PRATOSH KUMAR SHARMA, GHAZIABAD V. DCIT, CIRCLE- 2, GHAZIABAD

ITA 1383/DEL/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9003 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 27-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Assessee Lawyers: R K MEHRA
• Keywords: Salary income; Proportionate interest; Notional interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1383/DEL/2018 ASSESSMENT YEAR: 2013-14 PRATOSH KUMAR SHARMA, 225, SECTOR-9, RAJ NAGAR, GHAZIABAD, UTTAR PRADESH. PAN: AEBPS5464B VS. DCIT, CIRCLE-2, GHAZIABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. MEHRA, CA REVENUE BY : SHRI S.L. ANURAGI, SR.DR DATE OF HEARING : 29.07.2019 DATE OF PRONOUNCEMENT : 25.09.2019 ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22.11.2017 OF THE CIT(A), GHAZIABAD, RELATING TO ASSESSMENT YEAR 2013 -14. 2. GROUND OF APPEAL NO.1 READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONERS CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), GHAZIABAD, WA S WHOLLY UNJUSTIFIED IN LAW AND ON FACTS IN DISALLOWING INTEREST PAID AMOUN TING TO RS.1516666 CLAIMED UNDER SECTION 57 OF THE INCOME TAX ACT, 1961 AND AL SO COMPLETELY DEPARTING FROM THE REASONING AND VIEW TAKEN BY THE LEARNED ASSESSI NG OFFICER ON THIS ISSUE IN THE IMPUGNED ASSESSMENT ORDER. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND DERIVES INCOME FROM SALARY AND INTEREST. HE FILED HIS RETU RN OF INCOME ON 16 TH JUNE, 2014 ITA NO.1383/DEL/2018 2 DECLARING TOTAL INCOME OF RS.15,43,240/-. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE HAS TAKEN A LOAN OF RS.2.70 CRORES ON INTEREST @ 13.75% FROM M/S CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD.. LATER ON OUT OF THIS LOAN AMOUNT THE ASSESSEE INVESTED AN AMOUNT OF RS.2.60 CRORES WITH M/S SUBHAKAMNA BUILDWELL PVT. L TD. ON 31 ST MAY, 2012 FOR BOOKING OF FLATS IN THEIR PROJECT. ON BEING QUESTI ONED BY THE ASSESSING OFFICER, IT WAS SUBMITTED THAT THE PURPOSE OF INVESTMENT WAS TO EAR N PROFITS FROM THE INCREASE IN VALUE OF THOSE FLATS BY SELLING THE BOOKINGS AT A PREMIUM , THUS, GAINING INCOME FROM OTHER SOURCES. IT WAS FURTHER SUBMITTED THAT DUE TO RECES SION IN REAL ESTATE MARKET THE ASSESSEE COULD NOT DERIVE ANY INCOME FROM THE INVES TMENT, THEREFORE, HE WITHDREW THE INVESTMENT OF RS.1.50 CRORES ON 13 TH DECEMBER, 2012 AND RS.1.10 CRORES ON 15 TH DECEMBER, 2012. THE ASSESSING OFFICER NOTED THAT T HE ASSESSEE DID NOT CHARGE ANY INTEREST ON THE AMOUNT OF RS.2.60 CRORE WHICH WAS I NVESTED WITH M/S SUBHKAMANA BUILDWELL PVT. LTD. FOR THE PERIOD 31 ST MAY, 2012 TO 15 TH DECEMBER, 2012. SINCE THE ASSESSEE HAD BORROWED AN AMOUNT OF RS.2.70 CRORES F ROM M/S CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD. AT AN INTEREST OF 13.75% PER ANNUM AND THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF RS.27,65, 023/- ON HIS BORROWING, THE ASSESSING OFFICER CONFRONTED THE SAME TO THE ASSESS EE AS TO WHY NO INTEREST WAS CHARGED FROM M/S SUBHAKAMNA BUILDWELL PVT. LTD. RE JECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND CONSIDERING THAT THE INVE STMENT WAS MADE WITH A BUILDER, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST FROM 1 ST JUNE, 2012 TO 31 ST MAY, ITA NO.1383/DEL/2018 3 2012 I.E., FOR SEVEN MONTHS @ 10% WHICH COMES TO RS .15,16,666/-. HE ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER BY OBSERVING AS UNDER:- 5.1. GROUND NO.1: THE APPELLANT HAS CHALLENGED TH E ADDITION OF RS.16,73,137/- ON NOTIONAL BASIS. DURING THE COURS E OF APPELLATE PROCEEDINGS, IT IS NOTED THAT APPELLANT TOOK A SECURED LOAN OF RS.2 .7 CRORES ON 12.06.2012 AND INVESTED RS2.6 CRORE WITH M/S SUBHKAMNA BUILDWELL P VT. LTD. UNDERWRITING 2800 SQUARE FEET OF TOTAL AREA IN AN UPCOMING PROJECT. E XAMINATION OF FACTS REVEALS THAT APPELLANT HAD BORROWED THE FUNDS AT AN INTEREST RAT E OF 13.75% PER ANNUM AND HAD PAID INTEREST OF RS. 27,65,023/-. THE AO NOTED THAT APPELLANT HAS CLAIMED INTEREST EXPENSES OF RS. 27,65,023/- U/S 57 WHEREAS THERE WAS NO CORRESPONDING INCOME FROM OTHER SOURCES REFLECTED BY THE APPELLAN T ON THE CORRESPONDING INVESTMENT MADE WITH M/S SUBHKAMNA BUILDWELL PVT. L TD. THE AO ESTIMATED INTEREST ON INVESTMENT MADE WITH M/S SUBHKAMNA BUIL DWELL PVT. LTD. AT THE RATE OF 10% ON RS. 2.6 CRORE FOR THE SPECIFIED PERIOD EQ UAL TO RS. 15,16,666/- ON THIS ACCOUNT. SINCE THERE IS NO CORRESPONDING INCOME FRO M OTHER SOURCES AGAINST WHICH APPELLANT HAS CLAIMED EXPENDITURE OF RS. 27,6 5,023/-, THE AMOUNT ESTIMATED BY THE AO AS NOTIONAL INCOME SHOULD BE DI SALLOWED AS INTEREST PAID ON BORROWED FUNDS NOT ADDED AS A NOTIONAL INCOME. THUS , THE ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST IS DELETED BUT, THE IN TEREST TO THE SAME EXTANT CLAIMED BY THE APPELLANT U/S 57 IS DISALLOWED. 5. AGGRIEVED WITH SUCH ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO CLA USE 3 OF SECTION 57 AND SUBMITTED THAT ANY EXPENDITURE NOT BEING IN THE NATURE OF CAP ITAL EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF AN INCOME, IS AN ALLOWABLE DEDUCTION U/S 57 OF THE IT ACT. HE SUBMI TTED THAT THE PURPOSE OF TAKING LOAN WAS FOR EARNING INCOME AND, THEREFORE, THE DISALLOW ANCE OF INTEREST EXPENDITURE OF RS.15,16,666/- ADDED BY THE ASSESSING OFFICER AND S USTAINED BY THE CIT(A) IS NOT ITA NO.1383/DEL/2018 4 JUSTIFIED. HE SUBMITTED THAT WHEN INCOME IS NOT BEI NG EARNED, THE EXPENSES CANNOT BE DISALLOWED. FOR THE ABOVE PROPOSITION HE RELIED ON THE DECISION IN THE CASE OF CIT VS. SANGHI FINANCE AND INVESTMENT LTD. (2005) 272 ITR 5 53 (MP) AND CIT VS. M. ETHURAJAN (2005) 273 ITR 95 (MAD). REFERRING TO COMPUTATION OF TOTAL INCOME, COPY OF WHICH IS FILED AT PAGE 2 OF THE PAPER BOOK, THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS.11,48,507 /-. REFERRING TO PAGE 27 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE DETAILS OF THE INTEREST INCOME FROM NCR INFRAHOMES PVT. LTD. AND NCR FASHION PVT. LTD. REFERRING TO PAGE 4 OF THE PAPER BOOK, HE SUBMITTED THAT THE ASSESSEE BEFORE T HE ASSESSING OFFICER HAS CATEGORICALLY SUBMITTED THAT THE AMOUNT INVESTED WI TH SUBHAKAMANA BUILDWELL PVT. LTD. WAS TOWARDS TRANSACTION OF BOOKING OF FLATS WI TH A MOTIVE TO EARN INCOME TO COMPENSATE THE INTEREST EXPENDITURE WHICH IS BETTER KNOWN AS UNDERWRITING IN COMMON PARLANCE. IT WAS CATEGORICALLY STATED BEFORE THE A SSESSING OFFICER THAT THE AMOUNT INVESTED BY THE ASSESSEE IS NOT FOR ANY PARTICULAR FLAT AND ALSO NOT FOR COMPLETE VALUE OF THE FLATS, BUT, WAS FOR THE BOOKING OF SPECIFIED AR EA IN SQ. FEET TERMS WITHOUT ANY SPECIFIC DEMARCATION OR PARTICULAR ALLOTTED FLATS. IT WAS SUBMITTED THAT IT WAS IN NATURE OF AN ADVANCE BEING ELIGIBLE TO CLAIM INTEREST ON T HAT BOOKING AMOUNT. REFERRING TO PAGE 19 TO 26 OF THE PAPER BOOK, HE DREW THE ATTENT ION OF THE BENCH TO THE BANK STATEMENTS AND SUBMITTED THAT AN AMOUNT OF RS.2.60 CRORES WAS GIVEN ON 31 ST MAY, 2012. THEREFORE, THE ORDER OF THE CIT(A) DISALLOWI NG THE INTEREST EXPENDITURE U/S 57 IS UNCALLED FOR. ITA NO.1383/DEL/2018 5 7. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). 8. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. I FIND THE ASSESSI NG OFFICER IN THE INSTANT CASE MADE DISALLOWANCE OF RS.15,16,666/- BEING NOTIONAL INTER EST EXPENDITURE ON ACCOUNT OF PROPORTIONATE INTEREST ON THE FUNDS INVESTED BY TH E ASSESSEE TOWARDS BOOKING OF FLATS WITH M/S SUBHAKAMNA BUILDWELL PVT. LTD., WHICH WAS SUBSEQUENTLY RETURNED BY THEM TO THE ASSESSEE WITHOUT PAYING ANY INTEREST. I FIN D, THE LD.CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST, BUT, HE DISAL LOWED THE INTEREST TO THE EXTENT CLAIMED BY THE ASSESSEE U/S 57 OF THE IT ACT AND TH E ORDER OF CIT(A) ON THIS ISSUE HAS ALREADY BEEN REPRODUCED IN PARA 4 ABOVE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT HAS RECEIVED INTEREST INCOME FROM NCR INFRAHOMES PVT. LTD. AMOUNTING TO RS.10,58,712/- AND FROM M/S NCR FASHIO N PVT. LTD. AMOUNTING TO RS.89,795/-. FURTHER, IT IS ALSO HIS SUBMISSION TH AT MERELY BECAUSE INCOME HAS NOT BEEN EARNED THE EXPENDITURE CANNOT BE DISALLOWED. I FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. TH E HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M. ETHURAJAN (SUPRA) HAS HELD THAT WHAT SECTION 57(III) OF THE ACT REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT O R EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. THIS SECTION DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY I F ANY INCOME IS MADE OR EARNED. ACCORDINGLY, IT WAS HELD THAT INTEREST ON MONEYS BO RROWED FOR INVESTMENT IN SHARES ITA NO.1383/DEL/2018 6 WHICH HAD NOT YIELDED ANY DIVIDEND IS ADMISSIBLE AS DEDUCTION U/S 57(III). SIMILARLY, THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE O F CIT VS. SANGHI FINANCE AND INVESTMENT LTD . (SUPRA) HAS HELD THAT THE QUESTION WHETHER INTERE ST SHOULD BE CHARGED OR NOT AND AT WHAT RATE IS A MATTER OF CONTRACT BET WEEN THE PARTIES AND IS NOT REALLY GOVERNED BY ANY LAW AS SUCH. FURTHER, IT DEPENDS U PON SEVERAL FACTORS AS TO AT WHAT RATE INTEREST SHOULD BE CHARGED AND THE AUTHORITIES CANNOT SUBSTITUTE THEIR OWN RATE FOR CALCULATING THE RATE OF INTEREST. IT IS ONLY WHEN THE TAXING AUTHORITIES FIND THAT THE TRANSACTION OF LOAN ITSELF IS BOGUS ONE AND WAS ENT ERED INTO TO AVOID PAYMENT OF TAX THAT APPROPRIATE ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE. IT WAS ACCORDINGLY HELD THAT SINCE, IN THE INSTANT CASE THE TRIBUNAL C AME TO THE CONCLUSION THAT THE TRANSACTION IN QUESTION WAS A GENUINE ONE, THE SAME HAD TO BE GIVEN EFFECT TO AS IT WAS. ACCORDINGLY, THE ORDER OF THE TRIBUNAL DELETING THE ADDITION WAS UPHELD AND THE APPEAL FILED BY THE REVENUE WAS DISMISSED. IN VIEW OF THE ABOVE DECISIONS, I HOLD THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE EXPE NDITURE CLAIMED BY THE ASSESSEE U/S 57 OF THE IT ACT. THE ORDER OF THE CIT(A) IS ACCOR DINGLY SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE REA DS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PETITIONERS CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), GHAZIABAD, ER RED IN LAW AND ON FACTS IN DISALLOWING INTEREST OF RS.91666 CLAIMED UNDER SECT ION 57 OF THE INCOME TAX ACT, 1961. ITA NO.1383/DEL/2018 7 10. AFTER HEARING BOTH THE SIDES, I FIND THE ASSESS ING OFFICER MADE AN ADDITION OF RS.91,666/- BY ESTIMATING THE NOTIONAL INTEREST ON A SUM OF RS.10 LAKHS WHICH WAS UPHELD BY THE CIT(A). IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT INCOME WHICH HAS NOT BEEN EARNED CANNOT BE ADDED ON NOTIONAL BASIS. IN MY OPINION, THE FACTS ARE NOT COMING OUT CLEARLY FROM THE ORDER OF THE ASSESSING OFFICER OR THE CIT(A). UNDER THESE CIRCUMSTANCES, I DEEM IT PROPE R TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICAT E THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW, AFTER GIVING DUE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. I HOLD AND DIRECT ACCORDINGLY. THE GROUND OF APPEAL NO.2 RAISED BY T HE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 5.09.2019. SD/- (R.K. PANDA) ACCOUNTANT MEMBE R DATED: 25 TH SEPTEMBER, 2019 DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI