOT GIVEN ANY FINDING THAT TH E CLAIM OF EXPENDITURE WAS INCORRECT. THUS ACCORDING TO ASSESSEE, ASSESSIN G OFFICER WAS NOT JUSTIFIED IN EFFECTING A DISALLOWANCE OF RS.54,86,3 50/- UNDER SECTION 14A OF THE ACT. 6. LD. CIT(APPEALS) WAS APPRECIATIVE OF THE ABOVE C ONTENTION. ACCORDING TO HIM, RULE 8D(2) COULD BE APPLIED ONLY WHERE ASSESSING OFFICER WAS NOT SATISFIED WITH CORRECTNESS OF THE C LAIM OF EXPENDITURE MADE BY THE ASSESSEE IN RELATION TO THE EXEMPT INCO ME CLAIMED BY IT. ASSESSING OFFICER HAD NOT EXPLAINED WHY HE WAS NOT SATISFIED WITH ASSESSEES EXPLANATION ON THE EXPENDITURE CLAIMED A S INCURRED FOR EARNING THE EXEMPT INCOME. AS PER LD. CIT(APPEALS) ASSESSIN G OFFICER HAD SIMPLY PRESUMED THAT SOME COMMON EXPENDITURE WOULD HAVE BE EN INCURRED FOR EARNING EXEMPT INCOME. IN THIS VIEW OF THE MATTER, HE DELETED THE ADDITION OF RS.54,86,350/- MADE BY THE ASSESSING OF FICER. 7. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE O RDER OF LD. CIT(APPEALS) SUBMITTED THAT ASSESSING OFFICER HAD R ECORDED HIS DISSATISFACTION ON THE SUM OF RS.88,732/-, SUO MOTU DISALLOWED BY THE ASSESSEE. ACCORDING TO HIM, IT WAS TRUE THAT ASSESS ING OFFICER HAD NOT I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 4 MADE ANY DISALLOWANCE FOR INTEREST EXPENDITURE. NEV ERTHELESS ACCORDING TO HIM, RULE 8D(2)(III) WAS NOT DEPENDENT ON ANY IN TEREST DISALLOWANCE. DISALLOWANCE UNDER RULE 8D(2)(III) WAS DISTINCT AND DIFFERENT. FURTHER, ACCORDING TO HIM, ASSESSEE WAS HAVING SUBSTANTIAL H OLDING OF SHARES AND FOR TAKING A DECISION AS TO WHETHER THE SHARES WERE TO BE HELD OR SOLD, INPUTS FROM TOP MANAGEMENT WAS REQUIRED. ASSESSEES CLAIM THAT IT HAD INCURRED ONLY A PRO RATA SALARY EXPENDITURE OF RS.8 4,000/- FOR THIS PURPOSE WAS UNBELIEVABLE. THUS ACCORDING TO HIM, AS SESSING OFFICER HAD REACHED AN OBJECTIVE SATISFACTION THAT THE CLAIM OF THE ASSESSEE WAS INCORRECT. 8. PER CONTRA, LD. A.R. SUBMITTED THAT MAJOR PART OF THE SHARES HELD WERE NOTHING BUT OPENING INVESTMENT. SHARES ACQUIRE D THROUGH OWN FUNDS WERE ONLY WORTH RS.1,96,69,793/-. THIS CLEARLY IMPL IED THAT MANAGEMENT EXPENDITURE INCURRED WAS NEGLIGIBLE. FURTHER, ACCOR DING TO HIM, ASSESSEE WAS THE HOLDING COMPANY OF MAGMA SHRACHI FINANCE LT D., AND IT WAS HOLDING SHARES VALUED AT RS.1,07,35,58,387/- IN THE SAID COMPANY. SUCH SHARES HAD COME TO THE ASSESSEE BY VIRTUE OF MERGER OF STRATUS DEVELOPERS (P) LTD. WITH THE ASSESSEE. THESE SHARES WERE EARLIER HELD BY STRATUS DEVELOPERS (P) LTD. ASSESSING OFFICER HAD N OT DWELLED UPON THESE SUBMISSIONS, BUT HAD SIMPLY ARRIVED AT A SUBJECTIVE SATISFACTION THAT THE CLAIM OF EXPENDITURE OF RS.88,732/- FOR EARNING OF DIVIDEND, WAS INCORRECT. RELYING ON A DECISION OF COORDINATE BENC H OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD. VS.- ITO ((2013) 144 ITD 141). LD. COUNSEL SUBMITTED THAT COGENT REASONS HAD TO BE SHOWN BY TH E ASSESSING OFFICER FOR REJECTING THE CLAIM OF AN ASSESSEE IN RELATION TO EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS.- CIT [347 ITR 272] AND ALSO THAT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. [323 ITR 518]. AS P ER LD. A.R., ASSESSING OFFICER COULD NOT SHOW THAT ANY EXPENDITURE OTHER T HAN WHAT WAS CLAIMED BY THE ASSESSEE WAS INCURRED FOR EARNING THE TAX FR EE INCOME. RELIANCE I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 5 WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI BE NCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS.- SIL INVESTMENT LTD. [73 DTR 233]. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND SEEN THE MATERIAL AVAILABLE ON RECORD. A PERUSAL OF ASSESSEES BALANCE-SHEET AS ON 31.03.2008, WHICH HAS BEEN PLACED AT PAGE 5 OF THE PAPER BOOK, SHOW T HAT OPENING INVESTMENT AS ON 01.04.2007 WAS RS.110,12,51,839/- AND CLOSING VALUE OF INVESTMENT AS ON 31.03.2008 WAS RS.109,32,88,180/-. SCHEDULE E OF THE SAID BALANCE-SHEET GIVES A BREAK-UP OF INVESTMENT. AS PER THIS SCHEDULE, OUT OF THE ABOVE INVESTMENT, RS.107,35,58,387/- WAS OF SHARES HELD IN MAGMA SHRACHI FINANCE LTD.. THE POSITION WAS SAME B OTH AT THE BEGINNING OF THE RELEVANT PREVIOUS YEAR AND AS AT THE END OF THE RELEVANT PREVIOUS YEAR. THUS THERE IS SUBSTANTIAL STRENGTH IN THE ARG UMENT OF ASSESSEE THAT OUT OF THE TOTAL INVESTMENT OF RS.109,32,88,180/-, MAJOR PART WAS OF SHARES IN M/S. MAGMA SHRACHI FINANCE LTD. IT IS NOT DISPUTED BY THE REVENUE THAT THESE SHARES CAME TO THE ASSESSEE BY V IRTUE OF A MERGER OF ONE M/S. STRATUS DEVELOPERS (P) LTD. WITH ASSESSEE, THROUGH COMPANY PETITION NO. 492 OF 2005. COMPANY APPLICATION NO. 551 OF 2005 HAS BEEN PLACED AT PAPER BOOK PAGES 203 TO 222. SUCH SHARES WERE THUS NOT A DIRECT ACQUISITION DONE BY ASSESSEE. THEREFORE, FOR MAKING SUCH INVESTMENT AND FOR HOLDING SUCH SHARES, IT CANNOT BE SAID THAT ASS ESSEE WOULD HAVE INCURRED SUBSTANTIAL EXPENDITURE. ASSESSEE HAD NOT PURCHASED OR SOLD ANY OF THE SHARES OF M/S. MAGMA SHRACHI FINANCE LTD. DU RING THE RELEVANT PREVIOUS YEAR. WE ALSO FIND THAT ASSESSING OFFICER HAD NOT MADE ANY DISALLOWANCE FOR INTEREST. WHILE APPLYING RULE 8D(2 ) ASSESSING OFFICER HAD ONLY MADE A DISALLOWANCE UNDER CLAUSE (III) THE REOF. THUS HE HAS ACCEPTED THAT NO LOAN FUNDS WERE USED BY ASSESSEE F OR THE PURPOSE OF MAKING THE INVESTMENTS. INVESTMENT MADE BY ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WAS RS.1,96,69,793/- ONLY. W HEN VIEWED FROM THIS ANGLE, WE CANNOT SAY THAT THE SUO MOTU DISALLOWANCE OF RS.88,390/- MADE BY ASSESSEE WAS INCORRECT OR UNBELIEVABLE. THE SATI SFACTION RECORDED BY I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 6 THE ASSESSING OFFICER WITH REGARD TO THE CLAIM OF E XPENDITURE MADE BY THE ASSESSEE IS REPRODUCED HEREUNDER :- THE SUBMISSIONS OF THE ASSESSEE COMPANY HAVE BEEN CONSIDERED CAREFULLY AND THE SAME IS NOT ACCEPTABLE AT ALL. IN THIS CONTEXT, IT IS TO BE MENTIONED THAT INVOLVEMEN T OF TOP MANAGEMENT IS REQUIRED FOR MAKING DECISION FOR INVE STMENT. IT IS A STRATEGIC DECISION. A QUESTION WHETHER TO I NVEST OR NOT TO INVEST IS ALWAYS TAKEN BY THE TOP MANAGEMENT. FU RTHER, THE DECISION REGARDING RETENTION OR SALE OF INVESTM ENT IS VERY COMPLICATED. THEREFORE, PROPORTIONATE MANAGEMENT AN D ADMINISTRATIVE EXPENSES IS REQUIRED TO BE DEDUCTED WHILE COMPUTING THE EXEMPT INCOME, IN THIS CASE, INCOME F ROM DIVIDEND. IN OTHER WORDS, FINANCIAL & ADMINISTRATIV E EXPENSES ARE ALWAYS INTRINSICALLY RELATED TO SUCH INVESTMENT S AND DISALLOWANCES ARE REQUIRED TO BE MADE ON THE BASIS OF PROVISION OF SEC. 14A READ WITH RULE 8D OF I.T. ACT , 1961. RULE 8D(1) SPECIFICALLY STATES THAT DETERMINATION O F DISALLOWANCE UNDER SUB-RULE (2) CAN BE DONE ONLY WHEN ASSESSING OFFICE R IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE. SUCH A SATISFACTION HAS TO BE AN OBJECTIVE ONE BASED ON CO GENT REASON AS HELD BY COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RE I AGRO LIMITED (SUPRA), WHICH WAS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT ON REVENUES APPEAL. THE DECISION TAKEN BY THE ASSESSING OFFICER TO MAKE A PROPORTIONATE DISALLOWANCE FOR MANAGEMENT AND ADMIN ISTRATIVE EXPENDITURE WAS SIMPLY BASED ON PRE-ASSUMPTIONS. TH ERE IS NO COGENT REASON MENTIONED FOR DISREGARDING THE CLAIM OF THE ASSESSEE ESPECIALLY WHEN IT HAD EXPLAINED THE NATURE OF INVESTMENT AND AS TO WHY SUBSTANTIAL EXPENDITURE WAS NOT REQUIRED TO BE INCURRED BY IT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT LD. CIT(APPEALS) WAS JUS TIFIED IN HOLDING THAT ASSESSING OFFICER COULD NOT HAVE APPLIED RULE 8D(2) (III) OF THE ACT AND MADE A DISALLOWANCE OF PERCENT OF AVERAGE VALUE O F INVESTMENT. LD. CIT(APPEALS) WAS, THEREFORE, JUSTIFIED IN DELETING SUCH DISALLOWANCE. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS). GROUND NO. 1 OF THE REVENUE STANDS DISMISSED. I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 7 10. VIDE ITS GROUND NO. 2, GRIEVANCE OF THE REVENUE IS THAT LD. CIT(APPEALS) DELETED THE DISALLOWANCE OF INTEREST E XPENDITURE MADE BY THE ASSESSING OFFICER. 11. FACTS APROPOS ARE THAT ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR ADVANCED RS.11,61,75,372/- FOR ACQUIRING CERTA IN PROPERTIES. ASSESSEE WAS REQUIRED TO EXPLAIN WHY INTEREST EXPEN DITURE INCURRED ON THE LOANS RAISED FOR FUNDING THE ADVANCES SHOULD NO T BE DISALLOWED. SUBMISSION OF THE ASSESSEE WAS THAT IT WAS IN THE P ROCESS OF ACQUIRING THE PROPERTIES AND THE BOOKING ADVANCES WERE GIVEN WITH REPUTED BUILDERS FOR FLATS AND SPACES. THE PROPERTIES WERE STILL TO BE RECEIVED FROM THE CONCERNED BUILDERS AND HENCE AMOUNTS SHOWN UNDER TH E HEAD ADVANCE. AS PER THE ASSESSEE, LOAN RAISED FROM ICICI BANK LT D. FOR ACQUISITION OF PROPERTIES WAS NOTHING BUT LOAN RAISING FOR ITS TRA DING ACTIVITIES. ASSESSEE FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER THAT IT WAS ENGAGED IN THE BUSINESS OF BUYING AND SELLING REAL ESTATE SINCE MA NY YEARS; PROPERTIES FOR WHICH ADVANCES WERE PAID TO THE BUILDERS DURING THE RELEVANT PREVIOUS YEAR WERE STILL TO BE RECEIVED FROM SUCH B UILDERS. IT HAD THEREFORE SHOWN SUCH AMOUNT UNDER THE HEAD ADVANCE S. WHEN RECEIVED THIS WILL BE A PART OF ITS STOCK-IN-TRADE AND, THER EFORE, AS PER THE ASSESSEE, INTEREST ON LOANS TAKEN FOR FINANCING SUCH ACQUISIT ION WAS AN ALLOWABLE EXPENDITURE. 12. HOWEVER, ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. ACCORDING TO HIM, ASSESSEE HAD NOT IN TH E EARLIER OR THE RELEVANT PREVIOUS YEAR DONE ANY TRANSACTION OF SALE AND PURCHASE OF PROPERTY. THERE WAS NO INCOME FROM REAL ESTATE BUSI NESS. THE PROPERTIES ON WHICH ADVANCES WERE GIVEN WERE STILL UNDER CONST RUCTION BY THE CONCERNED BUILDERS. ACCORDING TO HIM, ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD OF ACCOUNTING FOR ITS REAL ESTATE B USINESS. INTEREST PAID FOR FINANCING THE ADVANCE HAD TO BE CAPITALIZED. AP PLYING SECTION I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 8 36(1)(III) OF THE ACT. ASSESSING OFFICER HELD THAT INTEREST OF RS.29,68,289/- PAID TO M/S. ICICI BANK LTD. WAS NOT ALLOWABLE. 13. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. CIT(APPEALS). ARGUMENT OF ASSESSEE WAS THAT IT HAD NEVER CLAIMED OR FOLLOWED ANY PROJECT COMPLETION METHOD. AS PER ASSESSEE, IT WAS ONLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ASSESSEE FURTHER S UBMITTED THAT IT WAS DOING REAL ESTATE BUSINESS OF BUYING FLATS AND CONS TRUCTED SPACES AND THEREAFTER SELLING IT. SINCE FLATS WERE STILL TO BE DELIVERED BY THE CONCERNED BUILDERS, IT WAS SHOWN AS ADVANCE PAYMENT . THEREFORE, AS PER ASSESSEE APPLYING SECTION 36(1)(III) OF THE ACT, IN TEREST PAID ON LOANS TAKEN FROM ICICI BANK FOR FINANCING SUCH PURCHASES WAS AN ALLOWABLE CLAIM. 14. LD. CIT(APPEALS) WAS APPRECIATIVE OF THE ABOVE CONTENTIONS. ACCORDING TO HIM, IN REAL ESTATE BUSINESS, IT WAS N OT NECESSARY TO CONSTRUCT BUILDING AND FLATS BY ONESELF. ASSESSEE C OULD PURCHASE BUILT UP FLATS FROM OTHER BUILDERS AND SELL IT WHEN POSSESSI ON WAS OBTAINED. THEREFORE, AS PER LD. CIT(APPEALS), ADVANCES GIVEN BY THE ASSESSEE FOR ACQUIRING FLATS WAS ONLY A PART OF ITS REGULAR BUSI NESS. LOANS RAISED FOR SUCH BUSINESS COULD ONLY BE TREATED AS BUSINESS LOA N AND INTEREST HAD TO BE ALLOWED. IN THIS VIEW OF THE MATTER, HE DELETED THE ADDITION OF RS.29,68,289/-. 15. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS) SUBMITTED THAT ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD OF ACCOUNTING. ACCORDING TO HIM, WHEN THE BU ILDING WAS NOT COMPLETE, IT WAS NOT A SALEABLE COMMODITY. TILL SUC H TIME IT WENT IN STOCK- IN-TRADE, EXPENDITURE INCURRED HAD TO BE CAPITALIZE D. INTEREST EXPENDITURE INCURRED COULD ONLY GO TO INCREASE THE VALUE OF WOR K-IN-PROGRESS IN A COMPLETED CONTRACT METHOD. AS PER LD. DR, FLAT PURC HASE AND SALE WAS A NEW BUSINESS AND ASSESSEE HAD NOT DONE ANY SALE OF FLATS EITHER DURING I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 9 THE RELEVANT PREVIOUS YEAR OR THE PRECEDING YEAR. T HEREFORE, ACCORDING TO HIM, ASSESSING OFFICER WAS JUSTIFIED IN TREATING TH E INTEREST ON LOAN TAKEN FROM ICICI BANK AS NOT ALLOWABLE. 16. PER CONTRA, LD. AR SUBMITTED THAT THE ADVANCES WERE MADE FOR BOOKING OF FLATS WHICH WERE ALL INTENDED FOR SALE, ONCE POSSESSION WAS RECEIVED. THE SUM OF RS.3 CRORES TAKEN AS LOAN FROM ICICI BANK WAS UTILIZED FOR BUYING PROPERTY FROM UNITECH/ BENGAL U NITECH. SANCTION LETTER ISSUED BY ICICI BANK WOULD CLEARLY SHOW IT. ASSESSEE HAD ALWAYS MAINTAINED THAT IT WAS ONLY DOING REAL ESTATE BUSIN ESS. THEREFORE, THERE WAS NO QUESTION OF COMPLETED CONTRACT METHOD BEING FOLLOWED BY IT. FURTHER AS PER LD. AR, IN ITS MEMORANDUM OF ASSOCIA TION IT WAS CLEARLY STATED THAT IT COULD CARRY ON BUSINESS OF REAL ESTA TE. RELYING ON THE TAX AUDIT REPORT FOR THE RELEVANT PREVIOUS YEAR, LD. AR SUBMITTED THAT ACCRUAL BASIS WAS FOLLOWED FOR ACCOUNTING. INTEREST PAID ON ICICI BANK LOAN WHICH WAS USED FOR PAYING ADVANCES, WITH THE INTENTION OF PURCHASING STOCK-IN- TRADE WAS, AS PER LD. AR, AN ALLOWABLE OUTFLOW. REL IANCE WAS PLACED ON THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CA SE OF CIT VS.- LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. [260 ITR 5 79]. 17. WE HAVE HEARD THE RIVAL CONTENTIONS. BUSINESS O F ASSESSEE AS MENTIONED IN THE TAX AUDIT REPORT, COPY OF WHICH HA S BEEN PLACED AT PAPER BOOK PAGE NOS. 22 TO 40, WAS REAL ESTATE, TRA DING IN SHARES AND SECURITIES AND GUEST HOUSE BUSINESS. THERE IS NO CA SE FOR THE REVENUE THAT ADVANCE GIVEN BY THE ASSESSEE WAS FOR ANY TRADING A CTIVITIES IN SHARES AND SECURITIES OR IN RELATION TO ITS GUEST HOUSE BUSINE SS. CLAIM OF ASSESSEE WAS THAT IT WAS NOT DOING ANY BUSINESS OF CONSTRUCTION OF BUILDINGS BUT ONLY BUYING CONSTRUCTED FLATS AND SPACES AND SELLING IT. THIS CLAIM HAS NOT BEEN FOUND TO BE WRONG BY THE ASSESSING OFFICER. IT MIGH T BE TRUE THAT DURING THE RELEVANT PREVIOUS YEAR OR PRECEDING YEARS, ASSE SSEE HAD NOT SHOWN SALE OF ANY REAL ESTATE. HOWEVER, ITS OPERATIONAL P ROFITS WHICH FORMED A MAJOR CHUNK OF ITS INCOME, GIVEN IN SCHEDULE M TO ITS PROFIT & LOSS A/C I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 10 PLACED AT PAPER BOOK PAGE NO.13 CLEARLY PROVE THAT IT WAS RECEIVING SUBSTANTIAL RENT AND OCCUPANCY CHARGES. NO BUILDER S ACTIVITY IS TRACEABLE FROM THE NATURE OF EXPENDITURE SHOWN IN THE PROFIT & LOSS ACCOUNT. ASSESSEE HAD NOT SHOWN ANY EXPENDITURE FOR ANY CONS TRUCTION. ITS BALANCE-SHEET PLACED AT PAGE 5 OF THE PAPER BOOK DO ES NOT CARRY ANY WORK-IN-PROGRESS EXCEPT CAPITAL WORK-IN-PROGRESS OF RS.1,38,53,207/-. SUCH CAPITAL WORK-IN-PROGRESS WAS A PART OF ITS FIX ED ASSETS. THEREFORE, THERE IS NOTHING ON RECORD TO SHOW THAT DURING THE RELEVANT PREVIOUS YEAR ASSESSEE WAS DOING ANY BUSINESS AS A BUILDER. IN OU R OPINION, TO FASTEN A COMPLETED CONTRACT METHOD OF ACCOUNTING ON AN ASSES SEE WHO IS NOT DOING ANY CONSTRUCTION OR UNDERTAKING ANY PROJECT WORK, W ILL NOT BE APPROPRIATE. TAX AUDIT REPORT OF THE ASSESSEE CLEAR LY MENTIONED THAT IT WAS FOLLOWING ACCRUAL METHOD OF ACCOUNTING. IN SUCH A SITUATION ASSERTION OF THE ASSESSEE THAT ITS INTENTION IN PAYING ADVANC ES WAS TO ACQUIRE BUILT UP SPACES AND FLATS, WHICH WOULD EVENTUALLY BE ITS STOCK-IN-TRADE CANNOT BE DISBELIEVED. IN OTHER WORDS, ADVANCES WERE NOT P AID BY THE ASSESSEE FOR ACQUIRING ANY FIXED ASSET. IT WAS A NECESSARY P AYMENT FOR ACQUIRING STOCK-IN-TRADE FOR CARRYING ON ITS BUSINESS OF REAL ESTATE. IN THIS REGARD, SECTION 36(1)(III) WHICH IS RELEVANT IS REPRODUCED HEREUNDER:- THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPI TAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFES SION: PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN R ESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETH ER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR AN Y PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOW ED AS DEDUCTION. EXPLANATION RECURRING SUBSCRIPTIONS PAID PERIODIC ALLY BY SHAREHOLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCI ETIES WHICH FULFIL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE. A CLAIM OF INTEREST ON CAPITAL BORROWED FOR THE PUR POSE OF BUSINESS CAN BE DISALLOWED ONLY WHERE THE BORROWING IS FOR ACQUISIT ION OF AN ASSET I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 11 INTENDED FOR EXTENSION OF AN EXISTING BUSINESS. IN THE CASE OF THE ASSESSEE HERE, WE CANNOT SAY THAT THE LOAN RAISED BY ASSESSE E FROM ICICI BANK, WHICH WAS UTILIZED FOR PAYING ADVANCES FOR ACQUIRIN G BUILT UP SPACES, WAS IN RELATION TO EXTENSION OF AN EXISTING BUSINESS. B USINESS OF ASSESSEE WAS REAL ESTATE AND THE ASSESESES INTENTION WAS TO TRA DE IN CONSTRUCTED SPACES. IT NEVER CONTEMPLATED TO USE SUCH CONSTRUCT ED SPACES FOR ITS OWN USE. IN OUR OPINION, THE DECISION OF THE HONBLE MU MBAI HIGH COURT IN THE CASE OF LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (S UPRA) WOULD CLEARLY COME TO THE AID OF ASSESSEE. AS LONG AS THE PAYMENT OF ADVANCE WAS NOT FOR ACQUISITION OF FIXED ASSETS BUT ONLY FOR ACQUIR ING STOCK-IN-TRADE, ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 3 6(1)(III) OF THE ACT. WE ARE, THEREFORE, OF THE OPINION THAT LD. CIT(APPE ALS) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER . GROUND NO. 2 OF THE REVENUE STANDS DISMISSED. 18. VIDE ITS GROUND NO. 3, GRIEVANCE OF THE REVENUE IS THAT PROCESSING CHARGES ON LOAN WHICH WAS DISALLOWED BY THE ASSESSI NG OFFICER WAS ALLOWED BY LD. CIT(APPEALS). 19. FACTS APROPOS ARE THAT RS.7,21,500/- WAS PAID B Y THE ASSESSEE TO STATE BANK OF INDIA ON A LOAN RAISED. ASSESSING OFF ICER WAS OF THE OPINION THAT ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METH OD FOR ITS REAL ESTATE BUSINESS AND HENCE CLAIM OF ASSESSEE WAS NOT ALLOWA BLE. DISALLOWANCE SO MADE CAME TO RS.7,21,500/-. ASSESSEES APPEAL BEFOR E THE LD. CIT(APPEALS) IN THIS REGARD WAS SUCCESSFUL. ACCORDI NG TO HIM, PROCESSING FEES HAD TO BE ALLOWED AS REVENUE EXPENDITURE, SINC E THE LOAN WAS UTILIZED FOR THE BUSINESS OF ASSESSEE. 20. NOW BEFORE US, LD. DR RAISED SIMILAR ARGUMENTS AS FOR GROUND NO. 2. PER CONTRA, LD. AR SUPPORTED THE ORDER OF LD. CIT(A PPEALS). I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 12 21. WE HAVE HEARD THE RIVAL CONTENTIONS. SINCE LOAN RAISED FROM STATE BANK OF INDIA WAS USED BY THE ASSESSEE FOR FINANCIN G ITS STOCK, WE ARE OF THE OPINION THAT PROCESSING CHARGES INCURRED FOR RA ISING SUCH LOAN WAS AN ALLOWABLE EXPENDITURE. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS). GROUND NO. 3 OF THE REVE NUE STANDS DISMISSED. 22. COMING TO THE CROSS APPEAL OF THE ASSESSEE, IT HAS RAISED SIX GROUNDS OF WHICH 1 AND 6 ARE GENERAL NEEDING NO ADJUDICATIO N. 23. LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SU BMITTED THAT HE WAS NOT PRESSING GROUNDS 2 AND 5, HENCE GROUND NOS. 2 & 5 OF THE ASSESSEE ARE DISMISSED AS NOT PRESSED. THIS LEAVES US WITH G ROUNDS 3 AND 4. 24. VIDE ITS GROUND NO. 3, GRIEVANCE RAISED BY ASSE SSEE IS THAT DEPRECIATION ON A BOILER WAS DISALLOWED AND SUCH DI SALLOWANCE WAS CONFIRMED BY THE LD. CIT(APPEALS). 25. ASSESSING OFFICER HAD DISALLOWED DEPRECIATION C LAIM OF RS.74,762/- ON A BOILER STATING THAT BOILER WAS NOT USED DURING THE RELEVANT PREVIOUS YEAR. BEFORE LD. CIT(APPEALS) ARGUMENT OF THE ASSES SEE WAS THAT THE BOILER WAS LEASED OUT IN EARLIER YEARS AND INTEREST RECEIV ED ON SUCH LEASING WAS SHOWN AS INCOME. AS PER ASSESSEE, THOUGH DURING THE RELEVANT PREVIOUS YEAR, THE BOILER WAS NOT LEASED OUT, THE BOILER WAS PASSIVELY USED SINCE IT WAS KEPT READY. HOWEVER, LD. CIT(APPEALS) WAS NOT I MPRESSED. ACCORDING TO HIM, THERE WAS NOTHING TO SHOW THAT THE BOILER W AS KEPT READY FOR USE. HE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 26. NOW BEFORE US, LD. AR SUBMITTED THAT THE BOILER WAS A PART OF THE BLOCK OF PLANT AND MACHINERY. ACCORDING TO HIM, ONC E IT WAS A PART OF BLOCK OF ASSETS, THE DISALLOWANCE OF DEPRECIATION C OULD NOT HAVE BEEN MADE. PER CONTRA, LD. DR SUPPORTED THE ORDER OF LD. CIT(APPEALS). I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 13 27. WE HAVE HEARD THE RIVAL CONTENTIONS. THERE IS N O DISPUTE THAT THE BOILER ON WHICH DEPRECIATION WAS NOT ALLOWED, WAS O NE WHICH WAS LEASED OUT BY THE ASSESSEE IN EARLIER YEARS, INCOME FROM W HICH WAS ADMITTED. THUS THE BOILER WAS ALREADY PART OF THE BLOCK OF AS SETS OF THE ASSESSEE. ONCE A MACHINERY IS BECOMES THE PART OF A BLOCK, IT LOOSES ITS SEPARATE IDENTITY. DEPRECIATION IS GRANTED ON BLOCK OF ASSET S AS STIPULATED IN SECTION 36(1)(II). ONCE THE BOILER WAS ALREADY USED , WE CANNOT SAY THAT IT WAS NOT READY FOR USE. PASSIVE USE OF THE BOILER, A RGUMENT BY THE ASSESSEE HAS TO BE ACCEPTED. WE, THEREFORE, FIND THAT THE DI SALLOWANCE WAS NOT IN ACCORDANCE WITH LAW. SUCH DISALLOWANCE STANDS DELET ED. GROUND NO. 3 OF THE ASSESSEES APPEAL STANDS ALLOWED. 28. VIDE ITS GROUND NO. 4, GRIEVANCE RAISED BY ASSE SSEE IS THAT LONG- TERM CAPITAL GAIN ON TRANSFER OF ASSETS WAS WORKED OUT BY APPLYING SECTION 50C OF THE INCOME TAX ACT, BUT WITHOUT CONS IDERING ASSESSEES PLEA FOR REFERENCE OF THE VALUATION TO THE DEPARTME NTAL VALUATION OFFICER. 29. FACTS APROPOS ARE THAT ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR TRANSFERRED SEVERAL LEASEHOLD UNITS. THE VALUE SHOWN IN ITS SALE DEED WAS RS.62,68,006/- WHEREAS THE STAMP DUTY AUTHORITI ES VALUED IT AT RS.95,64,075/-. ASSESSING OFFICER APPLIED SECTION 5 0C OF THE ACT MADE AN ADDITION FOR THE DIFFERENCE OF RS.32,96,073/-. ASSE SSEES APPEAL BEFORE LD. CIT(APPEALS) DID NOT MEET WITH ANY SUCCESS. 30. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DERS OF AUTHORITIES BELOW SUBMITTED THAT ASSESSEE HAD OBJECTED TO ADOPT ION OF THE VALUE FIXED BY THE REGISTRATION AUTHORITY VIDE ITS LETTER DATED 28.12.2010. ACCORDING TO HIM, ONCE ASSESSEE HAD OBJECTED TO ADOPTION OF S UCH VALUE, IT WAS NECESSARY FOR THE ASSESSING OFFICER TO MAKE A REFER ENCE TO THE DEPARTMENTAL VALUATION OFFICER UNDER SUB-SECTION (2 ) OF SECTION 50C OF THE ACT. 31. PER CONTRA, LD. DR SUPPORTED THE ORDER OF AUTHO RITIES BELOW. I.T.A. NO.: 1101/KOL./20 12 ASSESSMENT YEAR : 2008-200 9 & I.T.A. NO. 1528/KOL/2012 ASSESSMENT YEAR : 2008-2009 PAGE 1 TO 14 14 32. REVENUE HAS NOT REBUTTED THE SUBMISSION OF THE ASSESSEE THAT IT HAD OBJECTED TO THE ADOPTION OF VALUE ASSESSED BY THE S TAMP VALUATION AUTHORITY BEFORE THE ASSESSING OFFICER. THERE IS NO CASE FOR THE REVENUE THAT THE VALUE ASSESSED BY THE STAMP VALUATION AUTH ORITY WAS SUBJECT TO ANY DISPUTE IN ANY APPEAL, REVISION OR REFERENCE. T HIS BEING A CASE, IN OUR OPINION, ASSESSING OFFICER WAS OBLIGED TO REFER THE VALUATION TO A VALUATION OFFICER IN ACCORDANCE WITH SUB-SECTION (2 ) OF SECTION 50C OF THE ACT. IN THE FITNESS OF THINGS, WE ARE OF THE OPINIO N THAT THE MATTER REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER. ASS ESSING OFFICER SHALL REFER THE VALUATION TO THE DEPARTMENTAL VALUATION O FFICER. THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE IS SET ASIDE AN D REMITTED BACK TO ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCOR DANCE WITH LAW. GROUND NO. 4 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PU RPOSES. 33. TO SUMMARISE THE ABOVE, APPEAL OF THE REVENUE S TANDS DISMISSED, WHEREAS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF FEBRUARY, 2014. SD/- SD/- GEORGE MATHAN ABRAHAM P. GEORGE (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 19 TH DAY OF FEBRUARY, 2014 COPIES TO : (1) M/S. CELLICA DEVELOPERS PVT. LTD., 24, PARK STREET, KOLKATA-700 016 (2) DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-VI, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) CIT(APPEALS) (4) CIT (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.