DCIT, Circle - 16(1), Hyderabad V. M/s Nivee Propedrty Developers Pv t. Limited, Hyderabad

ITA 187/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69802 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAMU
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 187/HYD/2011 ASSESSMENT YEAR 2007-08 THE DCIT CIRCLE-16(1) HYDERABAD V S. M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. HYDERABAD PAN: AABCN5025G APPELLANT RESPONDENT APPELLANT BY: SRI P. MURALI MOHAN RAO REVENUE BY: SRI S. RAMU DATE OF HEARING: 29 .0 7 .2013 DATE OF PRONOUNCEMENT: 20.09.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 29.11.2010 FOR ASS ESSMENT YEAR 2007-08. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT INTEREST HAS TO BE TREATED AS REVENUE EXPENDITURE EVEN THOUGH THE LAND PURCHASED IS SHOWN AS FIXED ASSET AND NOT PUT TO USE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT PROCESSING CHARGES ARE TO BE ALLOWED AS REVENUE EXPENDITURE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN BUSINESS OF REAL ESTATE, TECHNICAL CONSULTANCY AND ADVISERS FOR CONSTRUCTION. FOR THE A.Y. 2007-08, THE ASSESSEE F ILED ITS RETURN OF INCOME ON 13.9.2007 DECLARING INCOME OF RS. 99,0 4,050. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143 (3) OF INCOME-TAX ACT, 1961 DETERMINING THE TOTAL INCOME A T RS. ITA NO. 187/HYD/2011 M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. ============================= 2 3,25,39,481. THE ASSESSING OFFICER WHILE DETERMINI NG THIS INCOME MADE THE FOLLOWING REASONS: (A) DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF INTEREST - RS. 2,18,78,331 (B) DISALLOWANCE OF EXPENDITURE ON TERM LOAN PROCESSING CHARGES - RS. 7,56,500 4. THE ASSESSEE AVAILED TERM LOAN FROM HDFC BANK AND UTILISED FOR PURCHASE OF LAND AT TELLAPUR VILLAGE N EAR HYDERABAD FOR A TOTAL CONSIDERATION OF RS. 22,06,54,530. THE ASSESSEE SHOWN THIS LAND AS A FIXED ASSET IN SCHEDULE VI OF THE BALANCE SHEET. THE ASSESSEE INCURRED INTEREST AND OTHER FI NANCIAL CHARGES ON THIS LOAN AMOUNT OF RS. 2,28,73,115 AND CLAIMED AS BUSINESS EXPENDITURE. ACCORDING TO THE ASSESSING O FFICER, THE LAND WAS TREATED BY THE ASSESSEE AS A CAPITAL ASSET AND INTEREST EXPENDITURE INCURRED ON THE LOAN AVAILED FOR THE PU RPOSE OF ACQUISITION OF CAPITAL ASSET IS TO BE CONSIDERED AS CAPITAL EXPENDITURE AS THE LAND WAS NOT PUT TO USE OR IT WA S TREATED AS CLOSING WORK-IN-PROGRESS. 5. SIMILARLY, PROCESSING CHARGES INCURRED AT RS. 7,56, 500 ON THE LOAN OBTAINED FROM HDFC BANK FOR THE PURPOSE OF PURCHASE OF LAND IS ALSO TREATED AS CAPITAL EXPENDITURE AND DISALLOWED. ON APPEAL, THE CIT(A) OBSERVING INTEREST INCURRED B Y THE ASSESSEE ON LOAN BORROWED FROM HDFC BANK CANNOT BE CAPITALISED AS IT IS NOT PART OF THE PRICE PAID FOR PURCHASE OF LAND/CAPITAL ASSET. SIMILARLY, PROCESSING CHARGES PAID FOR AVAILING THE LOAN ARE TO BE CONSIDERED AS REVENUE E XPENDITURE AND IT CANNOT BE CAPITALISED. AGAINST THIS FINDING OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR SUBMITTED THAT THE ASSESSEE OBTAINED LOAN FROM HDFC BANK WHICH WAS UTILISED FOR THE PURPOSE O F ITA NO. 187/HYD/2011 M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. ============================= 3 PURCHASE OF LAND SITUATED AT SURVEY NOS. 386/A, 38 7/A, 386/A/1, 386/A/4 AND 423/E/1 AND 423/AA, TELLAPUR V ILLAGE, RAMACHANDRA PURAM MANDAL, NEAR HYDERABAD AND WHICH HAS BEEN SHOWN AS FIXED ASSET IN SCHEDULE VI OF THE BAL ANCE SHEET. BEING SO, THE INTEREST ON BORROWINGS USED FOR THE P URPOSE OF ACQUISITION OF FIXED ASSET IS TO BE CONSIDERED AS C OST OF FIXED ASSETS IN VIEW OF THE INSERTION OF THE PROVISO TO S ECTION 36(1)(III) OF THE ACT W.E.F. 1.4.2004. REGARDING THE DISALLOW ANCE OF PROCESSING CHARGES ON THE LOAN TAKEN, HE SUBMITTED TH SAME ARGUMENTS. 7. THE LEARNED AR SUBMITTED THAT T HE ASSESSEE COMPANY, M/S. NIVEE PROPERTY DEVELOPERS (P) LTD., IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF BUILDIN GS AND RESIDENTIAL APARTMENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD FILED ITS R ETURN OF INCOME DECLARING TOTAL INCOME OF RS. 99,04,650/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSING OFFICER ASSESSED THE INCOME OF THE ASSESSEE COMPANY AT RS. 3,25,39,4 81/- BY DISALLOWING THE INTEREST CHARGES AND LOAN PROCES SING CHARGES OF RS. 2,18,78,331/- AND DISALLOWANCE OF RS . 7,56,500/ - TOWARDS LOAN PROCESSING CHARGES. ON AP PEAL, THE CIT(A) VIDE HIS ORDER DATED 29-11-2010 ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITIONS MA DE BY THE ASSESSING OFFICER APPRECIATING THE FACT THAT TH E INTEREST CHARGES AND LOAN PROCESSING CHARGES ARE REVENUE IN NATURE AND ARE OUGHT TO BE ALLOWED AS DEDUCTION. AGAINST T HE ABOVE ORDER OF THE FIRST APPELLATE AUTHORITY, THE PRESENT APPEAL IS FILED BY THE REVENUE. THE AR SUBMITTED THAT ASSESSE E- COMPANY, M/S. NIVEE PROPERTY DEVELOPERS (P) LTD., HAD TAKEN FOLLOWING LOANS FOR ITS BUSINESS REQUIREMENTS : ITA NO. 187/HYD/2011 M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. ============================= 4 (A) FOR THE CONSTRUCTION OF RESIDENTIAL PROJECTS AT BAN JARA HILLS, MADHAPUR, MIYAPUR FOR AN AMOUNT OF RS. 7.50 CRORES ON 25TH JULY 2005 FROM HDFC LIMITED AND (B) FOR THE CONSTRUCTION OF RESIDENTIAL PROJECTS AT NALLAGANDLA, TELLAPUR FOR AN AMOUNT OF RS. 25.00 CRORES ON 30 TH MAY 2006 FROM HDFC LIMITED. 8. HE DREW OUR ATTENTION TO THE COPIES OF SANCTION LET TERS FROM HDFC LTD., FOR THE ABOVE TWO LOANS WHICH ARE P LACED ON RECORD. THE LOANS WERE TAKEN FOR THE PURPOSE OF WORKING CAPITAL OF THE BUSINESS OF THE COMPANY AND THE SAME WERE REPAID BY THE ASSESSEE COMPANY AS UNDER: (A) THE LOAN FROM THE HDFC LIMITED FOR THE AMOUNT OF RS . 7.50 CRORES WAS REPAID BY END OF SEPTEMBER 2007 AS EVIDENT BY NO DUE CERTIFICATE ISSUED BY HDFC LIMITE D. (B) THE LOAN FROM THE HDFC LIMITED FOR THE AMOUNT OF RS . 25.00 CRORES WAS REPAID BY AUGUST 2009 AS EVIDENT BY NO DUE CERTIFICATE ISSUED BY HDFC LIMITED. 9. THE AR FURTHER SUBMITTED THAT THE ASSESSEE-COMPANY HAD REPAID THE ABOVE SAID LOANS FROM ITS BUSINESS PROCEEDINGS AND THE COMPANY HAD FOLLOWING SALES TUR NOVER AND PROFIT FOR THE FINANCIAL YEAR 2006-07, 2007-08, 2008-09 & 2009-10. FINANCIAL YEAR TOTAL TURNOVER 2006 - 07 13,56,24,641 2007 - 08 19,75,11,886 2008 - 09 17,80,91,646 2009 - 10 5,24,24,784 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE, THE ASSESSEE AVAILED LOAN OF RS. 7.5 CRORES FROM HDFC BANK WHICH WAS USED FOR THE PURPOS E OF CONSTRUCTION. THE LOAN CARRIES SIMPLE INTEREST OF 10% PER ITA NO. 187/HYD/2011 M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. ============================= 5 ANNUM AND IT WOULD BE REPAID OVER A PERIOD OF 20 MO NTHS AND THIS LOAN IS REPAID IN 10 MONTHLY INSTALMENTS OF RS . 75 LAKHS EACH COMMENCING FROM THE END OF 15 TH MONTH FROM THE DATE OF FIRST DISBURSEMENT THROUGH POST DATED CHEQUES. THI S WAS MENTIONED CLEARLY IN THE SANCTIONED LETTER DATED 25 TH JULY, 2005 ISSUED BY THE HDFC BANK, HYDERGUDA ROAD, BASHEERBAG H, HYDERABAD. FOR AVAILING THIS LOAN, THE ASSESSEE MO RTGAGED THE LAND MEASURING 3,000 SQ. YARDS LOCATED IN 8-2-415/1 TO 5, ROAD NO. 4, BANJARA HILLS, HYDERABAD ON WHICH THE PROJEC T IS DEVELOPED ALONG WITH CONSTRUCTION THEREON PRESENT A ND FUTURE. FURTHER, THERE WAS A MORTGAGE OF LAND ADMEASURING 2 000 SQ. YD. SITUATED AT MIYAPUR, SY. NOS. 61, 64, 65 & 66, HYDE RABAD ALONG WITH THE CONSTRUCTION THEREON PRESENT AND FUTURE. THERE WAS ANOTHER MORTGAGE OF LAND ADMEASURING 1931.54 SQ. YD . SITUATED AT PLOT NO. 10, SECTOR-1, HUDA TECHNO ENCLAVE SY. N O. 64, MADHAPUR, HYDERABAD ALONG WITH THE CONSTRUCTION THE REON PRESENT AND FUTURE. ANOTHER MORTGAGE OF LAND ADMEA SURING 6050 SQ. YD. SITUATED AT PLOT NO. 32A, INDUSTRIAL D EVELOPMENT AREA, JEEDIMETLA, HYDERABAD, ALONG WITH THE PRESENT FUTURE. THERE WAS A PLEDGE OF SHARE OF VIJAY BANK 20000 NOS . IN DEMAT FORM IN THE NAME OF M/S. NIVEE INVESTMENTS & FINANC E LTD., HYDERABAD, PERSONAL GUARANTEES FROM MR. SUJIT REDDY AND MRS. AKHILA REDDY AND/OR ANY OTHER SECURITY OF HIGHER OR EQUIVALENT VALUE ACCEPTABLE TO HDFC. 11. AS SEEN FROM THE SANCTION LETTER, THE LOAN HAS BEEN AVAILED BY THE ASSESSEE FOR THE PURPOSE OF CONSTRUC TION OF THE PROJECT. IN OTHER WORDS, IT IS FOR WORKING OF THE ASSESSEE COMPANY AND IT CANNOT BE SAID THAT THE LOAN WAS AVA ILED FOR THE PURPOSE OF ACQUISITION OF LAND. EVEN OTHERWISE, IF THE LOAN AMOUNT USED FOR THE PURPOSE OF ITS PROJECT, IT CANN OT BE SAID THAT THE ASSESSEE USED THE FUND FOR ACQUISITION OF FIXED ASSET. THE LAND ON WHICH THE ASSESSEE IS CONSTRUCTING THE BUILDING IS ITA NO. 187/HYD/2011 M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD. ============================= 6 TO BE TREATED AS BUSINESS ASSET OF THE ASSESSEE COM PANY. BEING SO, IN OUR OPINION, THE CIT(A) IS JUSTIFIED IN ALLO WING THE CLAIM OF THE ASSESSEE TOWARDS THE INTEREST AND PROCESSING CH ARGES INCURRED ON LOAN. THE PROVISO TO SECTION 36(1)(III ) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. WE ARE I N AGREEMENT WITH THE ARGUMENTS OF THE ASSESSEE'S COUNSEL AND AC CORDINGLY, THE GROUND RAISED BY THE REVENUE ON BOTH THE COUNTS IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH SEPTEMBER, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 20 TH SEPTEMBER, 2013 COPY FORWARDED TO: 1. THE DCIT, CIRCLE - 16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. NIVEE PROPERTY DEVELOPERS PVT. LTD., D. NO. 8 - 3 - 961/B, ABOVE SBI BUILDING, 4 TH FLOOR, SRINAGAR COLONY, HYDERABAD-500 073. 3. THE CIT(A) - V, HYDERABAD. 4. THE CIT - I V , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO