MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED, MUMBAI V. DCIT 15(2)(2), MUMBAI

ITA 2236/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1218 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 10-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 142(1); 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 2236 /MUM/201 9 ( A.Y. 2013 - 14 ) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED M/S. VARMA & VARMA CHARTERED ACCOUNTANTS E - 3, SAHASRAM, ELANKOM GARDENS SASTHAMANGALAM THIRUVANTHPURAM KERALA 695010 PAN: AAGCM5045A V. DCIT 15(2)(2) ROOM NO. 357, 3 RD FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 ( A PPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUKHSAGAR SYAL DEPARTMENT BY SHRI BHARAT ANDHLE DATE OF HEARING : 26.11.2020 DATE OF PRONOUNCEMENT : 08 .12 .2020 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 24, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 15.01.2019 FOR THE A.Y. 2013 - 14 . 2 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 245 MUMBAI HAS ERRED IN CONFIRMING THE ADDITION / DISALLOWANCE MADE BY THE DY. COMMISSIONER OF INCOME TAX 15(2)(2) OF INTEREST ON LOANS TAKEN F ROM DIRECTOR WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ACTIVITIES AMOUNTING TO RS.57,89,790/ - . 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO CONSIDER THE DECISION OF THE HON. DELHI HIGH COURT THAT IN THE CASE OF COMMISSIONER OF INCOME TAX VS DHOOMKETU BUILDERS AND DEVELOPMENT PVT LTD REPORTED IN (2014) 368 ITR 680 (DELHI) WHEREIN IT HAS BEEN THAT IN THE CASE OF REAL ESTATE COMPANY, THE BUSINESS CAN BE SAID TO HAVE BEEN COMMENCED ON ACQUISITION OF LAND, SINCE AFTER ACQUISITION OF SUCH LAND, THE ASSESSEE WAS IN A POSITION TO DO BUSINESS AS THE BUSINESS HAS BEEN SET UP. THE RATIO ABOVE DECISIONS HAS BEEN RELIED ON AND FOLLOWED BY HON. DELHI 'B' BENCH OF ITAT IN ITA NO.4344/DEL/2012 FOR ASSESSMENT YEAR 2009 - 10 IN CASE OF DY.CIT, CIRC LE 10(1). NEW DELHI VS DLF HOMES PANCHKULA PVT LTD, NEW DELHI. FURTHER HYDERABAD 'A' BENCH OF HON. ITAT, IN THIS CASE ALSO.IT WAS HELD T HAT IN THE CASE OF HYDERABAD METRO RAIL LTD HYDERABAD VS DCIT CIRCLE 2(2), HYDERABAD, THE EXPENDITURE INCURRED FOR PURCH ASE OF LAND CAN BE ALLOWED DEDUCTION AS BUSINESS EXPENDITURE SINCE THE ASSESSEE HAS, ON SUCH AN ACQUISITION COMMENCED BUSINESS ACTIVITIES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED IN DISMISSING THE APPEAL ON THE GROUND THAT THE AP PEAL RELATING TO THE A.Y 2012 - 13 ON SAME GROUNDS W AS DISMISSED BY HIM WITHOUT CONSIDERING THE FACTS OF THE CASE. 3. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA.NO. 2249 /MUM/2018 DATED 29.07.2019 FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 2012 - 13 WHEREIN THE TRIBUNAL DELETED THE DISALLOWANCE MADE U/S.36(1)(III) OF THE ACT. 3 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED 4. LD. DR FAIRLY SUBMITTED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 2012 - 13. HOWEVER, HE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FROM THE ORDER OF THE LD.CIT(A) THAT IDENTICAL ISSUE CAME UP FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR I.E. A.Y. 2012 - 13 WHEREIN THE LD.CIT(A) DECIDED AGAINST THE ASSESSEE. WHILE DISPOSING OFF THE A PPEAL FOR THE ASSESSMENT Y EAR UNDER CONSIDERATION I.E. A.Y. 2013 - 14 , LD.CIT(A) FOLLOWING HIS EARLIER ORDER FOR A.Y. 2012 - 13 DISMISSED THE APPEAL. WE HAVE PERUSED ORDER OF THE TRIBUNAL FOR THE A.Y. 2012 - 13 AND FIND THAT THE TRIBUNAL DELETED DISALLOWANCE MAD E BY THE ASSESSING OFFICER TOWARDS INTEREST U/S. 36(1)(III) OF THE ACT. WE OBSERVE D THAT TRIBUNAL HELD THAT INTEREST PAID ON THE LOANS OBTAINED FROM THE DIRECTORS IS AN EXPENDITURE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WHILE ALLOWING THE CLAIM OF THE ASSESSEE THE TRIBUNAL OBSERVED AS UNDER: - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, THE ASSESSEE - COMPANY WAS INCORPORATED FOR THE PURPOSE OF CARRYING ON REAL ESTATE ACTIVITIES AS PER ITS MAIN OBJECTS IN THE MEMORANDUM OF ASSOCIATION. T HIS IS THE 4 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED SECOND YEAR OF OPERATION. WE FIND THAT THE ASSESSEE PURCHASED LAND IN THE FIRST YEAR OF OPERATION FOR AN AMOUNT OF RS.4,94,38,159/ - , WHICH WAS FINANCED OUT OF UNSECURED LOAN OBTAINED FROM THE DIRECTORS AMOUNTING TO RS.5,35,20,000/ - OUTSTANDING A S AT 31.03.2011. THE ASSESSEE PAID INTEREST ON THE ABOVE LOAN @ 10% AND THE BORROWING HAS BEEN EFFECTED FOR THE PURPOSE OF ITS BUSINESS. IN THE CASE OF TETRON COMMERCIAL LTD. (SUPRA), THE ASSESSEECOMPANY PURCHASED SOME IMMOVABLE PROPERTIES, BEING LAND AND FLAT, FOR UNDERTAKING OF BUSINESS OF REAL ESTATE. ACCORDING TO THE MEMORANDUM OF ASSOCIATION, ONE OF THE MAIN OBJECTS OF THE COMPANY WAS TO CARRY ON BUSINESS IN REAL ESTATE. THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(III) AS INTEREST ON BORROWED CAPITAL W HICH WAS DISALLOWED BY THE AO. THE TRIBUNAL REJECTED THE CLAIM ON THE BASIS THAT THE BUSINESS IN REAL ESTATE HAD NOT COMMENCED AND THAT IT WAS THE CAPITAL EXPENSE THAT WAS SHOWN AS ADVANCE AGAINST THE IMMOVABLE PROPERTY. IN APPEAL BY THE ASSESSEE, THE HON BLE HIGH COURT HELD THAT : IN THE INSTANT CASE, ACCORDING TO THE MEMORANDUM OF ASSOCIATION, ONE OF THE MAIN OBJECTS OF THE COMPANY WAS TO CARRY ON THE BUSINESS IN REAL ESTATE. THAT HAD COMMENCED ON THE ACQUISITION OF THE LAND OR THE FLAT. IT WAS NOT NEC ESSARY TO SHOW THAT IT WAS INTENDED FOR SALE OR OTHERWISE. THE FACT REMAINED THAT BY 1994, THE HOUSE CONSTRUCTED ON THE LAND AND THE FLAT WERE SOLD AND SHOWN IN THE RETURN FOR THE RELEVANT YEAR. THAT WAS SHOWN AS PROFIT FROM BUSINESS. IT WAS NOT NECESSARY TO PROVE HOW IT WAS DEALT WITH AT THE STAGE OF ASSESSMENT. IN CIT V. ASSOCIATED FIBRE & RUBBER INDUSTRIES (P.) LTD. [1999] 236 ITR 471/102 TAXMAN 700 (SC), IT WAS HELD THAT WHERE THE MACHINERY ACQUIRED THROUGH BORROWED CAPITAL HAD NOT BEEN ACTUALLY USED IN THE BUSINESS AT THE TIME WHEN THE ASSESSMENT WAS MADE, EVEN THEN THE SAME WERE TO BE TREATED AS BUSINESS ASSETS HAVING BEEN PURCHASED FOR THE PURPOSE OF THE BUSINESS ONLY. THEREFORE, THE INTEREST PAID ON THE AMOUNT BORROWED FOR THE PURCHASE OF SUCH MACHIN ERY IS AN AMOUNT DEDUCTIBLE, ONCE THE OTHER INGREDIENTS ARE FULFILLED. IT IS SHOWN IN THE BALANCE SHEET UNDER THE CAPITAL AND ASSET HEADING AS AN ASSET BUT NOT A STOCK - IN - TRADE. THE DESCRIPTION IN THE BOOKS OF ACCOUNT WOULD BE IMMATERIAL. IF IT IS A STOCK - IN - TRADE, IN THAT EVENT, 5 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED THE AMOUNT INVESTED WOULD BE A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. THE AMOUNT BORROWED MAY BE UTILIZED FOR THE PURPOSE OF ACQUISITION OF STOCKIN - TRADE OR FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS. SO LONG THE MONEY IS UTILIZED FOR BUSINESS PURPOSES, THE INTEREST IS ALLOWABLE AS DEDUCTION. IT IS WELL - SETTLED THAT BUSINESS EXPENDITURE IS NOT CONFINED TO EXPENSES INCURRED ON REVENUE ACCOUNT. CAPITAL EXPENDITURE MAY NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 B ECAUSE THE SECTION SPECIFICALLY BARS ANY DEDUCTION OF EXPENDITURE OF CAPITAL NATURE. BUT SECTION 36 IS DIFFERENTLY WORDED. THERE IS NO BAR IN SECTION 36(1)(III) TO ALLOWANCE OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED, WHICH HAS BEEN UTILIZED FOR PURCH ASE OF CAPITAL ASSETS. IN THE CASE OF DHOOMKETU BUILDERS & DEVELOPMENT (P.) LTD. (SUPRA), IT IS HELD THAT ACTS OF APPLYING FOR PARTICIPATION IN TENDER, BORROWING OF FUND ON INTEREST FROM HOLDING COMPANY AND DEPOSIT OF BORROWED MONIES ON SAME DAY AS EARN EST MONEY CLEARLY ESTABLISH THAT BUSINESS HAD BEEN SET UP BY ASSESSEE IN RELEVANT YEAR. IN CORE HEALTH CARE LTD. (SUPRA), IT IS HELD THAT SECTION 36(1)(III) IS ATTRACTED WHEN THE ASSESSEE BORROWS THE CAPITAL FOR THE PURPOSE OF HIS BUSINESS AND IT DOES NOT MATTER WHETHER THE CAPITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET, BECAUSE ALL THAT THE SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW THE CAPITAL FOR THE PURPOSE OF THE BUSINESS. IT IS FURTHER CLARIFIED THEREIN THAT THIS DI CHOTOMY BETWEEN THE BORROWING OF THE LOAN AND ACTUAL APPLICATION THEREOF IN THE PURCHASE OF A CAPITAL ASSET, SEEMS TO PROCEED ON THE BASIS THAT A MERE TRANSACTION OF BORROWING DOES NOT, BY ITSELF, BRING ANY NEW ASSET OF AN ENDURING NATURE INTO EXISTENCE, A ND THAT IT IS THE TRANSACTION OF INVESTMENT OF THE BORROWED CAPITAL FOR THE PURCHASE OF A NEW ASSET WHICH BRINGS THAT ASSET INTO EXISTENCE; THE TRANSACTION OF BORROWING IS NOT THE SAME AS THE TRANSACTION OF INVESTMENT AND IF THIS DICHOTOMY IS KEPT IN MIND, IT BECOMES CLEAR THAT THE TRANSACTION OF BORROWING ATTRACTS THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. AS MENTIONED EARLIER THE ASSESSEE FILED BEFORE THE AO THE CONFIRMATION OF LOAN FROM THE DIRECTORS IN RESPONSE TO THE WRITTEN 6 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED QUERY DATED 29.09.20 14 ISSUED BY THE AO U/S 142(1) OF THE ACT. THE ASSESSEE COMPANY HAD EFFECTED PURCHASE OF LAND IN THE FIRST YEAR OF OPERATION I.E. FROM 07.05.2010 TO 31.03.2011 FOR AN AMOUNT OF RS.4,94,38,159/ - , WHICH WAS FINANCED OUT OF UNSECURED LOAN OBTAINED FROM THE DI RECTORS AMOUNTING TO RS.5,35,20,000/ - OUTSTANDING AS AT 31.03.2011. THE INTEREST WAS PAID ON THE ABOVE LOAN @ 10%. THE BORROWING HAD BEEN EFFECTED FOR THE PURPOSE OF BUSINESS ACTIVITIES OF THE COMPANY. THE ASSESSEE HAS RIGHTLY CLAIMED U/S 36(1)(III) INTERE ST PAID ON THE ABOVE LOAN DURING THE IMPUGNED ASSESSMENT YEAR OF RS.52,88,800/ - . THE ABOVE CLAIM OF THE ASSESSEE IS SUPPORTED BY THE RATIO LAID DOWN IN THE DECISIONS MENTIONED ABOVE. IN VIEW OF THE ABOVE, WE DELETE THE ADDITION OF RS.52,88,800/ - MADE BY T HE AO. 6. FACTS BEING IDENTICAL THIS YEAR, RESPECTFULLY FOLLOWING THE SAID DECISION FOR A.Y. 2012 - 13 WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE FOR A.Y. 2013 - 14. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON 08 . 12 .2020 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. SD/ - SD/ - (S. RIFAUR RAHMAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 08 / 1 2 / 2020 GIRIDHAR , S R. PS 7 ITA NO. 2236/MUM/2019 (A.Y. 2013 - 14) M/S. MUTHOOT AGRI DEVELOPMENT & HOSPITALITIES PRIVATE LIMITED COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM