Appeal Details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 6338 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 4 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-08-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2010-2011
Appeal Filed On
18-03-2016
Judgement Text
1 ITA NO. 1464, 1465/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 1465/DEL/20 16 (A.Y. 2010-11) I.T.A. NO. 1464/DEL/20 16 (A.Y. 2011-12) ACIT CIRCLE-15(2) C.R.BUILDING NEW DELHI (APPELLANT) VS . LUCINA LAND DEVELOPMENT LTD. F-60, 2 ND FLOOR, MALHOTRA BUILDING, CONNAUGHT PLACE NEW DELHI PAN : AABCL2130N (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 13.11. 2014 PASSED BY CIT(A)- VIII, NEW DELHI BY THE REVENUE FOR ASSESSMENT YEAR 2010-11 AND 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER : ITA NO. 1465/DEL/2016 1. THAT THE ORDER OF THE LEARNED CIT(APPEALS) IS E RRONEOUS & CONTRARY TO FACTS & LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & L AW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 14,39,12,048/ - MADE ON ACCOUNT OF APPELLANT BY SH. GAUTAM JAIN, ADV. SH. LALIT MOHAN, CA RESPONDENT BY SMT. RINKU SINGH, SR.DR DATE OF HEARING 01.08.2019 DATE OF PRONOUNCEMENT 05.08.2019 2 ITA NO. 1464, 1465/DEL/2016 INTEREST EXPENSE CAPITALIZED IN REAL ESTATE UNDER D EVELOPMENT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & L AW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 3,24,94,319/- MADE ON ACCOUNT OF ALL EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR FOREGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME O F HEARING. ITA NO. 1464/DEL/2016 1. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 6,90,77,783/- MADE ON ACCOUNT OF INTEREST EXPENSE CAPITALIZED IN REAL ESTATE UNDER DEVELOPMEN T. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. RETURN OF INCOME WAS FILED ON 22.09.2010 DECLARI NG TOTAL LOSS OF RS. 30,16,861/-. IN THIS CASE AFTER RECORDING REASONS U /S 148(2) SATISFACTIONS WAS RECORDED BY THE ASSESSING OFFICER AND NOTICE U/S 14 8 WAS ISSUED TO THE ASSESSEE COMPANY ON 15.01.2013 REQUIRING THE ASSESS EE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE FILED REPLY AND REQUESTED THE REVENUE TO TREAT THE ORIGINAL RETURN FILED U/S 139( 1) IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE ADVOCATE OF THE ASSESSEE ATTEND ED THE REASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER MADE ADDITION OF RS. 3,24,94,319/- IN RESPECT OF DISALLOWANCES ON ACCOUNT OF EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT AS WELL AS DISALLOWED INTEREST CLAIMED OF R S. 14,39,12,048/- ON THE BASIS OF PERCENTAGE COMPLETION METHOD IN SUCH SUBSE QUENT ASSESSMENT YEARS. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 3 ITA NO. 1464, 1465/DEL/2016 5. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DE LETING THE ADDITION MADE ON ACCOUNT OF INTEREST EXPENSE CAPITALIZING REALIST IC UNDER DEVELOPMENT WHICH WAS NOT AT ALL DISALLOWED TO THE ASSESSEE. AS REGAR DS GROUND NO. 2, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE ADD ITION OF RS. 3,24,94,319/- MADE ON ACCOUNT OF ALL EXPENDITURE DEBITED PROFIT A ND LOSS ACCOUNT. AS THE ASSESSING OFFICER WAS WRONGLY MENTIONED THAT THE BE NEFITS WAS NOT COMMENCED. THE LD. DR RELIED UPON THE HONBLE APEX COURT ORDER IN CASE OF ADD.CIT VS. TULIP STAR HOTELS LTD. (2012) 21 TAXMAN N.COM 97 (SC) AND HONBLE DELHI HIGH COURT DECISION IN CASE OF PUNJAB STAINLE SS STEEL INDS. VS. CIT (2011) 196 TAXMAN 404 (DELHI). 6. THE LD. AR RELIED UPON THE ASSESSMENT ORDER AS W ELL AS CIT(A) ORDER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS GROUND NO. 1, THE C IT(A) HAS DELETED THIS ADDITION ON THE BASIS OF HONBLE SUPREME COURT DECI SION IN CASE OF SA BUILDERS LTD. 288 ITR 1. THE ASSESSING OFFICER HAS GIVEN OBS ERVATION THAT THIS AMOUNT HAS TO BE DISALLOWED IN THE ASSESSMENT ORDER ITSELF . THE CIT(A) HELD AS UNDER: GROUND NO. 2:- GROUND NO. 2 OF THE APPEAL IS AGAINST THE DISALLOW ANCE OF INTEREST EXPENSES OF RS. 143,912,048/-, CAPITALIZED IN REAL ESTATE PROJECT UNDER DEVELOPMENT. THE AO, IS HIS ASSESSMENT ORDER, ALLEG ED THAT LOANS HAVE BEEN GRANTED WITHOUT ANY BUSINESS EXIGENCY. ON THE OTHER HAND, THE APPELLANT HAS ARGUED THAT T HE ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS (PARTICULARLY FOR ITS RUNNING PROJECT) AND DEBITED THE INTEREST COST IN THE PROJECT WORK-IN-PR OGRESS, AMOUNTING TO RS. 14.39 CRS. AS, SUCH INTEREST COST WAS NOT DEBITED I NTO P & L ACCOUNT, THE ASSESSEE DID NOT CLAIM IT IN TAX, DURING THE YEAR U NDER CONSIDERATION. IN ORDER TO FRUITFULLY USE THE AVAILABLE FUNDS, FOLLOWING TH E PRINCIPLES OF COMMERCIAL EXPEDIENCY, THE ASSESSEE PARTIALLY GAVE SUCH FUNDS TO ITS WHOLLY-OWNED SUBSIDIARIES FOR THEIR BUSINESS PURPOSES. THE COMPA NIES, TO WHOM FUNDS WERE 4 ITA NO. 1464, 1465/DEL/2016 GIVEN, WERE 100% SUBSIDIARIES OF THE ASSESSEE (EVID ENCE FILED WITH SUBMISSION DT. 22.10.2014) AND THE ASSESSEE HAD FUL L CONTROL OVER THE MANAGEMENT OF THOSE ENTITIES. IN OTHER WORDS, BUSIN ESSES OF THE SUBSIDIARIES WERE ACTUALLY THE BUSINESS OF THE ASSESSEE ITSELF. THE APPELLANT HAS GIVEN REFERENCE TO SEVERAL CASE LAWS IN SUPPORT OF ITS AR GUMENT INCLUDING SA BUILDERS CASE OF HONBLE SUPREME COURT OF INDIA. ON CONSIDERING THE FACTS OF THE CASE AND THE ARGUM ENTS FORWARDED BY THE APPELLANT, IT IS OBSERVED THAT THERE IS NO DISPUTE AS FAR AS THE ALLOWABILITY OF INTEREST EXPENSES U/S 36(1)(III) OF THE ACT IS CONC ERNED. THE FACTS OF THE CASE OF MALAYALAM PLANTATION LTD. ON WHICH THE AO HAS RELIE D, ARE ENTIRELY DIFFERENT. THE APPELLANT HAS RELIED UPON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF SA BUILDER LIMITED, IT WAS HELD BY THE HON BLE COURT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS OCCURRING IN SECTION 36(1)(III) IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EA RNING PROFITS. IN ORDER TO CLAIM A DEDUCTION, IT IS ENOUGH TO SHOW THAT THE MO NEY IS EXPENDED ON GROUND OF COMMERCIAL EXPEDIENCY. THE AO HAS WRONGLY INTERPRETED THE FACT OF THE CAS E AND MENTIONED IN HIS ASSESSMENT ORDER THAT THE ABOVE PREPOSITION IN NOT APPLICABLE. THROUGH, THE PREPOSITION LAID BY THE DECISION OF SUPREME COURT I S COMPLETELY APPLICABLE IN THE INSTANT CASE, AS THE LOANS GIVEN TO ITS SUBSIDI ARY COMPANIES IN ORDER TO ACHIEVE ITS BUSINESS OBJECTS AND THE ASSESSEE HAS A DEEP INTEREST IN THE BUSINESS OF SUBSIDIARY COMPANIES. THUS THE INTEREST ON LOAN TAKEN BEING MEANT FOR THE PURPOSE OF BUSINESS IS DULY ALLOWABLE AS BUSINESS EXPENDITURE. THESE 2 CASE LAWS INTERPRETED BY AO ARE NOT PROPER . THE FIRST CASE LAW ON SA BUILDERS SAYS THAT INTEREST DISALLOWANCE ON LOAN S AND ADVANCES GIVEN TO GROUP CONCERNS SHOULD NOT BE DISALLOWED ON THE BASI S OF COMMERCIAL EXPEDIENCY. IF INTEREST IS DISALLOWED IN ONE COMPAN Y, THEN INTEREST IS TO BE ADDED AS INCOME OF THE OTHER COMPANY, THEN BOTH TRA NSACTIONS TAKEN TOGETHER WILL NOT ADD EXTRA REVENUE TO THE DEPARTMENT. THE C OMPANIES ARE ASSESSED AT A FLAT TAX RATE OF 30% SLAB. THEREFORE, THESE 2 TRA NSACTIONS MAKE THE ULTIMATE ANALYSIS AS TAX NEUTRAL. HENCE THERE IS NO NEED TO DISALLOWANCE OF INTEREST 5 ITA NO. 1464, 1465/DEL/2016 WHEN PARENT COMPANY HAS BORROWED MONEY FROM FINANCI AL INSTITUTION AND GIVEN INTEREST FREE LOAN TO THE SUBSIDIARIES. IN TH IS THEORY, THE AOS FINDING OF INTEREST DISALLOWANCE IS NOT PROPER AND JUSTIFIED. HENCE, THIS GROUND OF APPEAL IS ALLOWED. THE SECOND CASE LAW OF AO FOR THE PURPOSE OF BUSIN ESS WHICH HAS BEEN WRITTEN IN PAGE NO. 4 AND 5 OF HIS ORDER. THE AO HA D DISALLOWED THE EXPLANATION OF THE APPELLANT ON THE GROUND THAT THE APPELLANT COMPANY IS NOT ENGAGED IN THE BUSINESS OF RAISING LOANS AT CONCESS IONAL RATE AND EXTENDING THEM AT HIGHER RATES. THE APPELLANT HAS FAILED TO U SE THE MONEY OF THE PURPOSE FOR WHICH IT HAS BEEN RAISED, AND BY CAPITA LIZED INTEREST. THE ASSESSEE HAS INCREASED THE COST OF INVENTORY WAS TH E COMMENTS OF THE AO. THESE VIEWS OF THE AO APPEAR TO BE REVERTED AND DIS TORTED. THE APPELLANT COMPANY AND ITS PARENT COMPANY ARE INTO DIFFERENT B USINESSES LIKE APPELLANT COMPANY DOING REAL ESTATE WORK AND PARENT COMPANY I S INDIABULLS REAL ESTATE LTD., A REAL ESTATE COMPANY. BOTH THE INTERE ST OF THE COMPANY ARE TO EARN PROFITS BUT WITHIN THE FRAMEWORK OF CORPORATE LAW AND OTHER ALLIED LAWS. THEREFORE, I DO NOT SUPPORT THE VIEW OF AO AND ADVI CE AO TO ALWAYS APPLY FRESH CASE LAWS OF RECENT YEARS AS APPEARING IN LAS T 5 TO 10 YEARS BY DIFFERENT HIGH COURTS AND SUPREME COURT. WITH THE CHANGE OF T IME AND ADVANCEMENT OF SCIENCE AND TECHNOLOGY AND DEVELOPMENT OF THE COUNT RY, THE SITUATION IN WHICH COMPANY RUN THEIR BUSINESS ALSO DIFFERS. THEREFORE AS OFFICERS OF THE DEPARTMENT, WE SHOULD BE MORE PRACTICAL AND PRAGMAT IC WHILE MAKING ASSESSMENT OF THE COMPANIES. THE FACTS BEING SO AND IN VIEW OF THE DECISIONS OF HONBLE SC COURT IN CASE OF SA BUILDERS LIMITED 288 ITR 1 (SC) ON THE SUBJEC T, THE AOS ACTION IN DISALLOWING THE INTEREST EXPENDITURE OF 143,912,048 /- IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. HAVING CONCLUDED THAT THE INTEREST PAID BY THE ASS ESSEE IS DULY ALLOWABLE UNDER INCOME TAX ACT AS THE LOAN TO THE SUBSIDIARIE S HAS BEEN GIVEN FOR THE PURPOSE OF ITS BUSINESS, IT IS ALSO DIRECTED THAT T HE DISALLOWANCE OF THE INTEREST COST, MADE IN THE AY 2011-12 AMOUNTING TO RS. 6,90, 77,783/-, BEING 48% OF 6 ITA NO. 1464, 1465/DEL/2016 RS. 143,912,048/- IS ALSO TO BE DELETED. GROUND NO. 2 OF THE APPEAL IS ALLOWED. THUS THE CIT(A) HAS RIGHTLY ALLOWED THIS ISSUE WITH A DETAILED FINDING AS WELL AS BY DISCUSSING THE CASE LAWS REFERRED BY THE ASSESSI NG OFFICER. THE RELIANCE BY THE LD. DR ON THE DECISIONS OF TULIP STAR HOTELS LT D. (SUPRA) AND PUNJAB STAINLESS STEEL INDS. (SUPRA) ARE NOT AT ALL RELEVA NT AS THE FACTUAL ASPECT IN THE PRESENT CASE IS TOTALLY DIFFERENT. THERE IS NO NEED TO INTERFERE WITH THE OBSERVATIONS OF THE CIT(A). GROUND NO. 1 OF THE REV ENUES APPEAL IS DISMISSED. 8. AS REGARDS GROUND NO. 2 THE ASSESSEE HAS COMMENC ED ITS BUSINESS IN 2006 ITSELF AND WAS FILING RETURN SINCE ASSESSMENT YEAR 2007-08. THE PRESENT ASSESSMENT YEAR IS THE FOURTH YEAR OF FILING RETURN OF INCOME. THE CIT(A) HELD AS UNDER: GROUND NO. 3:- THE ASSESSEE IS REAL ESTATE DEVELOPER/BUILDER. THE COMPANY WAS INCORPORATED ON 25.07.2006. THE APPELLANT HAD FILED ITS INCOME TAX RETURN FOR AY 2007-08 SHOWING TOTAL LOSS OF RS. 32,619/-. THE APPELLANT HAD FILED INCOME TAX RETURN FOR AY 2008-09 SHOWING LOSS OF RS . 64,074/- AND ALSO FILED ITR FOR AY 2009-10 SHOWING TOTAL LOSS OF RS. 62,220 /-. IN THE FY 2009-10 I.E. AY 2010-11 WHICH IS UNDER APPEAL, THE PROJECT COST INCURRED WAS TO THE EXTENT OF RS. 49.52 CRS. THERE IS PAYMENT OF BROKERAGE AND COMMISSION FOR BOOKING OF FLATS TO DIFFERENT BROKERS. IN THE NEXT AY 2011- 12, THE APPELLANT HAD SHOWN TOTAL INCOME OF RS. 209.92 CRS. AND PAID TAXES OF R S. 75.41 CRS. THUS, WE ARE IN THE 4 TH YEAR OF BUSINESS OF THE APPELLANT COMPANY AND AO S AYS THAT THE APPELLANT HAD NOT STARTED ITS BUSINESS ON AY 2010-1 1 (4 TH YEAR OF FILING RETURN). THE BUSINESS OF REAL ESTATE TAKES TIME OF 4 TO 5 YEARS IN BRINGING A PROJECT FROM ZERO GROUND LEVEL TO MULTI STORIED BUI LDINGS WHERE PEOPLE USED TO STAY. HENCE IN SUCH TYPE OF BUSINESS, THE BUSINESS HAS NOT STARTED FROM THE FIRST YEAR CANNOT BE TOLD OR JUSTIFIED. THERE IS CO MMON EXPENDITURE OF RUNNING THE COMPANY, GIVING EMPLOYMENT TO PEOPLE FOR MAKING THE PROJECT VIABLE AND SUCCESSFUL IMPLEMENTATION OF DIFFERENT TAX LAWS AND ACTION PLANS BY USING 7 ITA NO. 1464, 1465/DEL/2016 NEW MANAGERIAL TECHNIQUES LIKE CRITICAL PATH METHOD S (CPM), PROGRAM EVALUATION TECHNIQUES (PERT) AND OTHER MANAGERIAL I NPUTS SO THAT THE PROJECT CAN BE COMPLETED SUCCESSFULLY IN A LEAST TIME WITH LESS RESOURCES AND MORE EFFICIENTLY. THEREFORE THE OBSERVATION OF THE AO TH AT THE COMPANY HAS NOT STARTED IT BUSINESS ON 4 TH YEAR OF DOING ACTIVITIES IS NOT CORRECT. THIS COMP ANY IS A GROUP COMPANY OF INDIABULLS REAL ESTATE LTD. I N THE INITIAL 2-3 YEARS THE COMPANY HAD TO OBTAIN LOAN FROM FINANCIAL INSTITUTI ON OR FROM GROUP CONCERNS OR GIVE LOANS AND ADVANCE TO SISTER CONCERN FOR EXE CUTING VARIOUS ACTIVITIES OF THE OBJECTS. THEREFORE THE AOS ASSUMPTION THAT INT EREST CLAIMED BY THE APPELLANT SHOULD BE DISALLOWED, AS THE COMPANY HAS NOT STARTED ITS ACTIVITIES, IS NOT CORRECT. THE AO HAD RELIED ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF M/S TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. A ND HAD SAID IN ITS ORDER IN PAGE NO. 6 THAT INTEREST EARNED BY THE APPELLANT CO MPANY OF RS. 2,10,97,405/- EARNED DURING FREE COMMENCEMENT PERIO D IS HELD AS INCOME FROM OTHER SOURCES BY APPLYING THE ABOVE CASE LAW O F HONBLE SUPREME COURT. THE HONBLE SUPREME COURT CASE IS DIFFERENT WHERE F DR INTEREST RECEIVED FROM FIXED DEPOSIT IN BANKS WAS TAXED AS INCOME FROM OTH ER SOURCES IN THE PRE- OPERATIONAL PERIOD OF THE COMPANY. IN THE PRESENT C ASE OF THE REAL ESTATE BUILDERS WHEN THE PROJECT CONSTRUCTION ACTIVITIES A RE GOING ON, AND WHERE IN THE 4 TH YEAR OF BUSINESS, THE EXPENDITURE CLAIMED BY THE A PPELLANT IN THE P&L A/C CANNOT BE SUMMARILY REJECTED ON THE GROUND THAT NO SALES ACTIVITY OR SALE RECOGNIZATION HAVE BEEN MADE BY THE APPELLANT COMPA NY. THEREFORE, THE OBSERVATION OF THE AO IN REJECTING APPELLANTS EXPL ANATION AND DISALLOWING ALL THE EXPENSES CLAIMED IN P&L A/C OF RS.3,24,94,319/- IN THE P&L A/C IS NOT JUSTIFIED. HENCE, THE GROUND NO. 3 OF THE APPEAL IS ALLOWED, AND ADDITION OF RS. 3,24,94,319/- IS DELETED. THE ASSESSING OFFICER IGNORED THE CRUCIAL FACT THAT THERE IS PAYMENT OF BROKERAGE AND COMMISSION FOR BOOKING OF FLATS TO DI FFERENT BROKERS AND IN THE NEXT AY 2011-12, THE ASSESSEE HAD SHOWN TOTAL INCOM E OF RS. 209.92 CRS. ON 8 ITA NO. 1464, 1465/DEL/2016 WHICH PAID TAXES OF RS. 75.41 CRS. THUS, WE ARE IN THE 4 TH YEAR OF BUSINESS OF THE ASSESSEE COMPANY BUT THE ASSESSING OFFICER WRON GLY MENTIONED THAT THE ASSESSEE DID NOT STARTED ITS BUSINESS ON AY 2010-11 (4 TH YEAR OF FILING RETURN). THUS, THE CIT(A) HAS RIGHTLY DELETED THIS ADDITION. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). 9. AS REGARDS APPEAL FOR ASSESSMENT YEAR 2011-12 FI LED BY THE REVENUE THE ISSUE IS IDENTICAL IN RESPECT OF GROUND NO. 1 OF AS SESSMENT YEAR 2010-11, THEREFORE SAME IS DISMISSED. 10. IN RESULT BOTH THE APPEALS ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 05 TH AUGUST, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05/08/2019 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
