Lala Bansi Dhar & Sons, New Delhi V. ACIT, New Delhi

ITA 1640/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2108 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K KAPOOR
• Keywords: Proportionate interest
• Section: 56

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH D, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 1640/DEL/2015 ASSESSMENT YEAR: 2011-12 LALA BANSI DHAR & SONS, DIAMOND PRESS BUILDING, 8E, RANI JHANSI ROAD, JHANDEWALAN EXTENSION, NEW DELHI PAN AAAHL 0339P (APPELLANT) VS. ACIT, CIRCLE 38(1), NEW DELHI. (RESPONDENT) ASSESSEE BY SH. PRADEEP DINODIA & SH. R.K. KAPOOR, C.A. REVENUE BY SH. AMIT JAIN, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-20, NEW DELHI DATED 19.01.2015 FOR THE ASSES SMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS : 1. THAT THE ORDER PASSED BY THE ASSESSING OFFICER AN D SUSTAINED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW ON ALL THE POINTS OF ADDITIONS AND DISALLOWANCES. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UP HOLDING THE ACTION OF THE ASSESSING OFFICER DEDUCTION ? 20,71,233/-, O UT OF INTEREST PAID ON DATE OF HEARING 14.08.2018 DATE OF PRONOUNCEMENT 04 .09.2018 ITA NO. 1640/DEL/2015 2 LOAN TAKEN FOR PAYMENT OF BOOKING IN A FUTURE PROJE CT BEING DEVELOPED BY M/S. ANSALS PROPERTIES & INFRASTRUCTURE LTD.(ANSALS ) AGAINST INTEREST RECEIVED BY THE APPELLANT ON CANCELLATION OF THE BO OKING. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NO T ADJUDICATING ON GROUND NO. 3 RELATING TO ACTION OF THE LD. ASSESSIN G OFFICER ADOPTING THE FIGURE OF INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AT ? 35,15,428/- AS AGAINST THE CORRECT FIGURE OF? 33,95 ,425/- WITHOUT ASSIGNING ANY REASON. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UP HOLDING THE ACTION OF THE ASSESSING OFFICER IN INITIATING PENALTY PROC EEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 5. THAT THE AFORESAID GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN ON 22.07.2011 DECLARING TOTAL INCOME OF RS.59,25,690/- . SUBSEQUENTLY, THE RETURN WAS REVISED ON 15.12.2011 AND THE RETURNED I NCOME WAS SAME. THE ASSESSEE-HUF IS NOT ENGAGED IN ANY BUSINESS OR PROF ESSION. ITS MAIN SOURCE OF INCOME IS INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NO TICES WERE ISSUED. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD INVESTED A SUM OF RS.75,00,000/- IN A FUTURE PROJEC T BEING DEVELOPED BY M/S. ANSAL PROPERTIES & INFRASTRUCTURE LTD. IN OCTOBER, 2008. THE SAID INVESTMENT WAS MADE OUT OF THE LOAN TAKEN IN THE NAME OF CO-PA RCENER MR. ALOK B. SRIRAM FROM ICICI BANK AND THE SAID LOAN EMI WAS PA ID THROUGH CO-PARCENER MR. ALOK B. SRIRAM. ON 31.03.2011, THE ASSESSEE HAS REIMBURSED A SUM OF RS.35,99,946/- TO MR. ALOK B. SHRIRAM TOWARDS EMI/P ROCESSING FEE IN RESPECT ITA NO. 1640/DEL/2015 3 OF THE SAID LOAN AND THE TOTAL INTEREST WAS PAID BY HUF TO CO-PARCENER UPTO 31.03.2011 AMOUNTING TO RS.34,32,926/-, WHICH IS AS UNDER : FINANCIAL YEAR ENDING AMOUNT 31.03.2008 485,251 31.03.2009 10,25,375 31.03.2010 9,57,124 31.03.2011 9,65,176 ----------------- 34,32,926 ----------------- DURING THE IMPUGNED YEAR, THE HUF CANCELLED THE BOO KING FROM M/S. ANSAL PROPERTIES & INFRASTRUCTURE LTD., SINCE NO PROJECT WAS FORTHCOMING AND TOOK BACK THE AMOUNT PAID TO THEM. ON THE REFUND OF BOOK ING AMOUNT OF RS.75,00,000/-, M/S. ANSAL PROPERTIES & INFRASTRUCT URE LTD. GAVE INTEREST OF RS.20,71,233/-. THE HUF SET OFF THE INTEREST RECEIV ED FROM THE INTEREST PAID TO ICICI BANK THROUGH CO-PARCENER U/S. 57 OF THE IT ACT. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DID NO T ALLOW THE INTEREST PAID ON THE SAID LOAN TAKEN BY THE CO-PARCENER OF THE HU F. HE REFERED TO SECTION 57(III) AND ALSO RELIED ON THE SOME CASE LAWS. THE AO, THEREFORE, CONCLUDED THAT THE INTEREST INCOME EARNED IS MERELY INCIDENTA L TO THE CANCELLATION OF BOOKING BY THE ASSESSEE AND THERE IS NO NEXUS BETWE EN THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED AND THE INCOME SAID T O BE EARNED BY THE ASSESSEE. THEREFORE, THE REASONS AND REPLY SUBMITTE D BY THE ASSESSEE WAS NOT ACCEPTED AND THE AO DISALLOWED THE INTEREST PAI D TO THE CO-PARCENER TO THE EXTENT OF RS.20,71,233/- EARNED BY THE ASSESSEE AND THE ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S. 56 OF THE IT ACT . FEELING AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSEE APPEALED BEFORE T HE LD. CIT(A) AND THE LD. ITA NO. 1640/DEL/2015 4 CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. AGGRIEV ED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 3. THE LD. AR OF THE ASSESSEE SUBMITTED A WRITTEN S YNOPSIS BEFORE US, THE RELEVANT PART OF WHICH READS AS UNDER : THE LD. ASSESSING OFFICER DURING THE ASSESSMENT REQ UIRED THE ASSESSEE TO EXPLAIN THE DEDUCTION. THE ASSESSEE EXPLAINED THAT DEDUCTIO N HAS BEEN CLAIMED U/S 57(III) OF THE INCOME TAX ACT BECAUSE THE EARNING OF INTERE ST FROM M/S. ANSAL PROPERTIES & INFRASTRUCTURE LTD. HAS A DIRECT NEXUS WITH THE P AYMENT OF INTEREST TO ICICI BANK AND DEDUCTION OF INTEREST HAS BEEN RESTRICTED TO TH E EXTENT OF INTEREST EARNED. THE TRANSACTION OF EARNING INTEREST FROM ANSALS AND PA YMENT OF INTEREST TO ICICI BANK WERE DIRECTLY AND INTRINSICALLY LINKED, IT WAS SUBM ITTED. HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED AND HE HELD THAT PROVISION OF SECTION 57(III) IS NOT APPLICABLE TO THE FACTS OF THIS CASE . REASONING GIVEN BY THE ASSESSING OFFICER IS CONTAINED AT PAGE 6 OF ASSESSING OFFICERS ORDER. AMONGST OTHER, ASSESSING OFFICER RELIED UPON TWO JUDGMENTS AS NOTE D AT PAGE 4 OF HIS ORDER. BOTH THESE JUDGMENTS ARE IN FACT IN FAVOR OF ASSESSEE AS WOULD BE EXPLAINED HEREINAFTER. AT THE CIT(A) STAGE, ALL THE FACTS AS WELL NARRATED TO THE LD. AO WERE REITERATED AND IT WAS CLAIMED THAT THE DEDUCTION U/S 57(III) IS RE QUIRED TO BE ALLOWED BECAUSE THERE WAS DIRECT NEXUS OF THE FUNDS BORROWED ON WHI CH INTEREST WAS PAID AND IT WAS THE SAME FUNDS ON WHICH INTEREST HAS BEEN EARNE D BY THE ASSESSEE. THE LD. CIT(A) DIDNT AGREE WITH THE CONTENTION OF THE ASSE SSEE AND UPHELD THE DISALLOWANCE BY RELYING MAINLY ON THE SAME JUDGMENT S AS WERE RELIED BY ASSESSING OFFICER. OTHER JUDGMENTS REFERRED TO BY T HE CIT(A) ARE ALSO DISCUSSED IN THESE TWO JUDGMENTS. THEREFORE, THE ONLY QUESTION THAT IS REQUIRED TO BE DECIDED BY THE HONBLE ITAT IS AS TO WHETHER THE ASSESSEE IS ELIGIBLE TO CLAIM DED UCTION AGAINST THE INCOME EARNED, OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES UPON THESE FACTS OR NOT? THE FIRST JUDGMENT RELIED UPON BY THE LD. ASSESSING OFFICER / CIT(A) IS THAT OF SMT. VIRMATI RAMKRISHNA VS. CIT 131 ITR 659 (GUJARAT HIG H COURT). THERE WERE TWO ISSUES INVOLVED. THE FIRST ISSUE WAS THE PROPORTIONATE AMOUNT OF INTEREST ON THE LOAN WHICH WAS ADMITTEDLY TAKEN FOR MEETING THE OBLIGATIONS OF ITA NO. 1640/DEL/2015 5 PERSONAL NATURE WAS DISALLOWED. IN OTHER WORDS, THE INTEREST PAID ON THE FUNDS BORROWED FOR THE PURPOSE OF MAKING INVESTMENTS WAS HELD ALLOWABLE U/S 57(III) OF THE INCOME TAX ACT. THE OTHER ISSUE INVOLVED WAS TH E PAYMENT OF FEE BY THE ASSESSEE TO THE INCOME TAX PRACTITIONER WHICH WAS C LAIMED AS DEDUCTION U/S 57(III). THE HONBLE COURT WAS ON THE VIEW THAT SUC H AMOUNT WAS ALSO NOT DEDUCTABLE U/S 57(III). WHAT ASSESSING OFFICER DISA LLOWED U/S 57(III) WAS PROPORTIONATE INTEREST ON FUNDS BORROWED FOR PERSON AL UTILIZATION. THE SECOND JUDGMENT RELIED UPON BY THE LD. ASSESSIN G OFFICER/CIT(A) IS THAT OF HONBLE SUPREME COURT IN THE CASE OF SMT. PADMAVATI JAIKRISHNA VS. ACIT 166 ITR 176 (SC). THE HONBLE SUPREME COURT AT PAGE 178 OF THE SAID JUDGMENT IN THIS CASE HAS BY RELYING UPON ITS OWN JUDGMENT IN C IT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) HAS OBSERVED AS UNDER:- THIS BEING AN INVESTMENT COMPANY, IF IT BORROWED M ONEY AND UTILIZED THE SAME FOR ITS INVESTMENTS ON WHICH IT EARNED INCOME, THE INTEREST PAID BY IT ON THE LOAN WILL CL EARLY BE A PERMISSIBLE DEDUCTION UNDER SECTION 12(2) OF THE IN COME-TAX ACT. IN CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519, THIS COURT OBSERVED (PAGE 521): THE DETERMINATION OF THE QUESTION BEFORE US TURNS ON THE TRUE INTERPRETATION OF SECTION 57(III) AND IT WOULD , THEREFORE, BE CONVENIENT TO REFER TO THAT SECTION, BUT BEFORE WE DO SO, WE MAY POINT OUT THAT SECTION 57(III) OCCURS IN A FASC ICULUS OF SECTIONS UNDER THE HEADING, F- INCOME FROM OTHER S OURCES. SECTION 56, WHICH IS THE FIRST IN THIS GROUP OF SEC TIONS, ENACTS IN SUB-SECTION (1) THAT INCOME OF EVERY KIND WHICH IS NOT CHARGEABLE TO TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E, SHALL BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND SUB-SECTION (2) INC LUDES IN SUCH INCOME VARIOUS ITEMS, ONE OF WHICH IS DIVIDEN DS. DIVIDEND ON SHARES IS THUS INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. SECTION 57 PROVIDES FO R CERTAIN DEDUCTIONS TO BE MADE IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ONE OF SUCH DEDUCTIONS IS THAT SET OUT IN CLAUSE (III), WHICH R EADS AS FOLLOWS: THE EXPENDITURE TO BE DEDUCTIBLE UNDER SECTION 57(I II) MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING EARNING SUCH INCOME ITA NO. 1640/DEL/2015 6 IN THE SAID DECISION, THIS COURT CLEARLY INDICATED THAT (PAGE522): IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEV ANT IN DETERMINING THE APPLICABILITY OF SECTION 57(III) AN D THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. IN THIS CASE ALSO BEFORE HONBLE SUPREME COURT, IT WAS FOUND BY THE INCOME TAX OFFICER THAT OUT OF THE LOANS REAL INVESTMENT OF TH E ASSESSEE WAS RS. 1,250 AND DISALLOWANCE WAS ONLY FOR THE INTEREST ON THE BORRO WED FUNDS WHICH WERE UTILIZED FOR THE PAYMENT OF INCOME TAX, WEALTH TAX AND ANNUI TY DEPOSIT BY THE ASSESSEE, WHICH WAS HIS PERSONAL OBLIGATIONS. THEREFORE, BOTH THE JUDGMENTS RELIED UPON BY THE AS SESSING OFFICER CLEARLY LAID DOWN THE PROPOSITION THAT IF THE BORROWED FUNDS WER E REALIZED FOR THE PERSONAL PURPOSES, THEN POSSIBLY THE DEDUCTION U/S 57(III) C ANNOT BE CLAIMED. HOWEVER, WHEN THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT ON WHICH INCOME EARNED IS TAXABLE, THEN THE DEDUCTION FOR THE INTEREST ON THE BORROWED FUNDS IS REQUIRED TO BE ALLOWED. AS ALREADY CLARIFIED THERE IS NO DISPUTE ABOUT THE FACT THAT ASSESSEE HAS EARNED INTEREST FROM M/S. ANSAL ON THE FUNDS BORROWED FOR THE PURPOSE OF MAKING INVESTMENT IN A FLAT. THEREFORE, THERE IS A DIRECT NEXUS AND INTEREST PAID IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF EARNING INTEREST INCOME FOR THE SAME, IS PRAYED TO BE ALLOWED. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER O F THE LD. AUTHORITIES BELOW AND SUBMITTED THAT THE LOWER AUTHORITIES HAVE DONE GOOD REASONED ORDER AND IT DOES NOT CALL FOR ANY INTERFERENCE. TH E ASSESSEE HAS RECEIVED INTEREST AND PAID INTEREST AND THERE IS NO DIRECT N EXUS FOR PAYMENT OF INTEREST. 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIALS AVAILABLE ON RECORD, WE OBSERVE THAT THE ASSESSEE H AS TAKEN LOAN THROUGH CO- PARCENER OF THE HUF OF RS.78,00,000/-. ON GOING THR OUGH THE LOAN SANCTION DOCUMENTS, WE FIND THAT THE NATURE OF LOAN SANCTION BY ICICI BANK IS HOME ITA NO. 1640/DEL/2015 7 EQUITY (RESIDENTIAL), WHICH IS ON PAPER BOOK PAGE 3 6 TO 38 AND CREDITED IN THE BANK ACCOUNT OF ALOK B. SHRIRAM IN OCTOBER, 200 3. FURTHER ON 10.10.2007, A CHEQUE BEARING NO. 70550 HAS BEEN PAI D TO THE M/S. ANSAL PROPERTIES & INFRASTRUCTURE LTD. OF RS.75,00,000/- WHICH HAS BEEN DULY ACKNOWLEDGED BY M/S. ANSAL PROPERTIES & INFRASTRUCT URE LTD. ON 31.12.2007 BEARING THE CHEQUE NO. OF STANDARD CHARTERED BANK, KAROLBAGH, NEW DELHI, WHICH AT PAGE 14 OF THE PAPER BOOK. AN AFFIDAVIT HA S ALSO BEEN PLACED ON RECORD ON BEHALF OF THE HUF BY THE KARTA THAT THE B OOKING OF THE PROPERTY HAS BEEN MADE BY HUF AND THE CO-PARCENER MR. ALOK B . SHRIRAM HAS PAID THE SAID AMOUNT OF RS.75,00,000/- WHICH IS AT PAPER BOO K PAGE 15-16. THE EMI/PROCESSING CHARGES ARE ALSO PAID BY HUF CO-PARC ENER. THE TOTAL INTEREST HAS BEEN RECEIVED FROM THE BOOKING TO THE DATE OF C ANCELLATION BY THE HUF OF RS.20,71,233/- WHICH IS ELIGIBLE FOR DEDUCTION FOR THE PAYMENT OF INTEREST OF RS.34,32,926/- AS PER SECTION 57 OF THE ACT BECAUSE THIS INTEREST HAS BEEN RECEIVED OUT OF THE SAID LOAN TAKEN FROM ICICI BANK , WHICH WAS PAID BY HUF TO M/S. ANSAL PROPERTIES & INFRASTRUCTURE LTD. THRO UGH CO-PARCENER. IT IS NOT THE CASE OF THE REVENUE THAT ANY SUCH EXPENDITURE O F INTEREST INCURRED BY THE ASSESSEE WAS CLAIMED BY HIM IN THE PRECEDING ASSESS MENT YEARS. THUS, THERE IS DIRECT NEXUS BETWEEN EARNING OF INTEREST AND EXP ENDITURE OF INTEREST AS PER SECTION 57 OF THE ACT. THEREFORE, THE ASSESSEE IS ENTITLED FOR NETTING OF INTEREST FROM THE EXPENDITURE INCURRED. THIS PRINCI PLE IS SETTLED DOWN IN THE CASE OF ACG ASSOCIATES CAPSULES (P) LTD. VS. CIT (2 012) 18 TAXMANN.COM 137 (SC) THAT THE NET INTEREST INCOME SHOULD BE INCLUDE D IN THE INCOME OF THE ASSESSEE. RELIANCE IS ALSO PLACED ON THE DECISION I N THE CASE OF SMT. VIRMATI RAM KRISHNA VS. CIT (1981) 131 ITR 659 (GUJ). IN VI EW OF BOTH THE ABOVE ITA NO. 1640/DEL/2015 8 DECISIONS, THE ASSESSEE IS ELIGIBLE FOR NETTING THE INTEREST RECEIVED FROM THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. AS A RESULT, THE APPEAL OF THE ASSESSEE DESERVES TO BE ALLOWED. 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2018. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4 TH SEPTEMBER, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI