Annuj Umesh Goel, L/h. of Late Shri Umesh Sitaram Goel, Pune V. Assistant Commissioner of Income-Tax, Pune

ITA 2481/PUN/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8331 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-06-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 25-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KRISHNA GUJRATHI
• Keywords: Proportionate interest; Cost of acquisition; Rule 8D
• Section: 271(1)(c); 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2481/PUN/2016 / ASSESSMENT YEAR : 2010-11 MR. ANNUJ UMESH GOEL (L/H OF LATE MR. UMESH SITARAM GOEL), 5, SAN MAHU COMPLEX, OPP. POONA CLUB, CAMP, PUNE-411001. PAN : AAWPG2098Q ....... / APPELLANT / V/S. ADDL. CIT, RANGE-2, PUNE. / RESPONDENT ASSESSEE BY : SHRI KRISHNA GUJRATHI REVENUE BY : SHRI RAJESH GAWALI / DATE OF HEARING : 11.06.2019 / DATE OF PRONOUNCEMENT : 05.07.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)- 5, PUNE DATED 18.07.2016 FOR THE ASSESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT(A)-5 ERRED IN DISALLOWING THE INTEREST ON SECURED LOAN RS.34,83,610/- CLAIMED AS DEDUCTION WHILE CALCULATING THE SHORT TERM CAPITAL GAIN ON SALE OF PROPERTY. THE APPELLANT HEREBY PRAYS THAT THE INTEREST MAY PLEASE BE ALLOWED AS COST OF ACQUISITION OF PROPERTY AND THE ADDITION MAY PLEASE BE DELETED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT(A)-5, PUNE, ERRED IN CONFIRMING DISALLOWANCE OF RS.5,33,476/- BY APPLYING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 WITHOUT APPRECIATING THE FACTS OF THE CASE AND LEGAL POSITION IN PROPER PERSPECTIVE. THE APPELLANT HEREBY PRAYS THAT THE DISALLOWANCE OF RS.5,33,476/- MAY PLEASE BE DELETED. 2 ITA NO.2481/PUN/2016 3) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, ALTER, AMEND OR DELETE ANY GROUND/S OF APPEAL. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A PARTNER IN A CONSTRUCTION FIRM. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8,65,60,260/-. IN THE ASSESSMENT MADE U/S 143(3) OF THE ACT, THERE WAS AN ISSUE RELATING TO THE COMPUTATION OF SHORT TERM CAPITAL GAIN EARNED ON ACCOUNT OF SALE OF PROPERTY AT KOREGAON PARK. FURTHER, THE ASSESSING OFFICER MODIFIED THE CLAIM OF COMPUTATION OF SHORT TERM CAPITAL GAIN BY DENYING THE SAID CLAIM OF DEDUCTION VIS-A- VIS THE INTEREST PAID BY THE ASSESSEE ON THE INVESTMENTS MADE FOR ACQUIRING THE ASSET, WHICH IS THE SOURCE OF THE SHORT TERM CAPITAL GAIN. THE ASSESSEE AVAILED LOAN FROM M/S. RELIGARE FINVEST LTD. AND THE SAID LOAN WAS USED FOR MAKING THE ASSET TRANSFERRABLE TO THE BUYER OF THE ASSET. ON THIS ACCOUNT, THE ASSESSING OFFICER MADE ADDITION OF RS.40,63,617/-. FURTHER, THE ASSESSING OFFICER ALSO MADE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS.5,62,160/-. THUS, THE ASSESSING OFFICER QUANTIFIED THE TOTAL ASSESSED INCOME OF RS.9,06,06,030/-. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ON THE ISSUE RELATING THE COMPUTATION OF SHORT TERM CAPITAL GAINS, THE ASSESSEE NARRATED THE RELEVANT FACTS WHICH INCLUDE THAT THE ASSESSEE JOINTLY OWNS A BUNGALOW AT CTS NO.54, KOREGAON PARK. THE SAME WAS SOLD TO MS. GAYATRI VIJAY SHIRKE FOR CONSIDERATION OF RS.22,50,00,000/-. THE ASSESSEE HAS 50% OF SHARE IN IT. THE ASSESSEE INCURRED CERTAIN EXPENSES ON ACCOUNT OF COST OF ACQUISITION OF PROPERTY AND THE SAME WORKS OUT TO THE ACQUISITION COST OF THE ASSET AT RS.11,19,19,993/-. THE ASSESSEE WORKED OUT THE SHORT TERM 3 ITA NO.2481/PUN/2016 CAPITAL GAIN AT RS.5,80,007/-. WHILE FURNISHING THE DETAILS OF THE SAID COST OF ACQUISITION I.E. RS.11,19,19,993/-, THE ASSESSEE FILED A WRITTEN SUBMISSION DATED 22.10.2012 AND THE DETAILS ARE GIVEN IN PARA 4.1.2 OF THE ASSESSMENT ORDER AND THE SAID PARA 4.1.2 OF THE ASSESSMENT ORDER IS EXTRACTED HEREUNDER :- 4.1.2 IN COURSE OF THE ASSESSMENT PROCEEDINGS,, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF THE EXPENDITURE CLAIMED OF RS. 11,19,19,993/- ON ACCOUNT OF COST OF ACQUISITION/ IMPROVEMENT ETC. IN RESPONSE, THE ASSESSEE SUBMITTED DETAILS VIDE LETTER DATED 22.10.2012. AS PER THESE DETAILS SUBMITTED, EXPENDITURE ON ACCOUNT OF COST OF ACQUISITION INCLUDING STAMP DUTY AND REGISTRATION CHARGES WAS OF RS. 7,88,18,040/- (RS. 7,50,00,000/- BEING THE ASSESSEES SHARE OF COST OF ACQUISITION + RS. 38,18,040/- BEING THE ASSESSEES SHARE OF STAMP DUTY REGISTRATION CHARGES ETC. FOR THE SAID ACQUISITION). FURTHER, THE ASSESSEE CLAIMED EXPENDITURE ON ACCOUNT OF PAYMENTS MADE TO THE TENANTS FOR RELINQUISHMENT OF THEIR RIGHTS IN THE PORTIONS OF THE SAID PROPERTY OF AN AGGREGATE AMOUNT OF RS. 2,85,14,920/-. FURTHER, THE ASSESSEE CLAIMED EXPENDITURE ON ACCOUNT OF BROKERAGE, PROFESSIONAL FEES, ETC, OF RS. 8,50,000/- RELATED TO THE ACQUISITION OF THE SAID PROPERTY. FURTHER, THE ASSESSEE ALSO CLAIMED AN EXPENDITURE OF RS. 2,53,423/- FOR IMPROVEMENT OF THE PROPERTY BY ITS LANDSCAPING AND GARDENING. MOREOVER, THE ASSESSEE ALSO CLAIMED INTEREST EXPENDITURE OF RS, 34,83,610/- WHILE COMPUTING SHORT TERM CAPITAL GAIN IN RESPECT OF THIS PROPERTY. 5. FROM THE ABOVE, IT IS EVIDENT THAT THE CLAIM OF INTEREST EXPENDITURE OF RS.34,83,610/- IS THE SUBJECT-MATTER OF DISPUTE BEFORE THE TRIBUNAL NOW. THE ASSESSING OFFICER ALLOWED THE INVESTMENTS, WHICH IS OUT OF THE BORROWED CAPITAL. THE ASSESSING OFFICER DID NOT ALLOW THE INTEREST RELATABLE TO THE SAID BORROWED CAPITAL WHILE COMPUTING THE COST OF ACQUISITION OF THE ASSET. THE ASSESSING OFFICER RELIED ON THE PROVISIONS OF SECTION 48(II) OF THE ACT AND APPLIED THE PRINCIPLE OF STRICT INTERPRETATION OF THE SAME QUA THE ABOVE INTEREST EXPENDITURE. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEES EXPLANATION AS PER THE DISCUSSION GIVEN IN PARA 4.1.5 AND 4.1.6 OF HIS ORDER AND THE SAME ARE EXTRACTED HEREUNDER :- 4.1.5 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN DULY CONSIDERED. AS EXPLAINED IN THE PRECEDING PARA 4.1.3, ONLY THE COST OF 4 ITA NO.2481/PUN/2016 ACQUISITION/IMPROVEMENT OF ASSET AND ALSO THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER IS ALLOWABLE WHILE COMPUTING THE CAPITAL GAINS. IN THE INSTANT CASE, THE INTEREST EXPENDITURE NEITHER FALLS UNDER THE CATEGORY OF EXPENSES FOR COST OF ACQUISITION/IMPROVEMENT NOR UNDER THE CATEGORY OF EXPENSES FOR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. MOREOVER, THE INTEREST PAID ON LOAN AVAILED BY MORTGAGING THE PROPERTY IS FOR THE PERIOD SUBSEQUENT TO ACQUISITION OF THE PROPERTY AND THEREFORE CANNOT BE CONSIDERED AS AN EXPENDITURE RELATED TO COST OF ACQUISITION. THEREFORE, THE ASSESSEES CLAIM OF INTEREST EXPENDITURE OF RS.34,83,610/- CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE SHORT TERM CAPITAL GAINS IN RESPECT OF THE SAID PROPERTY AT KOREGAON PARK. 4.1.6 IN VIEW OF THE ABOVE DISCUSSION, THE COST OF ACQUISITION/IMPROVEMENT ETC. IS RESTRICTED TO RS.10,84,36,383/- AS AGAINST THE CLAIM OF RS.11,19,19,993/- MADE BY THE ASSESSEE AND ACCORDINGLY THE SHORT TERM CAPITAL GAINS ON SALE OF THE PROPERTY AT KOREGAON PARK IS RE-COMPUTED AT RS.40,63,617/- AS AGAINST THE SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE OF RS.5,80,007/-. PENALTY PROCEEDINGS U/S 271(1)(C) ARE SEPARATELY INITIATED FOR CONCEALMENT. 6. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE COULD NOT IMPROVE HIS CASE ANY FURTHER IN ITS FAVOUR. THE CIT(A) CONFIRMED THE ADDITION/MANNER OF COMPUTATION OF SHORT TERM CAPITAL GAIN QUA THE COST OF ACQUISITION AS PER THE DISCUSSION GIVEN IN PARA 5 OF HIS ORDER. FOR THE SAKE OF COMPLETENESS, THE SAID PARA 5 IS EXTRACTED HEREUNDER :- 5. I HAVE PERUSED CAREFULLY THE MATERIAL ON RECORD AND THE SUBMISSIONS OF THE APPELLANT. A FEW UNDISPUTED FACTS EMERGE. THE DATE OF ACQUISITION OF THE ASSET FOR WHICH INTEREST PAID IS CLAIMED IN THE COST OF ACQUISITION IS 2 ND APRIL 2008. THE LOAN WAS TAKEN ON 2 ND SEPTEMBER 2009 OF RS.7,78,40,333/-, IN WHICH THE APPELLANTS SHARE WAS RS.3,89,20,167/-. THE APPELLANT HAD CLAIMED DURING APPELLATE PROCEEDINGS THAT, THE LOAN WAS USED TO REPAY HIS SISTER CONCERNS FROM WHOM LOAN WAS TAKEN FOR THE ACQUISITION OF THE PROPERTY. THE LOAN WAS ALSO USED TO PAY THE TENANT OF THE SAID PROPERTY. THE PAYMENT MADE TO THE TENANT IS ON 16 TH SEPTEMBER 2009, WHEREAS THE SAID PROPERTY WAS SOLD ON 30 TH OCTOBER 2010. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR WAS REQUIRED TO SUBMIT A CHART OF THE LOAN TAKEN FROM SISTER CONCERNS, THE AMOUNT AND THE DATE, UTILIZATION OF AMOUNT AND PURPOSE, LOAN FROM RELIGARE, REPAYMENT TO SISTER CONCERNS AND INTEREST CHARGED BY RELIGARE TO SUBSTANTIATE HIS STATEMENT THAT, THE LOAN WAS USED TO REPAY THE SISTER CONCERNS FROM WHOM THE LOAN WAS TAKEN FOR ACQUISITION OF PROPERTY. THE AR STATED THAT, HE WAS WITHDRAWING THIS CONTENTION, AS HE WAS UNABLE TO GIVE THE FLOW CHART AND THE DETAILS TO SUBSTANTIATE HIS STAND OF THE LOAN REPAYMENT TO SISTER CONCERNS. THIS HAS BEEN TAKEN ON RECORD VIDE ORDER SHEET ENTRY DATED 13.07.2016, IN REPLAY TO THE QUERY REGARDING INTEREST IT WAS STATED THAT, NO INTEREST WAS PAID TO THE SISTER CONCERN. THE AR DID FILE DOCUMENTS SHOWING PAYMENT TOWARDS TENANCY RIGHTS. IT IS SEEN THAT, THE AMOUNT WAS PAID TO THE TENANT ON 16 TH 5 ITA NO.2481/PUN/2016 SEPTEMBER 2009, WHICH IS MUCH AFTER THE TRANSACTION OF ACQUISITION WAS EFFECTED. IT IS THEREFORE SEEN THAT, THE INTEREST PAID FOR THE LOAN AVAILED BY MORTGAGING THE PROPERTY IS FOR THE PERIOD SUBSEQUENT TO THE ACQUISITION OF THE PROPERTY AND THEREFORE, CANNOT BE CONSIDERED AS AN EXPENDITURE RELATED TO THE COST OF ACQUISITION. THE CONTENTION OF THE APPELLANT THAT, THE INTEREST EXPENDITURE WAS ON THE ACCOUNT OF THE LOAN AVAILED FROM M/S. RELIGARE FINVEST LTD. BY MORTGAGING THE SAID PROPERTY IN QUESTION AND THEREFORE, THE INTEREST EXPENDITURE WAS ALLOWABLE OF COST OF ACQUISITION IS DEVOID OF MERIT. I TEND TO AGREE WITH THE AO, THAT ONLY COST OF ACQUISITION/ IMPROVEMENT OF AN ASSET AND ALSO THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER IS ALLOWABLE WHILE COMPUTING CAPITAL GAINS. IN THE APPELLANT'S CASE, THE INTEREST EXPENDITURE NEITHER FALLS UNDER THE CATEGORY OF EXPENSES FOR 'COST OF ACQUISITION/ IMPROVEMENT' NOR UNDER THE CATEGORY OF EXPENSES FOR 'EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER.' IN VIEW OF THE ABOVE, THE APPELLANTS CLAIM OF INTEREST EXPENDITURE OF RS. 34,83,610/- CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING SHORT TERM CAPITAL GAIN IN RESPECT OF THE PROPERTY. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 7. AGGRIEVED WITH THE ABOVE FINDING OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE EXTRACTED GROUND NO.1 . 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER ALLOWED THE BORROWED CAPITAL WHILE COMPUTING THE COST OF ACQUISITION OF THE ASSET AND INCORRECTLY DENIED THE INTEREST INCURRED THEREON. IN THIS REGARD, IN SUPPORT OF THE ASSESSEES SUBMISSION, LD. COUNSEL RELIED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS. 9. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). HE READ OUT THE RELEVANT PROVISIONS OF THE ACT AND REQUESTED FOR APPLYING THE PRINCIPLE OF STRICT INTERPRETATION. 10. ON HEARING BOTH THE SIDES ON THE ISSUE OF EXCLUSION OF INTEREST PAYMENT RELATABLE TO THE BORROWED CAPITAL WHICH NOW STANDS ALLOWED AS PART OF THE COST OF ACQUISITION FOR ACQUIRING THE SAID ASSET, WE ARE OF THE 6 ITA NO.2481/PUN/2016 OPINION, THE INTEREST INCURRED ON THE INVESTMENTS WHICH FALL INTO THE COST OF ACQUISITION HAS TO BE ALLOWED, IN PRINCIPLE, FOR THE REASON THAT THE INVESTMENTS WILL INCLUDE THE INTEREST PAID ON THE BORROWED CAPITAL. WE FIND NO REASON TO EXCLUDE SUCH DIRECTLY RELATABLE TO THE INTEREST EXPENDITURE WHEN THE ISSUE WAS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE AND A COMPUTATION WAS FURNISHED BEFORE US. AS PER THE SAID WORKING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LOAN UTILIZED RELATABLE TO THE ASSESSEE FROM M/S. RELIGARE FINVEST LTD. IS RS.3,89,20,167/- AND INTEREST WORKED OUT TO RS.34,83,610/-. REFERRING TO THE INVESTMENTS, LD. COUNSEL SUBMITTED THAT THE PROPORTIONATE INTEREST TO THE TUNE OF RS.13,42,598/- IS DIRECTLY LINKED TO THE INVESTMENTS THAT IS INVESTED TO THE COST OF ACQUISITION QUA UTILIZATION FOR TENANCY RIGHT. FURTHER, LD. COUNSEL SUBMITTED THAT THE MATTER MAY TRAVEL TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE ABOVE CALCULATION WITH THE DIRECTION TO THE ASSESSING OFFICER TO ALLOW THE INTEREST EXPENDITURE. 11. ON HEARING BOTH THE SIDES ON THIS PRAYER OF THE ASSESSEE, WE ARE OF THE OPINION THAT THE ARGUMENT OF THE LD. AR IS REASONABLE. ALLOWING THE BORROWED CAPITAL AND DENYING RELATABLE INTEREST EXPENDITURE IS NOT IN PROPER TASTE. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE INTEREST EXPENDITURE, IN PRINCIPLE. WHEN COMES TO THE QUANTUM OF INTEREST, WE FIND THE ASSESSING OFFICER SHOULD CALCULATE THE DIRECTLY RELATABLE INTEREST THAT IS TO BE FOUND PART OF THE COST OF ACQUISITION QUA THE UTILIZATION OF BORROWED CAPITAL FOR TENANCY RIGHT AND QUANTIFY THE ALLOWABLE INTEREST EXPENDITURE. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFTER GRANTING REASONABLE OPPORTUNITY OF BEING 7 ITA NO.2481/PUN/2016 HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO.2 RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.5,33,476/- UNDER CLAUSE (III) OF RULE 8D(2) OF THE RULES. 13. ON HEARING BOTH THE SIDES AND CONSIDERING THE ORDER OF THE CIT(A) ON THIS ISSUE, WE FIND THE CIT(A) RIGHTLY COMPLIED WITH THE PROVISIONS OF THE SAID CLAUSE (III) OF RULE 8D(2) OF THE RULES. THEREFORE, ON THE GIVEN FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND NO.2 STANDS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 05 TH DAY OF JULY, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 05 TH JULY, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-5, PUNE. 4. THE CCIT, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.