M/s. DDI Motors (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 2007/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81957 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Revenue expenditure
• Section: 142(1)

Judgement Text

ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.2007/DEL/2013 ASSESSMENT YEAR : 2007-08 DDI MOTORS (P) LTD., VS ASSTT.COMMISSIONER OF INCOME TAX, A-100, MAYAPURI INDUSTRIAL AREA, CIR CLE-10(1), NEW DELHI. PHASE-II, NEW DELHI-110064 (PAN: AAACD9793N) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M.P. RASTOGI, ADV. RESPONDENT BY : SMT. PARWINDER KAUR, SR.DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF CIT(A)-V, NEW DELHI DATED 11.01.2013 IN APPEAL NO.1 17/11-12 FOR AY 2007- 08. 2. GROUNDS NO. 1, 4 AND 5 OF THE ASSESSEE ARE GENERAL IN NATURE WHICH NEED NO ADJUDICATION. THE REMAINING GROUNDS OF THE ASSE SSEE READ AS UNDER:- 2. THAT THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION OF RS. 13,39,318/- U/S 3 6(I)(III) OUT OF FINANCE CHARGES ALLEGED TO BE FOR MAKING ADVANCE TO D.D. PROPERTIES PVT. LTD. ARBITRARILY, WITHOUT ANY JUSTI FICATION AND ON WRONG INTERPRETATION OF THE PROVISIONS OF LAW. ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 2 IT IS CONTENDED THAT THE PROVISIONS OF PROVISO TO C LAUSE (III) OF SECTION 36(1) IS NOT APPLICABLE AT ALL. IT IS CONTENDED THAT IT IS MERELY A BOOKING ADVANCE OUT OF OWN FUNDS OF THE APPELLANT FOR CONTINUATION OF THE EXIS TING BUSINESS OF THE APPELLANT AND NO NEW ASSET HAS BEEN ACQUIRED . 3. THAT THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN TREATING THE INTEREST EARNED ON ADVANCE TO D.D. PROPERTIES (P) LTD. AS 'INCOME FROM OTHER SOURCES' AND NOT SET TING OFF THE INTEREST PAID ON LOAN IGNORING THE FACT THAT TH E SAME FUNDS WERE UTILIZED FOR ADVANCE TO D.D. PROPERTIES PVT. L TD. ARBITRARILY AND WITHOUT ANY JUSTIFICATION. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT CASE WAS SELECTED FOR COMPULSORY SCRUTINY UNDER CASS AND NOTICE U/S 1 43(2) AND SUBSEQUENTLY NOTICE U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAI RE WAS SERVED ON THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE A O NOTICED THAT THE ASSESSEE COMPANY HAS PAID PROCESSING CHARGES AMOUNTING TO RS . 2 LAKH FOR THE LOAN TAKEN AND INTEREST ON LOAN AMOUNTING TO RS.11,39,317.98 O N THE SAID LOAN. ON FURTHER EXAMINATION, IT WAS ALSO FOUND THAT THE ASSESSEE HA S TAKEN THIS LOAN FOR PURCHASING/GETTING RIGHTS FOR USE OF COMMERCIAL SPA CE MEASURING 5000 SQ. FT. IN A SHOPPING MALL BEING CONSTRUCTED BY M/S D.D. PROPE RTIES PVT. LTD. AT MOTI NAGAR, NEW DELHI. THE AO HELD THAT THE ASSESSEE IS FOLLOWING TWO ACCOUNTING STANDARDS FOR SAME NATURE OF EXPENSES AND STANDARD FOLLOWED FOR THE INTEREST PAID/ACCRUED FOR DLF FLAT IS CORRECT WHEREAS THE ST ANDARD FOLLOWED FOR THE BOOKING OF COMMERCIAL SPACE IS NOT CORRECT. THE AO FINALLY HELD THAT THE INTEREST PAID TO ICICI BANK WAS TOWARDS ACQUIRING F IXED ASSETS AND, THEREFORE, ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 3 THE SAME WAS TO BE CAPITALIZED WITH PROCESSING FEE AND THE AO MADE IMPUGNED ADDITION TO THE RETURNED INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHICH WAS ALSO DISMISSED BY PASSI NG THE IMPUGNED ORDER. NOW, THE EMPTY HANDED ASSESSEE IS BEFORE THIS TRIBU NAL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. GROUND NO. 2 & 3 OF THE ASSESSEE 5. APROPOS THESE GROUNDS, LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION OF RS. 13,39,318/- U/S 36(I) (III) OUT OF FINANCE CHARGES ALLEGED TO BE INCURRED AS INTEREST ON LOAN AND PROCESSING CHARGE FOR MAKING A DVANCE TO M/S D.D. PROPERTIES PVT. LTD. TOWARDS PURCHASING/GETTING RIG HT FOR USE OF COMMERCIAL SPACE MEASURING 5000 SQ FT. IN A SHOPPING MALL BEIN G CONSTRUCTED BY M/S D.D. PROPERTIES PVT. LTD. IT IS ALSO CONTENDED THAT THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT ARE NOT APPLICABLE. LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN TREATING THE INTEREST EARNED ON ADVANCE TO DD PROPERTIES PVT. LTD. AS IN COME FROM OTHER SOURCES AND NOT SETTING OFF THE INTEREST PAID ON LOAN IGNOR ING THAT THE SAME FUNDS WERE UTILIZED FOR ABOVE ADVANCE. ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 4 6. THE LD. DR REPLIED THAT THE ASSESSEE CAN NOT CLA IM THE AMOUNT OF INTEREST PAID ON ACCOUNT OF LOAN TAKEN FROM BANK FOR MAKING BOOKING OF ACQUIRING IMMOVABLE PROPERTY AND PROCESSING CHARGES AS REVENU E IN NATURE, THEREFORE, THE AO RIGHTLY MADE DISALLOWANCE AND MADE ADDITION IN T HIS REGARD. LD. DR ALSO CONTENDED THAT THE INTEREST EARNED BY THE ASSESSEE FROM M/S D.D. PROPERTIES WAS RIGHTLY TREATED AS INCOME FROM OTHER SOURCES AS T HE SAME AMOUNT REPRESENTS INCOME OF THE ASSESSEE FROM SOURCES OTHER THAN ITS NORMAL BUSINESS ACTIVITIES. 7. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, WE NOTE THAT ADMITTEDLY AND UNDISPUTEDLY, THE ASSESSEE INCURRED AND PAID RS.2,00,000 TOWARDS PROCESSING FEES AND BANK CHARGES OF THE LOA N AND ASSESSEE ALSO PAID INTEREST AMOUNTING TO RS.11,39,318 TO ICICI BANK. WE FURTHER NOTE THAT IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE RECEIVED INTE REST FROM DD PROPERTIES PVT. LTD. AGAINST THE AMOUNT OF ADVANCE GIVEN FOR BOOKIN G OF IMMOVEABLE PROPERTY FOR WHICH LOAN WAS TAKEN AND BANK CHARGES AND PROCE SSING FEES AND INTEREST ON LOAN WAS ALSO PAID. 8. LD. COUNSEL OF THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS BOKARO STEELS LTD. 236 ITR 315 (SC) AND LD. DR HAS PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIS CHEMICALS AND FERTILIZERS LTD. VS CIT 227 ITR 172(SC) . ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 5 9. ON VIGILANT READING OF ABOVE DECISIONS, WE RESPE CTFULLY OBSERVE THAT IN THE CASE OF BOKARO STEELS LTD. (SUPRA), THE ASSESSE E EARNED SOME AMOUNTS WHICH WERE INEXTRICABLY LINKED WITH THE PROCESS OF SETTIN G UP ITS PLANT AND MACHINERY WHICH IS NOT THE FACTS OF THE PRESENT CASE. 10. FROM CAREFUL PERUSAL OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI (SUPRA), WE OBSERVE THAT IT WAS TH E CASE WHEREIN THE COMPANY USED SURPLUS BORROWED FUNDS FOR THE PURPOSE OF EARN ING INTEREST, THEREFORE, THEIR LORDSHIPS HELD THAT THE SAME CANNOT BE ADJUSTED AGA INST ANY OTHER INCOME UNDER ANY OTHER HEAD WHICH IS ALSO NOT A CASE OF PRESENT ASSESSEE. HENCE, WE RESPECTFULLY HOLD THAT THE BENEFIT OF THE RATIO OF THE ABOVE DECISIONS AS RELIED BY BOTH THE SIDES ARE NOT AVAILABLE FOR RESPECTIVE PAR TIES AS THE FACTS OF THE PRESENT CASE ARE CLEARLY DISTINGUISHABLE AS THE ASSESSEE PA ID INTEREST ON LOAN AND ALSO PAID BANK CHARGES AND PROCESSING FEE FOR PROCESSING OF LOAN FROM ICICI BANK. LOAN WAS TAKEN FOR GIVING ADVANCE TO THE BUILDER AN D THE ASSESSEE ALSO RECEIVED INTEREST FROM THE BUILDER ON THE AMOUNT OF ADVANCE WHICH WAS ADVANCED FROM LOAN. HENCE, IN THIS SITUATION ASSESSEE IS ENTITLE D FOR NETTING OFF OF INTEREST PAID AGAINST INTEREST EARNED FROM THE SAME BUILDER TO WH OM LOAN WAS UTILIZED FOR MAKING ADVANCE. 11. THE LD. COUNSEL OF THE ASSESSEE HAS NOT DISPUTE D THE FACT THAT IN A SIMILAR TRANSACTION WITH DLF, LOAN INTEREST HAS BEEN CAPITA LIZED BY THE ASSESSEE. IN THIS SITUATION, THE ASSESSEE MAY NOT BE ALLOWED TO TREAT THE BANK CHARGES AND INTEREST ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 6 PAID ON LOAN TAKEN FOR MAKING ADVANCE TO M/S D.D. P ROPERTIES AS REVENUE EXPENDITURE IN NATURE. AT THE SAME TIME, WE ALSO N OTE THAT THE INTEREST EARNED BY THE ASSESSEE FROM M/S D.D. PROPERTIES PVT. LTD. ON AMOUNT OF ADVANCE CANNOT BE TREATED AS INCOME DIRECTLY. THE ASSESSEE IS ENT ITLED FOR NETTING OFF OF INTEREST AT RS. 11,39,318/- OUT OF INTEREST INCOME EARNED F ROM M/S DD PROPERTIES PVT. LTD. ON AMOUNT OF ADVANCE AND BALANCE AMOUNT OF INT EREST PAID SHOULD BE CAPITALISED AND IF THERE IS A SURPLUS OF INTEREST E ARNED, THE SAME MAY BE TREATED AS INCOME FROM OTHER SOURCES OF THE ASSESSEE. 12. WE ARE OF THE CONSIDERED OPINION THAT THE BANK CHARGES AND PROCESSING FEES SHOULD BE CAPITALIZED AS THE SAME WAS PAID FOR PROCURING FUNDS FOR BOOKING OF IMMOVEABLE PROPERTY AND AFTER NETTING OFF, IF TH ERE IS ANY SURPLUS OF INTEREST PAID, THEN THE SAME SHOULD ALSO DESERVE TO BE CAPIT ALISED. WE FURTHER MAKE IT CLEAR AND HOLD THAT IF THERE IS ANY SURPLUS OF INTE REST EARNED AFTER NETTING OFF, THEN THE SAME MAY BE TREATED AS INCOME FROM OTHER SOURC ES. 13. WITH ABOVE CONCLUSION, THE ISSUE IS RESTORED TO THE FILE OF AO FOR QUANTIFICATION OF SURPLUS AND THE AO IS DIRECTED TO TREAT THE SAME AS PER OUR DIRECTIONS AS INDICATED ABOVE. 14. ACCORDINGLY, GROUND NO. 2 AND 3 OF THE ASSESSEE ARE DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AS STATED AB OVE. ITA NO. 2007/DEL/2013 ASSTT.YEAR: 2007-08 7 ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2014. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 31ST OCTOBER, 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR