Karle Properties , Bangalore V. The Additional Commissioner of Income Tax Range-9 , Bangalore

ITA 201/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0734 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-06-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 04-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: H N KHINCHA
• Keywords: Business income; Depreciation; Business expenditure; Commercial expediency
• Section: 234B; 36 (1) (iii); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.201/BANG/2019 ASSESSMENT YEAR: 2012-13 M/S KARLE PROPERTIES, NO.151, INDUSTRIAL SUBURB, YESHWANTHPUR, BENGALURU. PAN NO : AABFK 1537 B VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-9, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI H.N KHINCHA, C.A RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL. CIT. DR. DATE OF HEARING : 24.06.2021 DATE OF PRONOUNCEMENT : .07.2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN FILED BY ASSESSEE A GAINST ORDER DATED 05/12/2018 PASSED BY THE LD.CIT(A)-6, BANGALO RE ON FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN PASS ING THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED CIT(A) HAS ERR ED IN PARTIALLY CONFIRMING THE SAME. THE ORDERS PASSED ARE BAD IN K M AND IS LIABLE TO BE QUASHED. 2.1 THE LEARNED ASSESSING OFFICER HAD ERRED IN HOLD ING THAT INTEREST OF RS. 2,42,33,822/- DEBITED TO PROFIT AND LOSS ACC OUNT IS NOT ALLOWABLE U/S 36(1)(III) OF THE ACT ON THE GROUND THAT THE AP PELLANT HAS GIVEN INTEREST FREE ADVANCES TO SISTER CONCERNS AND OTHER S WITHOUT ESTABLISHING THE COMMERCIAL EXPEDIENCY OF THE SAME AND THE LEARN ED CIT(A) HAS ERRED IN PARTIALLY CONFIRMING THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D THE LAW APPLICABLE THE CONCLUSIONS DRAWN KING TOTALLY ERRON EOUS ARE TO BE DISREGARDED. PAGE 2 OF 8 ITA NO.201/BANG/2019 2.2 THE APPELLANT HAD RIGHTLY CLAIMED THE INTEREST AS BUSINESS EXPENDITURE AS ALL THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS ONLY. THE FINDING OF DISALLOWANCE AS MADE BEING ERRONEOUS IS TO BE DELETED AND INTEREST AS CLAIMED IS TO BE ALLO WED AS DEDUCTION. 2.3 IN ANY CASE, THE ADVANCES GIVEN TO SISTER CONCE RNS AND OTHER ARE OUT OF BUSINESS EXPEDIENCY AND FURTHER THERE ARE SUFFIC IENT FREE FUNDS TO SUPPORT SUCH ADVANCE AND THEREFORE ALSO THE FINDING AS GIVEN BY THE ASSESSING OFFICER IN ASSESSMENT ORDER WAS ERRONEOUS . 2.4 THE LEARNED ASSESSING OFFICER HAD ALSO ERRED IN HOLDING THAT ALTERNATIVELY AS PER THE RECAST PROFIT AND LOSS ACC OUNT, THE INTEREST NEEDS TO BE CAPITALIZED AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME. THE OBSERVATION/FINDINGS OF ASSESSING OFFICER BEING WITHOUT BASIS, TOTALLY ERRONEOUS ON FACTS ARE TO BE REJECTE D. 3. THE LEARNED ASSESSING OFFICER HAS ALSO ERRED IN NOT ALLOWING A SUM OF RS.5,19,496/- CLAIMED AS DEPRECIATION U/S 57 OF THE ACT AGAINST ELECTRICAL INSTALLATION AND FURNITURE AND FIXTURES ON THE GROUNDS THAT THE DEDUCTION FOR ELECTRICAL INSTALLATION AND FURNITURE AND FIXTURES ALREADY BEEN CLAIMED U/S 24(A) OF THE ACT AND THE LEARNED C IT(A) HAS ERRED IN CONFIRMING THE SAME. THE CONCLUSION DRAWN BY THE AU THORITIES BELOW IS WHOLLY ERRONEOUS AND NEEDS TO BE DISREGARDED. THERE BEING NO INCORRECT CLAIM MADE BY THE APPELLANT, HENCE DISALLOWANCE AS MADE IS TO BE DELETED. 4. IN ANY CASE, THE AUTHORITIES BELOW HAVE ERRED IN MAKING VARIOUS OBSERVATIONS/ FINDING IN THE COURSE OF PASSING THE ASSESSMENT/APPELLATE ORDERS. THE OBSERVATIONS/FINDINGS MADE ARE TOTALLY ERRONEOUS BOTH ON FACTS AND LAW ARE TO BE DISREGARDED. 5. THE APPELLANT DENIES THE LIABILITY TO PAY INTERE ST U/S. 234B AND 2341) OF THE I.T. ACT, 1961. THE INTEREST HAVING BE EN LEVIED ERRONEOUSLY IS TO BE DELETED. 6. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT IMPUGNED ORDER PAS SED BE QUASHED OR AT LEAST THE DISALLOWANCE U/S 36(1)(III) AND U/S 57 OF THE ACT BE DELETED AND INTEREST LEVIED BE ALSO DELETED. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A PARTNERSHIP FIRM AND FILED ITS RET URN OF INCOME FOR YEAR UNDER CONSIDERATION ON 29/09/2012 DECLARIN G LOSS OF RS.15,71,375/-. THE LD.AO OBSERVED THAT LOSS COMPRI SED OF SUM OF RS.2,14,22,724/-BEING LOSS FROM BUSINESS, RS.71, 98,816/- BEING INCOME FROM HOUSE PROPERTY AND RS.1,26,52,533 /- BEING INCOME FROM OTHER SOURCES. LD.AO OBSERVED THAT, DUR ING THE YEAR UNDER CONSIDERATION, ASSESSEE CLAIMED INTEREST EXPE NSE OF RS.2,24,33,822/-. ASSESSEE WAS CALLED UPON TO EXPLA IN THE PAGE 3 OF 8 ITA NO.201/BANG/2019 BUSINESS EXPEDIENCY AS WELL AS ALLOWABILITY OF SAID INTEREST UNDER SECTION 36(1)(III) OF THE ACT, AS BORROWED CAPITAL WAS NOT USED FOR BUSINESS PURPOSES. 2.1 THE ASSESSEE IN RESPONSE SUBMITTED THAT DURING THE YEAR ASSESSEE HAD BORROWED SUM OF RS.29.30 CRORES FROM R ALIGARE FINE INVESTMENT LTD. THE UTILISATION OF THIS LOAN W AS FILED BEFORE THE LD. AO AND SUBMITTED THAT, RS.13.36 CRORES WAS WITHDRAWN BY PARTNERS AND THE INTEREST PAID ON THE LOAN RELAT ABLE TO SUCH WITHDRAWAL WAS DEBITED TO THE PARTNERS ACCOUNT. THE ASSESSEE SUBMITTED THAT, TOOK IT TOOK LOAN TOWARDS ACQUISIT ION OF LAND AND THE INTEREST COST WAS CAPITALISED IN PROPORTIONATE WAY ON THE LOAN FROM RALIGARE FINE INVESTMENT LTD. ASSESSEE SUBMIT TED THAT, THE INTEREST ON OTHER LOANS WAS CLAIMED UNDER THE HEAD RENTAL INCOME AND BUSINESS INCOME AND A CHART WAS FILED FORMING P ART OF THE ASSESSMENT ORDER AT PAGE 6-7. 2.2 THE LD.AO AFTER CONSIDERING SUBMISSIONS OF ASSE SSEE, WAS OF THE OPINION THAT, ASSESSEE HAS ADVANCED VARIOUS LOA NS TO SISTER CONCERN AND OTHERS WITHOUT CHARGING INTEREST. THE L D.AO THUS TREATED INTEREST PAID TO BE CAPITAL IN NATURE AND D ISALLOWED THE SAME UNDER SECTION 36 (1) (III) OF THE ACT. 3. AGGRIEVED BY THE ORDER PASSED BY THE LD.AO ASSES SEE PREFERRED APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A ) MERELY UPHELD THE ACTION OF THE LD.AO BY OBSERVING AS UNDE R: 4.2.4 THE AO HAS ALTERNATIVELY ORDERED THAT THE IN TEREST CLAIMED SHOULD BE CAPITALIZED TO THE COST OF LAND OF RS.10.87 CROR ES. THE AO HAS ALSO RECAST THE APPELLANT'S P&L ACCOUNT IN THIS REGARD A S SHOWN IN PARA 11 OF THE ASSESSMENT ORDER. THIS ALTERNATIVE PROPOSITION OF THE AO IS ENDORSED AS THE APPELLANT HAS SHOWN ONGOING PROJECTS (WIP RS . 1,43,29,743/- AND INVESTMENTS IN PROJECTS RS.1,12,83,881/- IN THE BAL ANCE SHEET) AND INTEREST PAID ON FUNDS DEPLOYED FOR CONSTRUCTION AND DEVELOP MENT EXPENSES WOULD PAGE 4 OF 8 ITA NO.201/BANG/2019 HAVE TO BE CAPITALISED TO THE COST OF THE PROJECTS. THE APPELLANT HAD ITSELF SUBMITTED THAT THE WORK-IN-PROGRESS INCLUDES EXPENS ES INCURRED TILL DATE ON THE PROJECT(S) AND HENCE INTEREST WOULD HAVE TO BE CAPITALISED WITH THE CLOSING WORK-IN-PROGRESS. THUS THE AO'S STAND THAT INTEREST CLAIMED CANNOT BE ALLOWED U/S 36(1)(III) IS UPHELD. HOWEVER, AS DI SCUSSED IN PARA 4.2.1 SUPRA THE DISALLOWANCE OF INTEREST IS TO BE RESTRIC TED TO RS.2,22,88,256/-. THE APPELLANT GETS PARTIAL RELIEF W.R.T. TO THESE G ROUNDS OF APPEAL. 4.2.5 ONE ADDITIONAL ASPECT THAT HAS BEEN RAISED BY THE APPELLANT DURING APPELLATE PROCEEDINGS IS THAT THE APPEAL FOR A.Y.20 14-15 ON THE SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT. I HAVE PERUSED THE SAID APPELLATE ORDER AND FIND THAT THE ID. CIT(A) HAD AL LOWED THE APPELLANT'S APPEAL FOR THAT YEAR ON THE GROUNDS THAT THE AO HAD MERELY REPRODUCED WHAT WAS STATED IN THE ASSESSMENT ORDER FOR A.Y.201 3-14 AND NO REASON WAS MADE OUT FOR THE DISALLOWANCE. HOWEVER, THE POS ITION WITH RESPECT TO THE YEAR WHICH IS THE SUBJECT MATTER OF THE PRESENT APPEAL IS DIFFERENT. THE AO HAS GIVEN A CLEAR-CUT FINDING ON THE DISALLOWANC E OF INTEREST EXPENSES U/S 36(1)(III). MOREOVER, THE APPEAL IS FOR AN EARL IER YEAR AND THE DISALLOWANCE MADE IS THE ORIGINAL DISALLOWANCE WHIC H HAS BEEN FOLLOWED BY THE AG IN SUBSEQUENT ASSESSMENT YEARS. THEREFORE THE DISALLOWANCE IS BEING ADJUDICATED FOR THIS YEAR, ALSO HAVING REGARD TO THE FACT THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO INCO ME TAX PROCEEDINGS AND EACH ASSESSMENT YEAR IS A SEPARATE ONE FOR WHICH TH E FACTS WOULD NEED TO BE ADJUDICATED SEPARATELY. 4.3 GROUND NO. 6 PERTAINS TO THE DISALLOWANCE OF DE PRECIATION CLAIMED ON ELECTRICAL INSTALLATIONS AND FURNITURE AND FIXTURES IN THE LET-OUT PROPERTY 'KARLE PREMIUM'. THE AG HAD DISALLOWED THE DEPRECIA TION ON THESE ITEMS ON THE GROUND THAT THEY CONSTITUTED AN INALIENABLE PAR T OF THE BUILDING LET OUT, ON WHICH 30% DEDUCTION FROM RENTAL INCOME WAS ALLOW ED TOWARDS REPAIRS AND MAINTENANCE. THE APPENDIX TO THE HIRE AGREEMENT DATED BETWEEN THE APPELLANT AND THE TENANT M/S REUTERS INDIA PVT. LTD . SHOWS THE FOLLOWING ITEMS. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW. 5. AT THE OUTSET, LD.AR SUBMITTED THAT, GROUND NO. 1, 4, 6 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJU DICATION. GROUND NO. 2.1-2.4 IS IN RESPECT OF THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. 5.1 THE LD.AR SUBMITTED THAT, ASSESSEE TOOK LOANS F ROM RALIGARE FINE INVESTMENT LTD., WHICH WAS USED TO RE PAY THE MED- TERM LOAN FROM PNB BANK AND PNB CORPORATE LOANS, TH AT WAS EARLIER TAKEN BY ASSESSEE FOR INVESTMENT IN COMMERC IAL PROPERTY PAGE 5 OF 8 ITA NO.201/BANG/2019 TOWARDS PURCHASE OF LAND ETC. A DETAILED CHART WAS RELIED BY THE LD.AR FORMING PART OF THE LD.CIT(A) ORDER AT PAGE 4 . IT WAS SUBMITTED THAT ASSESSEE USED THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS. LD.AR ALSO SUBMITTED THAT ASSESSING OF FICER ERRED IN RECASTING THE PROFIT AND LOSS ACCOUNT AND CONSIDERE D IT TO BE WORK IN PROGRESS. THE LD.AR SUBMITTED THAT, ASSESSE E HAS INTEREST-FREE FUNDS WHICH IS EVIDENT AT PAGE 52 OF PAPER BOOK. IT IS ALSO SUBMITTED THAT, ASSESSEE HAS RENTAL INCOME FROM BUILDING AND ENTITIES WHICH WAS CREDITED TO THE P&L ACCOUNT PLACED AT PAGE 53 OF PAPER BOOK. THE LD.AR SUBMITTED THAT, UN DER SUCH CIRCUMSTANCES IT CANNOT BE ASSUMED THAT THE LOAN GI VEN TO SISTER CONCERN ARISES OUT OF INTEREST-BEARING FUNDS. 5.2 ON THE CONTRARY THE LD.DR RELIED ON THE ORDERS PASSED BY AUTHORITIES BELOW. 5.3 WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOT H SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. WE HAVE A LSO ANALYSED THE FINANCIAL STATEMENTS FILED BY ASSESSEE PLACED I N THE PAPER BOOK AT PAGE 49-58. WE NOTE THAT ASSESSEE DOES HAVE ITS OWN FUND TO ADVANCE MONEY TO THE SISTER CONCERN. HOWEVE R IN THE INTEREST OF JUSTICE WE DEEM IT FIT TO REMAND TO THE LD.AO FOR VERIFYING CASH FLOW STATEMENT FOR RELEVANT PERIOD. ASSESSEE IS DIRECTED TO FURNISH THE CASH FLOW STATEMENT THAT WO ULD DISCLOSE THE FUNDS AVAILABLE AS ON THE DATE OF ADVANCE TO TH E SISTER CONCERN. THE LD.AO SHALL TAKE A PRAGMATIC APPROACH IN ACCORDANCE WITH LAW CONSIDERING THE BUSINESS EXIGEN CY IN THE HANDS OF ASSESSEE. PAGE 6 OF 8 ITA NO.201/BANG/2019 ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 5 IS IN RESPECT OF DEPRECIATION CLAIM ED ON THE EQUIPMENTS. 6.1 THE LD.AO DID NOT ALLOW SUM OF RS.5,19,496/- CL AIMED AS DEPRECIATION UNDER SECTION 57 OF THE ACT, AGAINST E LECTRICAL INSTALLATIONS AND FURNITURES AND FIXTURES ON THE G ROUND THAT DEDUCTION FOR ELECTRICAL INSTALLATION AND FURNITURE FIXTURES ALREADY HAS BEEN CLAIMED UNDER SECTION 24(A) OF THE ACT. 6.2 WE HAVE CONSIDERED THE ARGUMENTS ADVANCED BY BO TH SIDES. 6.3 WE NOTE THAT THE FURNITURE FIXTURES AND THE EQU IPMENTS ON WHICH THE DEPRECIATION HAS BEEN CLAIMED BY ASSESSEE AS AN INTEGRAL PART OF THE RENTED PREMISES ON WHICH STAND ARD DEDUCTION OF 30% IS CLAIMED AND ALLOWED UNDER SECTION 24 OF T HE ACT BY LD.AO. THE PRIMARY CONDITION AS ENVISAGED BY SECTIO N 32 TO CLAIM THE DEPRECIATION IS THAT THE ASSETS SHOULD BE USED FOR THE PURPOSES OF ASSESSEES BUSINESS WHICH HAS REMAINED UNFULFILLED IN THE PRESENT FACTS BEFORE US. THEREFORE, WE ARE U NABLE TO CONCUR WITH THE STAND OF THE LD.AR, IN THIS REGARD. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS D ISMISSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 14 TH JULY, 2021 SD/- SD/- (CHANDRA POOJARI ) ACCOUNTANT MEMBER (BEENA PILLAI) JUDICIAL MEMBER BANGALORE, DATED 14 TH JULY, 2021. PAGE 7 OF 8 ITA NO.201/BANG/2019 VMS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. PAGE 8 OF 8 ITA NO.201/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -7-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -7-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -7-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -7-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -7-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -7-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -7-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS