M/s SBPL Infrastructure Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1325/HYD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74447 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEEVANLAL LAVID YA
• Assessee Lawyers: D V ANJANEYULU
• Keywords: Business expenditure; Corroborative evidences; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1325/HYD/2010 ASSESSMENT YEAR 2007-08. SBPL INFRASTRUCTURE LTD., -V- DCIT, C IR-3(1), HYDERABAD. HYDERABAD. PAN: AACCS9014M (APPELLANT) (RESPONDENT) APPELLANT BY SRI D.V. ANJANEYUL U RESPONDENT BY SHRI JEEVANLAL LAVID YA DATE OF HEARING 13-11-2013 DATE OF PRONOUNCEMENT 03-01-2014 ORDER PER SAKTIJIT DEY, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31-8-2010 PASSED IN APPEAL NO.449/DCIT 3(1)/CIT (A) -IV/09-10 PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL I S DISALLOWANCE OF INTEREST OF RS.35,59,820/-ON THE REASONING THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO THE SISTER CONCERN. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A COMPANY REGISTERED UNDER THE INDIAN COMPANIES ACT. THE ASSESSEE IS E NGAGED IN THE BUSINESS AS A BUILDER. FOR THE IMPUGNED ASSESSMENT YEAR, THE 2 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD. ASSESSEE FILED ITS RETURN ON 28-3-2008 DECLARING A TOTAL INCOME OF RS.1,72,09,320/-. DURING THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADV ANCED INTEREST FREE LOAN OF AN AMOUNT OF RS.2,45,06,644/- TO G.S. GUPTA AND AN AMOUNT OF RS.1,99,91,120/- TO VANSH BUILDERS PVT. L IMITED. THOUGH THE ASSESSEE CONTENDED THAT THE INTEREST FREE LOANS WERE GIVEN OUT OF ON COMMERCIAL EXPEDIENCY, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.35,59,820/- FROM THE TOTAL INTEREST PA YMENT CLAIMED AS EXPENDITURE DEDUCTION BY THE ASSESSEE AND ACCOR DINGLY DETERMINED THE INCOME AT RS.2,07,69,140/-. BEING A GGRIEVED OF SUCH ASSESSMENT, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE CIT (A). 4. IN COURSE OF HEARING BEFORE THE CIT (A), THE ASS ESSEE SUBMITTED THAT IT HAS NEVER CLAIMED THE INTEREST PA YMENT AS A BUSINESS EXPENDITURE BUT THE ASSESSEE HAD DECLARED ITS INCOME FOR THE IMPUGNED ASSESSMENT YEAR UNDER THE HEAD HOUSE PROPERTY AND OTHER SOURCES. IT WAS THEREFORE CONTENDED THAT SIN CE THERE IS NO NEXUS BETWEEN THE INTEREST PAID TO FINANCIAL INSTIT UTIONS AND HE ADVANCE MADE TO THE SISTER CONCERN. NO DISALLOWANCE OUT OF THE INTEREST PAYMENT SHOULD BE MADE. IT WAS SUBMITTED THAT THE ADVANCES WERE GIVEN PURELY ON ACCOUNT OF COMMERCIAL EXPEDIENCY OUT OF OWN FUNDS OF THE ASSESSEE AND NOT OUT OF LOA NS OBTAINED FROM FINANCIAL INSTITUTIONS. IT WAS SUBMITTED THAT DURI NG THE YEAR, THE ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE IN THE FORM OF SHARE APPLICATION MONEY AND RESERVES AND SURPLUS TO THE A DVANCES TO THE SISTER CONCERN WITHOUT UTILISING BORROWED FUND FROM FINANCIAL INSTITUTIONS. HE THEREFORE SUBMITTED THAT NO PART OF INTEREST CLAIM CAN BE DISALLOWED. IN SUPPORT OF THE SAME, ASSESSE E HAS RELIED 3 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD. UPON THE DECISION OF SA BUILDERS VS. CIT (288 ITR 1) (SC) AND CIT VS. MS. SUSHMA KAPOOR (319 ITR 29) (DELHI). THE CIT (A) HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BY HO LDING THAT EVEN THOUGH THE ASSESSEE HAD SHOWN ONLY RENTAL INCOME B UT, STILL THE ASSESSEE WAS REQUIRED TO ESTABLISH THAT ALL THE IN TEREST AND FINANCIAL CHARGES OF RS.5,43,95,830/- HAD BEEN PAID IN RESPEC T OF PROPERTY YIELDING RENTAL INCOME. HE FURTHER HELD THAT HAD THE ASSESSEE NOT GIVEN INTEREST FREE ADVANCE TO GS GUPTA AND M/S VA NSH BUILDERS PVT. LTD., TOTALLING TO RS.4.45 CRORES, IT WOULD NO T HAVE REQUIRED TO INCUR INTEREST EXPENDITURE IN RESPECT OF THE BORROW INGS TO THAT EXTENT. THE CIT (A) FURTHER HELD THAT THE ASSESSEE WAS ALSO NOT ABLE TO PROVE THAT THE ADVANCES WERE MADE ON ACCOUN T OF COMMERCIAL EXPEDIENCY AS THE ASSESSEE COULD NOT EST ABLISH AS TO WHAT THE SAID PERSONS DID WITH THE INTEREST FREE L OANS GIVEN BY THE ASSESSEE. THE ASSESSEE COULD NOT PROVE WHAT ADVANT AGE IT OBTAINED OUT OF ADVANCING SUCH INTEREST FREE FUNDS TO THEM , THOUGH IT WAS ITSELF INCURRING SUBSTANTIAL INTEREST EXPENDITURE F OR EARNING THE INCOME LIABLE TO TAX DURING THE YEAR. WITH THE AFORESAID OBSERVATION, THE CIT (A) SUSTAINED THE DISALLOWANCE OF INTEREST TO THE TUNE OF RS.35,59,820/-. 5. THE LEARNED AR REFERRING TO A STATEMENT SHOWING AVAILABILITY OF FUNDS WITH HIM SUBMITTED THAT THE ASSESSEE HAD SUFF ICIENT SURPLUS FUNDS AVAILABLE WITH HIM TO ADVANCE THE INTEREST FR EE LOAN TO THE SISTER CONCERN WITHOUT HAVING TO UTILISE THE BORROW ED FUND FROM FINANCIAL INSTITUTIONS. THAT BESIDES, IT WAS SUBMI TTED THAT THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM BUSINESS BUT HAS SHOWN THE ENTIRE INCOME FROM HOUSE PROPERTY AGAINST WHICH THE INTEREST WAS CLAIMED AS DEDUCTION U/S 24 OF THE ACT. IT WAS SUBMITTED THAT 4 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD. THE HOUSE PROPERTY WAS CONSTRUCTED ABOUT 4 TO 5 YEA RS BACK AND HAS STARTED GENERATING INCOME AND THE ENTIRE TERM LOAN AVAILED FROM SBI AGAINST WHICH INTEREST PAYMENT WAS CLAIMED AS D EDUCTION WAS UTILISED FOR THE PURPOSE OF CONSTRUCTION OF THE SAI D HOUSE PROPERTY. IT WAS SUBMITTED BY THE LEARNED AR THAT SINCE THE I NTEREST FREE ADVANCES MADE TO THE SISTER CONCERN HAVE NO NEXUS W ITH THE BORROWALS MADE FROM FINANCIAL INSTITUTIONS, DISALLO WANCE OF INTEREST IS TOTALLY UNCALLED FOR. THE LEARNED AR SUBMITTED THAT, THE FACT THAT THE ASSESSEE HAD UTILISED THE ENTIRE BORROWED FUND FOR CONSTRUCTION OF THE HOUSE PROPERTY CAN BE VERIFIED BY THE ASSESS ING OFFICER AND REQUESTED FOR REMITTING THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER FOR THIS PURPOSE. 7. THE LEARNED DR ALSO HAD NO OBJECTION IF THE ISSU E IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIF YING THE CLAIM OF THE ASSESSEE. 8. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS OTHER MA TERIAL ON RECORD. IT S A FACT ON RECORD THAT THE ASSESSEE HAS NOT SHO WN ANY INCOME UNDER THE HEAD BUSINESS AND PROFESSION NOR HAS CLAI MED ANY EXPENDITURE UNDER THAT HEAD. ON THE OTHER HAND, TH E ASSESSEE HAS SHOWN INCOME FROM HOUSE PROPERTY AT RS.110,000,004/ - AND HAS CLAIMED DEDUCTION U/S 24 OF THE ACT OF RS.54,133,55 0/- TOWARDS INTEREST ON TERM LOAN AVAILED FROM SBI. IT IS ALSO A FACT THAT THE ASSESSEE DURING THE YEAR HAD ADVANCED INTEREST FREE LOAN TO SRI G.S. GUPTA AND M/S VANSH BUILDERS PVT. LTD., WHO ARE CLO SELY RELATED TO THE ASSESSEE. BUT THE ISSUE BEFORE US IS WHETHER T HE INTEREST PAYMENT HAS ANY NEXUS WITH THE INTEREST FREE FUND G IVEN TO THE SISTER CONCERN. IN THIS REGARD, IT IS THE CONTENTI ON OF THE ASSESSEE 5 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD. THAT INTEREST FREE ADVANCES WERE OUT OF THE INTERN AL ACCRUALS AND SURPLUS GENERATED BY THE ASSESSEE OUT OF HIS OWN FU ND AND NOT FROM BORROWED FUND FROM FINANCIAL INSTITUTIONS. IN FA CT, IT IS THE SPECIFIC CLAIM OF THE ASSESSEE THAT DURING THE RELEVANT YEAR , THE ASSESSEE HAD NOT BORROWED ANY FUND FROM FINANCIAL INSTITUTI ONS AND WHATEVER FUND WAS BORROWED WAS LONG BACK AND ENTIRELY UTILIS ED FOR THE PURPOSE OF CONSTRUCTION OF HOUSE PROPERTY FROM WHIC H RENTAL INCOME HAS BEEN GENERATED AND HAS BEEN DECLARED UNDER THE HEAD HOUSE PROPERTY. HOWEVER, THE ASSESSEE HAS NOT PLACED BE FORE US ANY DOCUMENTS TO ESTABLISH THE FACT THAT THE INTEREST BEARING FUNDS FROM FINANCIAL INSTITUTIONS WERE NOT TAKEN DURING THE YE AR AND WAS NOT UTILISED FOR INTEREST FREE ADVANCES GIVEN TO THE SI STER CONCERN. THERE IS NOTHING ON RECORD TO SHOW THAT THE ENTIRE TERM LOAN TAKEN WAS UTILISED FOR THE CONSTRUCTION OF THE HOUSE PROP ERTY. THEREFORE, IN THE ABSENCE OF THESE FACTS, WE ARE NOT IN A POSI TION TO RECORD A FINDING EITHER WAY WITH REGARD TO THE ISSUE WHETHE R THE INTEREST BEARING FUNDS WERE UTILISED FOR THE CONSTRUCTION OF THE HOUSE PROPERTY OR NOT. THEREFORE, AFTER CONSIDERING THE T OTALITY OF FACTS AND CIRCUMSTANCES, WE THINK IT PROPER TO REMIT THE MATT ER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION ALL THE FACTUAL ASPECTS. IF THE ASSESSEE IS ABLE TO ESTABLISH WITH SUPPORTING EVIDENCE THE FACT THAT TH E LOAN TAKEN FROM THE BANK ON WHICH INTEREST WAS BEING PAID WAS UTIL ISED FOR THE PURPOSE OF CONSTRUCTION OF THE HOUSE PROPERTY AND H AS NO NEXUS WITH THE INTEREST FREE ADVANCES MADE TO SISTER CONC ERNS THEN NO DISALLOWANCE SHOULD BE MADE FROM THE INTEREST PAYME NT. THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 6 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD. 9. FOR STATISTICAL PURPOSES, THE APPEAL IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03-01-2014. S D / - ( B.RAMAKOTAIAH) ACCOUNTANT MEMBER S D / - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 3 RD JANUARY, 2014. JMR* COPY TO:- 1) M/S. ANJANEYULU & CO., CAS, 30, BHAGYALAKSHMI NAGAR , GANDHI NAGAR, HYDERABAD. 2) DCIT, CENTRAL CIR-3(1), HYDERABAD. 3) CIT (A)-IV, HYDERABAD. 4) CIT-III, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. 7 ITA NO.1325 OF 2010 SBPL INFRASTRUCTURE LIMITED, HYD.