Multicon Developers Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 2154/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1409 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-10-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 14-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARISES OUT OF PASSED
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.2154/PUN/16 / ASSESSMENT YEARS : 2010-11 MULTICON DEVELOPERS PVT. LTD., C/O. SHRI VAIBHAV S. SANT, 43/112, NAVSAHYDRI SOCIETY, KARVENAGAR, PUNE 411 052 PAN : AAECM1803A VS. ACIT, CIRCLE-11(2), PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSE D BY THE CIT(A)-7, PUNE ON 23-06-2016 IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF ADDITION TO THE TUNE OF RS.79,25,442/- ON THE BASIS OF 12% PROFI T ELEMENT IN THE CLOSING WORK IN PROGRESS. APPELLANT BY SHRI A.V. IYER RESPONDENT BY SHRI K.K. OJHA DATE OF HEARING 28-11-2018 DATE OF PRONOUNCEMENT 29-11-2018 ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 2 3. BRIEFLY STATED, THE FACTS OF THE CASE, ARE THAT THE ASSESS EE IS A BUILDER, PROMOTER AND DEVELOPER. A SURVEY ACTION WA S UNDERTAKEN U/S.133A OF THE ACTON 17-03-2010, IN WHICH THE ASSESSEE OFFERED A SUM OF RS.1.00 CRORE AS INCOME OV ER AND ABOVE THE REGULAR INCOME. HOWEVER, RETURN WAS FILED DECLARING TOTAL INCOME OF RS.61,09,336/-. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE INCOME OFFERED DURING THE COURSE OF SURVEY WAS NOT DECLARED, THE ASSESSEE SUBMI TTED SOME DETAILS OF PROJECTS UNDERTAKEN AND EXTENT OF COMPLETION. IN THIS HUE, IT WAS SUBMITTED THAT THE STATEMENT MADE AT THE TIME OF SURVEY FOR COMPLETION OF PROJECTS AT 90%, CONSTITUTING FOUNDATION FOR THE SURRENDER OF RS.1.00 CRORE, WAS NOT CORRECT. THE ASSESSING OFFICER (AO) CALLED UPON THE ASSESSEE TO GIV E THE FIGURES OF OPENING AND CLOSING WORK IN PROGRESS OF TWO PROJECTS. IN THE ABSENCE OF ANY INFORMATION FORTHCOMING FR OM THE SIDE OF THE ASSESSEE, THE AO ADDED 15% OF THE CLOSING WORK IN PROGRESS IN THE ABOVE TWO PROJECTS, BEING, THE ELEME NT OF PROFIT, WHICH RESULTED INTO AN ADDITION OF RS.99,06,803/- THE LD. CIT(A) REDUCED THE PROFIT RATE TO 12%, WHICH RESTRICTED THE ADDITION TO RS.79.25 LAKH, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 3 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN ADMITTED POSITION THAT THE ASSESSEE DID NOT FURNISH DETAILS OF OPENING AND CLOSING WOR K IN PROGRESS OF THE TWO PROJECTS AS HAS BEEN NOTED BY THE AO AS WELL AS THE LD. CIT(A). THE LD. AR WAS FAIR ENOUGH TO CO NCEDE THE POSITION. HE, HOWEVER, SUBMITTED THAT SUCH DETAILS WERE NOW AVAILABLE WITH THE ASSESSEE AND THE SAME CAN BE VERIFIE D. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES PREVAILING IN THIS CASE AND THE FACT THAT THE AD HOC ADDITION HAS BEEN MADE ON THE PREMISE THAT THE ASSESSEE FAILED TO FURNISH DETAILS, WE ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUGNED ORDER ON THIS SCORE IS SET-ASIDE AND THE MATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY AND DIRECT HIM TO VERIFY THE ASSESSEE S DETAILS AND SEEK ANY OTHER FURTHER DETAILS, IF REQUIRED, FOR ENABLING HIM TO COMPLETE THE ASSESSMENT IN RIGHT PERSPECTIVE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. 5. GROUND NOS. 2, 3 AND 4 ARE AGAINST THE CONFIRMATION O F ADDITION OF RS.10,50,000/- ON ACCOUNT OF RENTAL INCOME AND ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 4 DISALLOWANCE OF PROPORTIONATE DEPRECIATION ALLOWANCE AND INSURANCE EXPENSES. 6. THE FACTS CONCERNING THIS ISSUE ARE THAT THE SURVEY TRANSPIRED ABOUT THE ASSESSEES BUSINESS PREMISES BEING OCCUPIED BY OTHER SISTER CONCERNS AS WELL. RENTAL INCOME SHOWN FOR THE PRECEDING YEAR WAS RS.13.75 LAKHS. THE ASSESSEE DID NOT OFFER ANY RENTAL INCOME FOR THE YEAR UN DER CONSIDERATION DESPITE THE DIRECTOR OF THE ASSESSEE ADMITTING IN THE STATEMENT RECORDED AT THE TIME OF SURVEY THAT RENT OF RS.1,25,000/- PER MONTH WAS RECEIVED FROM M/S PHINIX SHELTER PVT. LTD. THE AO ADDED THE INCOME UNDER THE HEAD `INCOM E FROM HOUSE PROPERTY AT RS.10,50,000/- AFTER ALLOWING TH E STATUTORY DEDUCTION OF RS.4,50,000/- FROM THE GROSS RENTAL OF RS.15 LAKH. THEREAFTER, HE DISALLOWED DEPRECIATION AND INSURANCE EXPENSES TO THE TUNE OF 75% AND 70% RESPECTIVELY IN RESPECT OF SUCH PROPERTY WHICH WAS NOT BEING USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. THE LD. CIT(A) RES TRICTED THE DISALLOWANCE TO 70% BY OBSERVING THAT THE ASSESSEE WAS USING 30% OF THE PREMISES AND THE REMAINING PART WAS USED BY PHINIX SHELTER PVT. LTD. (50%) AND OTHER RELATED ENTITIES ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 5 (20%). THE ASSESSEE HAS COME UP IN APPEAL AGAINST SUCH ADDITIONS/DISALLOWANCES. 7. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS EE ADMITTEDLY EARNED RENTAL INCOME OF RS.1,25,000/-, WHICH WAS ACCEPTED DURING THE COURSE OF SURVEY. IN THAT VIEW OF THE MATTER, INCLUSION OF RS.10,50,000/- AS INCOME FROM HOUSE PROPERTY, CANNOT BE FAULTED WITH. 8. NOW WE TURN TO DISALLOWANCE OF EXPENSES. THE ASSESSE E HAS PLACED ON RECORD A CHART SHOWING THE USE OF ITS OFFIC E PREMISES BY PHINIX SHELTER PVT. LTD., OTHER GROUP ENTITIES AND SELF. THIS CHART INDICATES THAT THE ASSESSEE USED ONLY 30% O F THE OFFICE PREMISES FOR ITS BUSINESS PURPOSE AND REMAINING 70% WAS USED BY PHINIX SHELTER PVT. LTD. AND OTHER RELATED ENTITIES. SECTION 38(2) OF THE ACT PROVIDES THAT WHERE ANY BUILDING ETC. IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS, THE DEDUCTIONS UNDER RELEVANT CLAUSES OF SECTIONS 30, 31 AND 32 SHALL BE PROPORTIONATELY REDUCED. ONCE IT IS FOUN D AS AN ADMITTED POSITION THAT THE ASSESSEE WAS USING ONLY 30% OF THE PREMISES, IT IS BUT NATURAL THAT THE DISALLOWANCE IN RESPECT OF DEPRECIATION AND OTHER EXPENSES TO THE EXTENT OF ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 6 70%, BEING, RELATABLE TO THE PART NOT USED BY THE ASSESSEE EXCLUSIVELY FOR ITS BUSINESS PURPOSES, CANNOT BE FAULTED WITH. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CIT(A) O N THIS ISSUE. THESE THREE GROUNDS ARE ERGO DISMISSED. 9. THE ONLY OTHER GROUND IS AGAINST THE CONFIRMATION OF ADDITION OF RS.2,80,944/- TOWARDS INTEREST. THE AO FOUND THE ASSESSEE TO HAVE RECEIVED/ADVANCED CERTAIN LOANS FROM/TO ITS SISTER CONCERNS. AN AMOUNT OF RS.26,01,333/- WAS EXCE SS OF LOANS ADVANCED OVER THE LOANS RECEIVED FROM THE SISTER CONCERNS. THE AO OBSERVED THAT THE ASSESSEE PAID INTERE ST OF RS.28,85,530/- ON SECURED LOANS, OUTSTANDING BALANCE OF WHICH AT THE END OF THE YEAR WAS RS.2.80 CRORES. HE, THEREFO RE, WORKED OUT AVERAGE RATE OF INTEREST ON SECURED LOANS AT 10.28%. APPLYING SUCH PERCENTAGE ON THE FIGURE OF EXCES S LOANS GIVEN TO THE TUNE OF RS.26.01 LAKHS, HE WORKED OUT THE DISALLOWANCE AT RS.2,80,944/-. THE LD. CIT(A) UPHELD THE DISALLOWANCE, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. HAVING HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN ADMITTED POSITION FROM THE ASSESSMENT ORDER THAT THE ASSESSEE PAID INTEREST OF ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 7 RS.28.85 LAKHS ON SECURED LOANS. THERE IS NO REFERENC E TO ANY OTHER INTEREST BEARING LOAN HAVING BEEN TAKEN BY THE ASSESSE E AND UTILIZED FOR NON-BUSINESS PURPOSES. APART FROM THE F ACT THAT THE ASSESSEE ADVANCED NET LOANS TO ITS SISTER CONCERNS A T A SUM OF RS.26.02 LAKH IN RESPECT OF WHICH THE DISALLOWANCE H AS BEEN MADE AND SUSTAINED, IT IS FOUND THAT THE ASSESSEES C LOSING CAPITAL AT THE YEAR-END STOOD AT RS.5 LAKH ALONG WITH THE AMOUNT OF RESERVES AND SURPLUS AT RS.57.42, THEREBY GIVING CLOSING BALANCE OF SHARE CAPITAL AND RESERVES AND SURPLUS A T RS.62.01 LAKH. 11. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINE SS OR PROFESSION. THE ESSENCE OF THIS PROVISION IS THAT THE INTERES T SHOULD BE ALLOWED SO LONG AS THE CAPITAL BORROWED, ON WHICH SUCH INTEREST IS PAID, IS USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IF, HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANCES EVEN FOR A NON-BUSINESS PURPOSE, THERE CANNO T BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING LOANS. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 8 ASSESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OW N WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YE AR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION STAN DS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFORE , NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 219 (CAL) ALSO FORTIFY THIS VIEW. IN VIEW OF THE FOREGOING DISCUSSION, WE DIRECT TO DELETE THE ADDITION AS THE AMOUNT OF NET ADVANCES TO THE SISTER CONCERNS IS LESS THAN THE AMOUN T OF SHARE CAPITAL AND FREE RESERVES. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESID ENT PUNE; DATED : 29 TH NOVEMBER , 2018 ITA NO.2154/PUN/2016 MULTICON DEVELOPERS PVT. LTD., 9 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-7, PUNE 4. 5. THE PR.CIT-6, PUNE , , / DR B, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 28-11-18 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 28-11-18 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *