RAJASTHAN ENTERPRISES P.LTD, MUMBAI V. ITO WD 1(3)1, MUMBAI

ITA 2124/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2848 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI N.K.BILLAIYA, AM AND SHRI AMARJIT SINGH , JM ITA NO.2124/MUM/2013 : ASST.YEAR 2006-2007 M/S.RAJASTHAN ENTERPRISES PVT.LTD. RAJ MAHAL, 84 VEER NARIMAN ROAD MUMBAI 400 020. PAN : AAACR2525A. / VS. THE INCOME TAX OFFICER WARD 1(3)(1) MUMBAI. ( / APPELLANT) ( / RESPONDENT) ! /ASSESSEE BY : SHRI VIJAY MEHTA '#$ ! /REVENUE BY : SHRI SANJEEV KASHYAP (CIT-DR) / DATE OF HEARING : 20.10.2015 / DATE OF PRONOUNCEMENT : 28. 10.2015. !/ O R D E R PER N.K.BILLAIYA (AM) : THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) 7, MUMBAI, D ATED 25.10.2012 PERTAINING TO ASSESSMENT YEAR 2006-2007. 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO TH E DISALLOWANCE OF INTEREST OF RS.19,44,520. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPLOITING L EASEHOLD RIGHTS OF CERTAIN PREMISES IN THE BUILDING `RAJ MAHAL AND GIVING THE SAID PREMISES TO VARIOUS PARTIES ON LEAVE AND LICENCE ON HIGHER COMPENSATION . WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR INTEREST OF RS.19,44,520 PAID ON UNSECURED LOANS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED AS T O WHY THE INTEREST OF ITA NO.2124/MUM/2013 M/S.RAJASTHAN ENTERPRISES PVT.LTD. 2 RS.19,44,520 PAID ON THE UNSECURED LOANS SHOULD NOT BE CAPITALIZED. IN ITS REPLY VIDE A LETTER DATED 11.12.2008, THE ASSESSEE EXPLAINED THAT SINCE IT IS ENGAGED IN THE BUSINESS OF RENTING OF PROPERTY AND IN THE COURSE OF CARRYING ON THE SAID BUSINESS AND FOR THE PURPOSE OF BUSINES S, THE ASSESSEE HAS PAID RS.3 CRORE AS SECURITY DEPOSIT TO THE LAND OWNERS. THE SAID DEPOSIT WAS GIVEN OUT OF LOAN TAKEN ON INTEREST AND THEREFORE, THE INTEREST PAID ON THE BORROWED CAPITAL WAS FOR THE PURPOSE OF BUSINESS AN D HENCE FULLY ALLOWABLE. THIS SUBMISSION OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE AO, WHO WAS OF THE OPINION THAT THE ASSESSEE HAS UTILIZED T HE UNSECURED LOAN FOR MAKING PAYMENTS TO THE LAND OWNERS IN PURSUANCE OF THE DEVELOPMENT AGREEMENT. THEREFORE, SUCH INTEREST EXPENSE IS IN T HE NATURE OF CAPITAL EXPENDITURE. AFTER DRAWING SUPPORT FROM CERTAIN JUD ICIAL DECISIONS, THE AO DISALLOWED THE CLAIM OF DEDUCTION OF RS.19,44,520. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. 3. BEFORE US, THE COUNSEL FOR THE ASSESSEE REITERAT ED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES STRONG RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT V. DHOOMKETU BUILDERS AND DEVELOPMENT P.LTD. [(2014) 368 ITR 680 (DELHI)] . IT IS THE SAY OF THE COUNSEL THAT ON IDENTICAL SET OF FACTS, THE HON BLE HIGH COURT OF DELHI HAS HELD THAT LOAN TAKEN AND PARTICIPATION IN TENDER FO R ACQUISITION OF LAND WOULD AMOUNT TO SETTING UP OF THE BUSINESS, AND THEREFORE , EXPENSES INCURRED WERE TO BE ALLOWED AS BUSINESS LOSS. PER CONTRA, THE LEA RNED DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY DISTINGUISHING F ACTS IN FAVOUR OF THE REVENUE. ITA NO.2124/MUM/2013 M/S.RAJASTHAN ENTERPRISES PVT.LTD. 3 4. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE UNDISPUTED FACTS IS THAT VIDE DEVELOPMENT AGREEMENT DATED 28 TH JUNE, 2004, THE ASSESSEE ENTERED INTO THE BUSINESS OF DEVELOPIN G THE IMPUGNED PROPERTY. IT IS ALSO UNDISPUTED FACT THAT THE CLAIM OF INTERE ST IS BEING ALLOWED BY THE REVENUE AUTHORITIES SINCE ASSESSMENT YEAR 2005-2006 . SURPRISINGLY, FOR ASSESSMENT YEAR 2012-2013, THE ASSESSMENT ORDER OF WHICH IS PLACED ON RECORD, WE FIND THAT AFTER THOROUGH SCRUTINY THE C LAIM OF EXPENDITURE HAS BEEN ALLOWED BY THE A.O. AND THE SAME HAS ALSO BEEN ALLOWED IN ASSESSMENT YEAR 2007-2008 TO ASSESSMENT YEAR 2011-2 012. THIS SHOWS THAT ONLY FOR THE IMPUGNED ASSESSMENT YEAR, I.E., ASSESS MENT YEAR 2006-2007 THE CLAIM OF INTEREST HAS BEEN DENIED BY THE AO. WE FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL THAT THE DECISION OF THE HONBLE HIGH COURT OF DELHI (SUPRA) IS DIRECTLY ON THE FACTS UNDER ISS UE BEFORE US. THE RELEVANT PART OF THE SAID DECISION NEEDS SPECIAL MENTION AND WHICH READ AS UNDER:- ..THE COMMENCEMENT OF REAL ESTATE BUSINESS WOULD NORMALLY START WITH THE ACQUISITION OF LAND OR IMMOVABLE PRO PERTY. WHEN AN ASSESSEE WHOSE BUSINESS IT IS TO DEVELOP REAL ES TATES, IS IN A POSITION TO PERFORM CERTAIN ACTS TOWARDS THE ACQUIS ITION OF LAND, THAT WOULD CLEARLY SHOW THAT IT IS READY TO COMMENC E BUSINESS AND, AS A COROLLARY, THAT IT HAS ALREADY BEEN SET U P. THE ACTUAL ACQUISITION OF LAND IS THE RESULT OF SUCH EFFORTS P UT IN BY THE ASSESSEE ; ONCE THE LAND IS ACQUIRED THE ASSESSEE M AY BE SAID TO HAVE ACTUALLY COMMENCED ITS BUSINESS WHICH IS TH AT OF DEVELOPMENT OF REAL ESTATE. THE ACTUAL ACQUISITION OF THE LAND MAY BE A FIRST STEP IN THE COMMENCEMENT OF THE BUSI NESS BUT SECTION 3 OF THE ACT DOES NOT SPEAK OF COMMENCEMENT OF THE BUSINESS, IT SPEAKS ONLY OF SETTING UP OF THE BUSIN ESS. WHEN THE ASSESSEE, IN THE PRESENT CASE, WAS IN A POSITION TO APPLY FOR THE TENDER, BORROWED MONEY FOR INTEREST ALBEIT FROM ITS HOLDING COMPANY AND DEPOSITED THE SAME WITH NGEF LTD. ON TH E SAME ITA NO.2124/MUM/2013 M/S.RAJASTHAN ENTERPRISES PVT.LTD. 4 DAY, IT SHOWS THAT THE ASSESSEES BUSINESS HAD BEEN SET UP AND IT WAS READY TO COMMENCE BUSINESS. THE LEARNED SENI OR STANDING COUNSEL FOR THE REVENUE WOULD, HOWEVER, ST ATE THAT TILL THE LAND IS ACQUIRED, THE BUSINESS IS NOT SET UP. T HE DIFFICULTY IN ACCEPTING THE ARGUMENT IS THAT AN ASSESSEE MAY NOT BE SUCCESSFUL IN ACQUIRING LAND FOR A LONG PERIOD OF T IME THOUGH HE IS READY TO COMMENCE HIS BUSINESS IN REAL ESTATE AN D THAT WOULD RESULT IN THE EXPENSES INCURRED BY HIM THROUGHOUT T HE PERIOD NOT BEING COMPUTED AS A LOSS UNDER THE HEAD BUSINESS ON THE GROUND THAT HE IS YET TO SET UP HIS BUSINESS. THAT WOULD BE AN UNACCEPTABLE POSITION. THE OTHER ARGUMENT OF THE LE ARNED STANDING COUNSEL FOR THE REVENUE THAT THE TAX AUDIT ORS OF THE ASSESSEE HAVE THEMSELVES POINTED OUT THAT THE ASSES SEE IS YET TO COMMENCE ITS BUSINESS IS ALSO IRRELEVANT BECAUSE OF THE DISTINCTION BETWEEN THE COMMENCEMENT OF THE BUSINES S AND SETTING UP OF THE SAME. 4.1 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE HIGH COURT (SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 19,44,520. 5. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF OCTOBER, 2015. !' # $ SD/- (AMARJIT SINGH) SD/- (N.K.BILLAIYA) # / JUDICIAL MEMBER ! # / ACCOUNTANT MEMBER ! MUMBAI; ! DATED : 28 TH OCTOBER, 2015. DEVDAS* ITA NO.2124/MUM/2013 M/S.RAJASTHAN ENTERPRISES PVT.LTD. 5 !()*+!*, / COPY OF THE ORDER FORWARDED TO : ! / BY ORDER, ' ( //TRUE COPY// / ' (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT, MUMBAI. 4. ) / CIT(A) - 7, MUMBAI 5. ',# ((-. , -. , ! / DR, ITAT, MUMBAI 6. #01 2 / GUARD FILE.