WEL Intertrade Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2538/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97074 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 26-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2010
• Court: TRIBUNAL
• Department Lawyers: TARUN SEEM SENIOR
• Assessee Lawyers: D B JAIN; CS AGG ARWAL RP MALL
• Keywords: Business income; Charitable institution; Principle of natural justice; Earning of tax free income; Capital expenditure
• Section: 143(3); 234B; 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO ITA NO. 2538/DEL/2010 ASSESSME NT YEAR: 2006-07 ITA NO.1146/DEL/2012 ASSESSMENT YEAR: 200 8-09 WEL INTERTRADE PVT. LTD., VS. INCOME-TAX OFFICER , BLOCK 5-E, LOCAL SHOPPING CENTRE, WARD 18(3), MASJID MOTH, GR. KAILASH, PART-II, NEW DELHI. NEW DELHI. (PAN: AAACW0187F) (APPELLANT) (RESPONDENT) ITA NO.3052/DEL/2010 ASSESSMENT YEAR: 2006- 07 INCOME-TAX OFFICER, VS. WEL INTERTRADE PVT. LTD., WARD 18(3), BLOCK 5-E, LOCAL SHOPPING NEW DELHI. CENTRE, MASJID MOTH, GR. KAILASH, PART-II, NEW DELHI. (PAN: AAACW0187F) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI CS AGG ARWAL, RP MALL, ADV. & DB JAIN, CA RESPONDENT BY: SHRI TARUN SEEM, SENIOR DR DATE OF HEARING : 26.06.2015 DATE OF PRONOUNCEMENT: 14:08.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER ITA NO.2538/DEL/2010 : THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER O N THE FOLLOWING GROUNDS: 2 1. THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECI ATE THAT SINCE THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER WAS IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE, THE ORDER OF ASSESSM ENT HAD TO BE QUASHED OR ANNULLED. 2. THAT WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE LEARNED CIT(APPEALS) OUGHT TO HAVE RESTORED SUCH OF THE MAT TERS TO THE ASSESSING OFFICER TO DECIDE THOSE ISSUES, IN RESPEC T OF WHICH ADDITIONS HAD BEEN MADE AND WERE BEEN MADE ADMITTED LY IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE I.E., WI THOUT PROVIDING ANY OPPORTUNITY WHATSOEVER OF BEING HEARD E.G. INCOME U NDER THE HEAD INCOME FROM PROPERTY. 2.1THAT THE LEARNED CIT(APPEALS) HAS FAILED TO COMP REHEND THE RULE LAID DOWN BY THE APEX COURT IN THE CASE OF M/S.TIN BOX CO. VS. CIT REPORTED IN 249 ITR 216, WHERE IN THE APEX COURT HA S HELD THAT WHERE AN OPPORTUNITY IS REQUIRED TO BE PROVIDED BY THE AS SESSING OFFICER, SUCH AN, OPPORTUNITY HAS TO BE PROVIDED BY HIM ALON E AND PROVIDING OF AN OPPORTUNITY BY THE LEARNED CIT(APPEALS) IS NOT A SUBSTITUTE. 2.2 THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRED IN FAILING TO APPRECIATE THAT, INCOME FROM PROPERTY HAD NOT BEEN CORRECTLY COMPUTED BY THE ASSESSING OFFICER IN ACCORDANCE WIT H LAW AND AS SUCH THERE WAS NO JUSTIFICATION EITHER ON FACTS AND ON CIRCUMSTANCES OF THE CASE TO HOLD THAT, THE CLAIM OF DEDUCTION OF RS .1,12,479 WAS SINCE MADE BY THE ASSESSEE AT PAGE 110 OF THE PAPER BOOK, SAME CANNOT BE ALLOWED AS A DEDUCTION. THE FINDINGS ARE BASED ON E RRONEOUS ASSUMPTIONS AND WITHOUT APPRECIATION OF FACTS THAT ASSESSEE HAD NOT 3 MADE ANY SUCH CLAIM OF RS.1,12,479 IN THE COMPUTATI ON OF INCOME FILED BY THE ASSESSEE. THE ADDITION HAS BEEN SUSTAI NED, DESPITE THE FACT NO SUCH CLAIM WAS MADE AND THE INCOME COMPUTED BY T HE ASSESSEE AT RS.31,15,773 HAD CORRECTLY BEEN COMPUTED. 2.3 THAT THE LEARNED CIT(APPEALS) HAS THUS FAILED T O COMPREHEND THE FACTUAL SUBSTRATUM OF THE CASE IN UPHOLDING THE ADDITION UNDER THE HEAD INCOME FROM PROPERTY. 2.4 THAT FURTHER THE LEARNED CIT(APPEALS) WAS NOT J USTIFIED IN NOT ALLOWING THE DEDUCTION OF RS.2,21,879 BEING THE INT EREST PAID REPRESENTING LATE PAYMENT OF INTEREST ON THE MONI ES ADMITTEDLY BORROWED, AS ALLOWABLE DEDUCTION WHILE COMPUTING TH E INCOME FROM PROPERTY AS WAS UTILIZED FOR ACQUIRING THE PROPERTY WHOSE INCOME WAS ASSESSED TO TAX. 3. THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRE D IN UPHOLDING THE FINDINGS OF ASSESSING OFFICER WHO HELD THAT THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS IN THE REAL ESTATE. HE HAS F AILED TO APPRECIATE THAT ADMITTEDLY THE BUSINESS HAD BEEN SET UP AND EV EN OTHERWISE TOO, IT WAS INCORRECT TO HOLD BOTH IN LAW AND ON FACTS THAT THE BUSINESS HAD NOT COMMENCED WHICH FINDINGS WERE INCONSISTENT WITH THE FINDINGS RECORDED IN THE PRECEDING YEARS. 4. IN FACT THE LEARNED CIT(APPEALS) OUGHT TO HAVE SPECIFICALLY HELD IN VIEW OF HIS FINDINGS THAT THE LAND SITUATED AT BHONDSI VILLAGE BEING AGRICULTURAL LAND, WAS NOT STOCK IN T RADE AND THE 4 ASSESSEE COMPANY CARRIED ON THE BUSINESS IN RESPECT OF REAL ESTATE OTHER THAN OF AGRICULTURAL LAND HELD AT VILLAGE BHO NDSI. 5. THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST AND BANK CHARGES OF A. (I) RS.26,86,143 REPRESENTING INTEREST ON (II) RS.3,88,138 MONIES BORROWED FOR THE (III)RS.2,21,879 PURPOSES OF BUSINESS AND (IV) RS.10,815 AND UTILIZED FOR THE SAME B. ( V) RS.8,63,651 REPRESENTING BANK CHARGES. ALL AGGREGATING TO RS.41,70,626, WHILE COMPUTING OR DETERMINING THE TOTAL INCOME OF THE ASSESSEE COMPANY. 6. THAT IN ANY CASE AND WITHOUT PREJUDICE THERE WAS AB SOLUTELY NO JUSTIFICATION TO DISALLOW A FURTHER AMOUNT OF RS.9, 80,103 PURPORTED TO BE PROPORTIONATE EMPLOYEE COST, ON AN ASSUMPTION THAT SUCH EXPENSES COULD BE HELD TO BE CAPITAL EXPENDITURE. I N DOING SO THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT, THE INCOME MAY BE COMPUTABLE, HEAD WISE, YET IT IS THE TOTAL I NCOME OF THE ASSESSEE WHICH HAS TO BE COMPUTED AND AS SUCH THE E XPENDITURE INCURRED ON THE EMPLOYMENT OF EMPLOYEES AND HAD BEE N EMPLOYED IN THE BUSINESS HAD TO BE ALLOWED AS A DEDUCTION AN D THERE CAN BE NO PROPORTIONATE DISALLOWANCE MADE ON AN ASSUMED BA SIS. 7. THAT THE LEARNED CIT(APPEALS) HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS.5,89,433, A SUM DISALLOWED BY TH E ASSESSING 5 OFFICER OUT OF THE TRAVELLING AND CONVEYANCE ON AD HOC BASIS, BEING 50% OF THE TOTAL EXPENDITURE INCURRED. HE HAS FAILE D TO APPRECIATE THAT THERE WAS NO DISPUTE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES AND WAS ALLOWABLE AND NO AD HOC DISALL OWANCE COULD THUS HAVE BEEN MADE. 2. HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY T HE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILA BLE ON RECORD AND THE DECISIONS RELIED UPON. 3. GROUND NO.1 IS GENERAL IN NATURE, HENCE, DOES NO T NEED INDEPENDENT ADJUDICATION. 4. GROUND NOS.2, 2.1, 2.2, 2.3 HAVE NOT BEEN PRESSED BY THE LEARNED AR DURING THE COURSE OF HEARING. THE SAME ARE REJECTED AS SUCH. 5. GROUND NO. 2.4 : THE FACTS IN BRIEF ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF CONSULTANCY AND REAL ESTATES HAD PURCHA SED 8,927 SQ. FTS. OF BUILT UP AREA ON 3 RD FLOOR IN A BUILDING BY THE NAME AND STYLE OF CAPI TAL FORT SITUATED AT MUNIRKA FOR A TOTAL CONSIDERATION OF RS .9,37,33,600 BESIDES STAMP DUTY AND REGISTRATION EXPENSES. THE PROPERTY WAS P URCHASED WITH EFFECT FROM 22.9.2005 WHEN THE ASSESSEE PAID A SUM OF RS.6 ,12,98,805 AND 6 SUBSEQUENTLY REQUESTED THE SELLER THAT SINCE THIS P ROPERTY WAS PURCHASED ON 22.9.2005 THEY ARE ALSO ENTITLED TO RENT FROM 23.9. 2005. THE PROPERTY WAS ON LEASE WITH LAL BHAI REALITY FINANCE PVT. LTD. AND T HEY PAID RENT OF RS.4,60,431 FOR THE INTERVENING PERIOD. LAL BHAI RE ALITY FINANCE PVT. LTD. HAD ACQUIRED THE AFORESAID PROPERTY FROM LAND MARK BUILDERS PVT. LTD. IT WAS SUBMITTED BY THE ASSESSEE THAT FOR PURCHASING T HE AFORESAID PROPERTY, THE ASSESSEE COMPANY HAD BORROWED RS.6.50 CRORES FROM H DFC BANK AND PART OF THE CONSIDERATION WAS FINANCED BY THE ASSESSEE C OMPANY FROM ITS OWN RESOURCES. HOWEVER, SINCE THE AMOUNT HAD TO BE PAID BY THE ASSESSEE COMPANY TO LAL BHAI REALITY FINANCE PVT. LTD. ON 22 .9.2005, IT PAID INTEREST ON THE UNPAID AMOUNT TO LAL BHAI REALITY FINANCE PV T. LTD. OF RS.2,21,879 PRIOR TO THE DEDUCTION OF TAX AT SOURCE. 6. IT WAS SUBMITTED THAT FROM 23.9.2005, THE ASSESS EE RECEIVED RENT FROM THE TENANT ENERGY INFRA-STRUCTURE INDIA PVT. LTD. . THE RENT RECEIVED IN THE YEAR UNDER CONSIDERATION FROM 23.9.2005 AGGREGATED TO RS.59,45,525. BESIDES THE AFORESAID RENT, THE ASSESSEE ALSO RECEI VED RENT OF RS.27,67,500 FROM ANOTHER PROPERTY OWNED BY THE ASSESSEE COMPANY . THUS, THE AGGREGATE RENT RECEIVED AMOUNTED TO RS.87,13,025 WHICH WAS DU LY REFLECTED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE CLAIMED DEDU CTION OF INTEREST PAID BY 7 THE ASSESSEE TO LAL BHAI REALITY FINANCE PVT. LTD. FROM WHOM THE ASSESSEE HAD ACQUIRED THE PROPERTY AND PAID THE CONSIDERATIO N FOR PURCHASE THEREOF. THE ASSESSING OFFICER DISALLOWED THE SAME, WHICH HA S BEEN UPHELD BY THE LEARNED CIT(APPEALS) AT RS.2,21,879. 7. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBMI TTED THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER WITH OUT APPLICATION OF MIND AS HE PROCEEDED TO COMPUTE INCOME ON THE BASIS OF PROFIT AND LOSS ACCOUNT AND NOT ON THE BASIS OF COMPUTATION OF INCO ME FILED BY THE ASSESSEE. HAD THE ASSESSING OFFICER EXAMINED THE CLAIM UNDER THE HEAD INCOME FROM PROPERTY SEPARATELY THEN HE WOULD NOT HAVE COMMITT ED SUCH AN ERROR OF DISALLOWING THE ENTIRE CLAIM DEBITED IN THE PROFIT AND LOSS ACCOUNT WHICH AGGREGATED TO RS.71,12,593 WHICH WAS THE AMOUNT OF INTEREST PAID AS ALSO BANK CHARGES, DETAILED IN THE PROFIT AND LOSS ACCOU NT. 8. THE LEARNED AR SUBMITTED FURTHER THAT LEARNED CI T(APPEALS) IN HIS ORDER HAS ALSO ERRED HAVING ONLY ALLOWED A DEDUCTIO N OF INTEREST PAID ON A LOAN OF RS.6.50 CRORES PAID TO HDFC BANK AND ERRED IN NOT ALLOWING INTEREST PAID BY THE ASSESSEE TO LAL BHAI REALITY FINANCE PV T. LTD. BY HOLDING THAT THE SAME REPRESENTS LATE INTEREST PAYMENT AND NOT INTER EST CHARGES PAID TO HDFC BANK. HE SUBMITTED THAT THE LEARNED CIT(APPEALS) HA S FAILED TO APPRECIATE 8 THAT THE ASSESSEE HAS PAID THE INTEREST ON THE AMOU NT BORROWED FROM HDFC BANK AND HAS ALSO PAID INTEREST ON THE UNPAID AMOUN T TO LAL BHAI REALITY FINANCE PVT. LTD. TILL THE SAME WAS PAID ON 10.2.20 06. IN THIS REGARD, HE REFERRED PAGE NO.. 364 OF THE PAPER BOOK. HE SUBMIT TED THAT NOT ONLY INTEREST PAID TO HDFC BANK OF RS.29,41,967 WAS ALLOWABLE AS DEDUCTION BUT ALSO UNPAID AMOUNT TO LAL BHAI REALITY FINANCE PVT. LTD. REPRESENTED BORROWED AMOUNT AND AS SUCH INTEREST PAID ON SUCH BORROWED A MOUNT IS ALSO ELIGIBLE FOR DEDUCTION UNDER SEC. 24(B) OF THE ACT. 9. THE LEARNED SENIOR DR ON THE OTHER HAND PLACED R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE CLAIMED INTEREST WAS NOT ALLOWABLE AS IT WAS NOT AN INTEREST PAID ON THE CAPITAL BORROWED FROM THE HDFC BANK . HE SUBMITTED FURTHER THAT THIS AMOUNT A LSO CANNOT BE CLAIMED AS EXPENDITURE INCURRED FOR BUSINESS PURPOSES AS TH E PROPERTY IN QUESTION HAS BEEN ASSESSED TO TAX UNDER THE HEAD INCOME-FROM HO USE PROPERTY. 10. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW, WE FIND THAT THE CLAIMED DEDUCTION HAS BEEN DENIED ON THE BASIS THAT THE SAME WAS NOT ALLOWABLE AS IT WAS NOT AN INTEREST PAID ON THE CAP ITAL BORROWED FROM HDFC BANK. THERE IS NO DISPUTE THAT FOR PURCHASING THE P ROPERTY AT MUNIRKA FOR A 9 CONSIDERATION OF RS.9,37,33,600, THE ASSESSEE HAD T AKEN LOAN FROM HDFC BANK FOR RS.6.50 CRORES ON WHICH THE AUTHORITIES BE LOW HAVE ALLOWED THE INTEREST PAID BY THE ASSESSEE. THE PROPERTY WAS ACQ UIRED FROM LAL BHAI REALITY FINANCE PVT. LTD. AND RS.2,21,879 AS INTERE ST WAS PAID ON THE DELAYED PAYMENT OF THE AMOUNT OUT OF THE SALE CONSI DERATION TO LAL BHAI REALITY FINANCE PVT. LTD. THE SAID DELAYED PAYMENT OUT OF THE CONSIDERATION WAS MADE ON 10.2.2006. THUS, IN OUR VIEW, THE INTER EST PAID AT RS.2,21,879 CANNOT BE TREATED DIFFERENTLY IN COMPARISON TO THE INTEREST PAID TO THE HDFC BANK AS THE VERY PURPOSE FOR BOTH THE INTEREST WAS TO FACILITATE THE PAYMENT OF AMOUNT IN CONSIDERATION FOR ACQUISITION OF THE P ROPERTY. WE THUS WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW I N THIS REGARD DIRECT THE ASSESSING OFFICER TO COMPUTE THE INTEREST OF RS.2,2 1,879 CLAIMED AS ALLOWABLE WHILE COMPUTING INCOME FROM PROPERTY AS P ROVIDED UNDER SEC. 24(B) OF THE ACT. THE GROUND NO. 2.4 IS THUS ALLOWE D. 11. GROUND NO.3 : IT IS REGARDING THE FINDING OF THE LEARNED CIT(AP PEALS) THAT ASSESSEE COMPANY HAS NOT COMMENCED THE BUSINES S OF A REAL ESTATES. 12. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD BEEN CARRYING ON VARIOUS BUSINESS ACTIVITIES INCLUDING BUSINESS OF R EAL ESTATES. IN FACT, THE ASSESSING OFFICER HAS HIMSELF OBSERVED IN THE ASSES SMENT ORDER AS ASSESSEE 10 ENGAGED IN THE BUSINESS OF CONSULTANCY AND REAL EST ATES AND HAS COMPUTED BUSINESS INCOME AT RS.18,77,041. THE ASSESSING OFFI CER HAD DENIED THE CLAIMED DEDUCTION ON THE BASIS THAT THERE WAS NO IN COME FROM REAL ESTATES IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED INTEREST AND BANK CHARGES CLAIMED AS DEDUCTION. THE ASSESSING OFFICER COULD NOT HAVE ARRIVED AT SUCH A CONCLUSION SINCE ASSESSE E COMPANY HAD EVEN DURING THE YEAR UNDER CONSIDERATION GIVEN ADVANCES FOR PURCHASE OF FLATS/LAND, AS WOULD BE EVIDENT FROM THE FOLLOWING TABLE: DATE TO WHOM PAID AMOUNT(RS.) PURPOSE OF PAYMENT 11.11.2005 REPAYMENT TO SH. S.K. JATIA OF AMOUNT RECEIVED ON 07.10.2005 IN KOTAK BANK. 90,00,000 REPAYMENT OF AMOUNT RECEIVED EARLIER (PAGE 158 OF P.B.) 11.11.2005 SMART TOURISM PVT. LTD. 50,00,000 AS ADVANCE FOR ACQUISITION OF PROPERTY (PAGE 160 OF P.B.) 20.11.2005 GE CAPITAL SERVICES. 4,00,00,000 PAYMENT MADE TOWARDS LAND ADVANCE (PAGES 161 TO 178 OF P.B) 23.11.2005 GE CAPITAL SERVICES 1,50,00,000 PAYMENT TOWARDS LAND ADVANCE (PAGES 161 TO 178 OF P.B) 27.11.2005 GE CAPITAL SERVICES 1,2,00,000 PAYMENTS MADE TOWARDS LAND 11 ADVANCE (PAGES 161 TO 178 OF P.B) 13. THE LEARNED CIT(APPEALS) IN FACT HAS HIMSELF AC CEPTED THAT THE FUNDS HAVE BEEN ADMITTEDLY UTILIZED AS WORKING CAPITAL OF THE REAL ESTATES BUSINESS. THE LEARNED AR REFERRED PAGE NO. 26 OF THE FIRST AP PELLATE ORDER IN THIS REGARD. HE POINTED OUT THAT EVEN IN THE ASSESSMENT ORDER FRAMED UNDER SEC. 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2005-06, IT IS AN ADMITTED FACT BY THE ASSESSING OFFICER THAT ASSESSEE IS ENGAGED IN T HE WORK OF REAL ESTATES. IN SUPPORT, HE REFERRED PAGE NOS. 374 TO 282 OF THE PA PER BOOK I.E COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06. HE PO INTED OUT FURTHER THAT IN THE PRECEDING ASSESSMENT YEAR, EXPENDITURE INCURRED AND AS DEBITED IN PROFIT AND LOSS ACCOUNT LIKE IN THE PRESENT YEAR HAS BEEN FULLY AND WHOLLY ALLOWED AS DEDUCTION. IN SUPPORT, HE REFERRED FOLLOWING TAB LE SHOWING THE AGGREGATE SUM OF EXPENDITURE INCURRED IN THE PRECEDING YEARS AND IN THE PRESENT YEAR: ASSESSMENT YEAR EXPENDITURE INCURRED (RS.) 2001-02 23,98,19,794 12 2002-03 4,99,45,393 2003-04 1,07,37,854 2004-05 86,30,243 2005-06 2,11,44,312 2006-07 1,35,44,011 14. THE LEARNED SENIOR DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW WITH THIS CONTENTIO N THAT UNDER THE FACTS OF THE PRESENT CASE, THE LEARNED CIT(APPEALS) HAS RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSEE COMPANY HAD NOT COMMENCED THE BUS INESS OF REAL ESTATES. THE ASSESSEE WAS IN SEVERAL BUSINESS ACTIVITIES AND IT WAS NOT CLEAR THAT AS TO WHICH BUSINESS WAS COMMENCED DURING THE YEAR. 15. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT IN THE ASSESSMENT YEAR 2005-06 IN THE ASSESSMENT FRAMED UNDER SEC. 143(3) OF THE ACT, THE ASSESSING OFFICER HIMSELF HAS ADMITTED THAT THE ASS ESSEE IS ENGAGED IN THE WORK OF REAL ESTATES DEVELOPMENT. THE RELEVANT EXTR ACTS THEREOF IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE: AS IN THE PAST, THE COMPANY IS ENGAGED IN THE WORK OF REAL ESTATES DEVELOPMENT. IN ADDITION TO THE SAME COMPANY ALSO D ERIVED INCOME IN 13 THE BUSINESS OF SALE, PURCHASE OF WOOD AND RELATED ITEMS AND ALSO FROM THE MANAGEMENT CONSULTANCY. BESIDES, IT IS AN ESTABLISHED POSITION OF LAW THAT ANY EXPENDITURE INCURRED AFTER THE DATE OF SETTING UP OF THE BUSINESS IS ALL OWABLE DEDUCTION AND IT IS AN UNREBUTTED FACT OF THE PRESENT CASE THAT IN THE PRE CEDING ASSESSMENT YEARS, AS SUBMITTED BY THE LEARNED AR HEREINABOVE, THE EXPEND ITURE INCURRED AND AS DEBITED IN PROFIT AND LOSS ACCOUNT LIKE IN THE YEAR UNDER CONSIDERATION, HAS BEEN FULLY AND WHOLLY ALLOWED AS DEDUCTION. THE LEA RNED CIT(APPEALS) HAS HIMSELF HELD AT PAGE NO. 26 PARA NO. 7.13 OF THE FI RST APPELLATE ORDER THAT ADMITTEDLY THE LOAN AMOUNT WAS USED AS WORKING CAPI TAL IN ITS REAL ESTATES BUSINESS. UNDER THESE FACTS, WE ARE OF THE VIEW THA T THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN ARRIVING AT A CON CLUSION THAT THE ASSESSEE COMPANY HAS NOT COMMENCED THE BUSINESS OF REAL ESTA TES. THIS CONCLUSION OF THE LEARNED CIT(APPEALS) IS SET ASIDE WITH THIS FIN DING THAT DURING THE YEAR THE ASSESSEE HAD COMMENCED THE BUSINESS OF REAL EST ATES. THE GROUND NO.3 IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. 16. GROUND NO.4 : THIS GROUND HAS BEEN RAISED AS AN ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THAT IN VIEW OF FINDING OF LEARNED CIT(APPEALS) AGITATED ABOVE IN GROUND NO.3, THE LEARNED 14 CIT(APPEALS) OUGHT TO HAVE HELD THAT THE LAND HELD AND OWNED BY THE ASSESSEE IN VILLAGE: BHONDSI MEASURING 38.09 HECTOR IS AN AGRICULTURAL LAND DESPITE THE FACT THAT THE SAME WAS SHOWN IN THE BAL ANCE SHEET, UNDER THE HEAD STOCK IN TRADE OF THE VALUE OF RS.3,11,24,826. 17. THE LEARNED SENIOR DR, HOWEVER, TRIED TO JUSTIF Y THE FIRST APPELLATE ORDER THAT THE ASSESSEE HAD NOT COMMENCED THE REAL ESTATES BUSINESS. 18. HAVING GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW, WE FIND THAT THE LEARNED CIT(APPEALS) HAS GIVEN HIS FINDING ON T HE ISSUE IN PARA NO. 7.14 OF THE FIRST APPELLATE ORDER AT PAGE NO. 27. THE LE ARNED CIT(APPEALS) HAS STATED THAT RECEIPT FROM REAL ESTATES BUSINESS CANN OT BE CONSIDERED AS SUFFICIENT OR ADEQUATE TEST TO DETERMINE WHETHER TH E BUSINESS HAS BEEN SET UP OR HAS COMMENCED. HE HAS, HOWEVER, NOTED THAT THE A SSESSEE IS HOLDING 38.09 HECTORS OF AGRICULTURAL LAND FOR WHICH LAND U SE CONVERSION HAD NOT BEEN GRANTED BY THE CONCERNED AUTHORITIES FOR RESID ENTIAL AND COMMERCIAL PURPOSES. THUS, THE LAND IN POSSESSION OF THE ASSES SEE REMAINED AGRICULTURAL ONLY AND NO CONSTRUCTION DEVELOPMENT ACTIVITY HAS O BVIOUSLY BEEN STARTED ON IT OR CAN BE STARTED ON IT IN THE ABSENCE OF THE RE QUISITE PERMISSION. HE ACCORDINGLY HELD THAT THE LAND IS NOT READY FOR COM MENCEMENT OF BUSINESS OR 15 TO BE USED FOR BUSINESS PURPOSE AND THUS ASSESSEE H AS NOT SET UP OR COMMENCED THE BUSINESS OF REAL ESTATES. IN OUR OPIN ION, THE GROUND NO.4 IS UNSUSTAINABLE, SINCE THE ASSESSEE HAD NOT EITHER SH OWN THE AGRICULTURAL LAND AS AN INVESTMENT NOR IS THERE ANY MATERIAL BROUGHT ON RECORD TO ESTABLISH THAT IT WAS AN INVESTMENT. ON THE CONTRARY, IT WAS CONTE NDED BY THE ASSESSEE THAT IT HAD SET UP THE BUSINESS WHEN IT HAD PURCHASED TH E LAND. OTHERWISE ALSO, AS THE LAND WAS PART OF THE STOCK IN TRADE SINCE THE A FORESAID LAND HAD BEEN ACQUIRED IN THE COURSE OF ITS BUSINESS WHICH IS AN ADMITTED FACT AND SO ADMITTED BY WHEN IT HAD BEEN CONTENDED BY THE ASSES SEE THAT IT IS A DEVELOPER IN REAL ESTATES AND AS SUCH IN OUR OPINION THE SAID LAND WAS A STOCK IN TRADE. THE APPROACH OF THE ASSESSEE IS APPARENTLY CONTRADI CTORY WHICH CANNOT BE UPHELD. THUS, IN OUR VIEW, THE LEARNED CIT(APPEALS) WAS RIGHT BOTH ON FACTS AND IN LAW IN NOT HOLDING THAT THE SAID LAND WAS NO T A STOCK IN TRADE AS HAS BEEN CONTENDED BY THE ASSESSEE. THE ASSESSEE HAS AL SO TAKEN THE GROUND AS AN ALTERNATIVE CONTENTION AND WAS WITHOUT PREJUDICE AS THE REVENUE HAD TAKEN THE STAND THAT THE ASSESSEE HAS NOT COMMENCED THE BUSINESS IN REAL ESTATES. IN VIEW OF OUR FINDINGS HEREINABOVE ON THE ISSUES RAISED IN GROUND NO.3 AND THE ADMITTED POSITION BY THE REVENUE IN TH E PRECEDING YEARS THAT THE ASSESSEE HAD NOT ONLY SET UP THE BUSINESS BUT H AD ALSO COMMENCED THE SAME, THE CONTENTION RAISED IN SUPPORT OF GROUND NO .4 AS DISCUSSED ABOVE 16 DOES NOT STAND AND THE SAME IS ACCORDINGLY REJECTED , WITH THIS FINDING THAT THE LAND IN QUESTION WAS ACTUALLY STOCK-IN-TRADE. 19. GROUND NO.5 : IT IS IN RESPECT OF DISALLOWANCE OUT OF INTEREST PAID TO HDFC BANK AND THE BANK CHARGES OF RS.39,37,932. THE BREAK-UP OF THE CHARGES IS AS UNDER: SNO. PARTICULARS AMOUNT (RS.) 1. INTEREST PAID ON HDFC LOAN RS.800 LACS. 26,86,143 2. INTEREST PAID ICICI HOME LOANS 3,88,138 3. BANK CHARGES 8,63,651 TOTAL 39,37,932 20. THE FIGURE STATED IN THE GROUND OF APPEAL IS RS .41,70,626 WHICH INCLUDES RS.2,21,879 SEPARATELY CHALLENGED IN GROUN D NO.2.4 ABOVE AND RS.10,815 REPRESENTING INTEREST PAID ON CAR LOAN DE LETED BY THE LEARNED CIT(APPEALS). 17 21. IN RESPECT OF REMAINING AMOUNT, THE LEARNED AR SUBMITTED THAT INTEREST HAS BEEN PAID ON MONEY BORROWED FOR THE PU RPOSE OF BUSINESS AND UTILIZED IN THE BUSINESS. TAKING UP INTEREST OF RS. 26,86,143, HE SUBMITTED THAT ASSESSEE HAD BORROWED A SUM OF RS.8 CRORES FRO M HDFC BANK FOR THE PURPOSE OF BUSINESS AS WOULD BE CLEAR FROM THE DETA ILS DISCUSSED EARLIER. THE LEARNED AR SUBMITTED THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT ASSESSEE IN THE COURSE OF ITS BUSIN ESS HAD BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS AND MADE ADVANCES TOWAR DS ACQUISITION OF LAND AND PROPERTIES. IN FACT, THE LEARNED CIT(APPEALS) H AS HIMSELF ADMITTED THAT THE FUNDS HAVE BEEN ADMITTEDLY UTILIZED AS WORKING CAPITAL OF THE REAL ESTATES BUSINESS (PAGE NO. 26 OF THE FIRST APPELLATE ORDER) , HOWEVER, HE HAS NOT ALLOWED THE SAME ON HIS CONTRADICTORY FINDING THAT THE ASSESSEE HAS NOT SET UP AND COMMENCED THE BUSINESS OF REAL ESTATES. HE SUBM ITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE DEVELOPMENT OF PROPERTY A ND PURCHASE AND SALE THEREOF. DURING THE YEAR, IT HAD SINCE PAID ADVANC ES FOR THE PURPOSE OF THE BUSINESS, AS SUCH , INTEREST PAID FOR MONEY BORROWE D FOR REAL ESTATES BUSINESS IS ELIGIBLE FOR DEDUCTION UNDER SEC. 36(1)(III) OF THE ACT. HE POINTED OUT THAT THE AMOUNT OF INTEREST PAID TO ICICI BANK OF RS.3,8 8,138 WAS FOR PURCHASE OF TWO FLATS IN VATIKA LIMITED, WHICH FLATS WERE DE LIVERED IN THE FINANCIAL YEAR 2007-08 AND WAS DULY REFLECTED IN THE BALANCE SHEET AND OUT OF THE TWO 18 FLATS ONE IS SOLD IN FINANCIAL YEAR 2009-10 AND INC OME ACCRUING ON THE SALE THEREOF HAS BEEN SHOWN AS BUSINESS INCOME. HE REFER RED COPY OF LOAN AGREEMENT WITH ICICI BANK MADE AVAILABLE AT PAGE NO . 179 TO 197 OF THE PAPER BOOK AND AGREEMENTS FOR PURCHASE OF FLATS WIT H VATIKA LTD. HAVE BEEN MADE AVAILABLE AT PAGE NOS. 198 TO 363 OF THE PAPER BOOK. LEARNED AR SUBMITTED THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATED THAT THE AMOUNT OF INTEREST PAID TO HDFC BANK OF RS.26,86,14 3 AND INTEREST PAID TO ICICI BANK OF RS.3,88,138 IN RESPECT OF INVESTMENT MADE IN STOCK IN TRADE OUGHT TO HAVE BEEN HELD AS ALLOWABLE DEDUCTION IN C OMPUTING THE INCOME EARNED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. IN ANY CASE, IT IS UNDISPUTED THAT ASSESSEE WAS ALSO ENGAGED IN THE BU SINESS OF CONSULTANCY, TRADING OF PRODUCTS AND BUSINESS INCOME HAD BEEN AS SESSED AT RS.18,77,042, THUS, THERE WAS BUSINESS OF ASSESSEE COMPANY AND TH E INTEREST PAID WAS ALLOWABLE AS DEDUCTION, CONTENDED THE LEARNED AR. 22. IN RESPECT OF REMAINING SUM, THE LEARNED AR SUB MITTED THAT RS.8,63,651 REPRESENTS BANK CHARGES IN RESPECT OF L OAN RAISED FOR THE ACQUISITION OF THE PROPERTY, WHERE ADVANCE WAS PAID TO M/S. GE CAPITAL SERVICES AND SMART TOURISM PVT. LTD., SINCE THE BAN K CHARGES WERE PAID TO THE BANK IN RESPECT OF THE MONEY BORROWED IN THE CO URSE OF BUSINESS. HE 19 SUBMITTED THAT THERE IS ABSOLUTELY NO JUSTIFICATION TO HAVE HELD THE SAME IS NOT ALLOWABLE DEDUCTION. THE LEARNED AR REFERRED CONTEN TS OF PAGE NO. 21 OF THE FIRST APPELLATE ORDER WITH THIS CONTENTION THAT THE LEARNED CIT(APPEALS) HAS THOUGH NOTICED THAT THE ASSESSEE HAS INCURRED E XPENDITURE OF RS.8,63,582 AS BANK CHARGES WHICH IS BEING CLAIMED BY IT AS BUS INESS DEDUCTION, HOWEVER, HE HAS NOT SPECIFICALLY DEALT WITH THE SAM E IN HIS ORDER. IN FACT, SINCE HE HELD THAT THE AMOUNT OF INTEREST PAID TO H DFC BANK OF RS.26,86,143 ON LOAN OF RS.8 CRORES AND INTEREST PA ID TO ICICI BANK OF RS.3,88,138 CANNOT BE REGARDED AS BUSINESS EXPENDIT URE, HE SUB-SILENTIO UPHELD THE DISALLOWANCES MADE OF THE BANK CHARGES P AID TO THE HDFC BANK. THE LEARNED AR ACCORDINGLY PRAYED THAT THE AMOUNT O F INTEREST PAID OF RS.26,86,143, RS.3,88,138 AND OF RS.8,63,582 AS BAN K CHARGES AGGREGATING TO RS.39,31,938 BE DIRECTED TO BE ALLOWED. 23. THE LEARNED SENIOR DR ON THE OTHER HAND TRIED T O JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 24. CONSIDERING THE ABOVE SUBMISSIONS, WE ARE OF TH E VIEW THAT WHEN LEARNED CIT(APPEALS) HIMSELF HAS ADMITTED THAT FUND S HAVE BEEN UTILIZED AS WORKING CAPITAL OF THE REAL ESTATES BUSINESS IN HIS FINDING IN PARA NO. 7.13 AT PAGE NO. 26 OF THE ORDER, HE WAS NOT JUSTIFIED IN D ENYING THE CLAIMED 20 DEDUCTION OF INTEREST PAYMENTS ON THE BORROWED AMOU NTS FOR THE INVESTMENT MADE IN STOCK IN TRADE. THE LEARNED CIT(APPEALS) H AS DISALLOWED THE CLAIMED INTEREST PAYMENT ON THE BASIS THAT THE BUSI NESS FOR THE PURPOSE OF WHICH LOAN WAS RAISED AND INTEREST WAS PAID WAS NOT COMMENCED. WE HAVE DECIDED THIS ISSUE HEREINABOVE IN GROUND NO. 3 THAT KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE APPROACH OF T HE ASSESSING OFFICER IN PRECEDING ASSESSMENT YEARS IN ALLOWING THE CLAIMED EXPENDITURE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE REAL ESTATES BUSINESS HAD NOT COMMENCED. WE THUS WH ILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW DIRECT THE ASSESSING OFFIC ER TO DELETE THE DISALLOWANCE OF RS.39,31,938 CLAIMED ON ACCOUNT OF INTEREST AND BANK CHARGES PAID AGAINST THE LOAN RAISED FOR INVESTMENT IN THE ACQUISITION OF THE PROPERTY. THE GROUND NO. 5 IS ACCORDINGLY ALLOWED. 25. GROUND NO.6 : IT IS IN RESPECT OF DISALLOWANCE SUSTAINED BY THE LEARNED CIT(APPEALS) AT RS.9,80,103 OUT OF THE EXPENDITURE OF RS.12,31,084 AS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HE AD EMPLOYEES COST. 26. AT THE OUTSET OF HEARING, THE LEARNED AR SUBMIT TED THAT SIMILAR EXPENDITURE HAD BEEN INCURRED IN THE PRECEDING YEAR S 2001-02 21 (RS.22,24,713), 2002-03 (RS.23,13,054), 2003-04 (RS .13,77,196), 2004-05 (RS.9,83,823) AND 2005-06 (RS.12,38,588) HAVE BEEN HELD ALLOWABLE. THE LEARNED AR SUBMITTED THAT IN EACH OF THE PRECEDING YEARS INCLUDING IN THE ASSESSMENT YEARS 2001-02 AND 2005-06 WHEN ASSESSMEN TS WERE MADE UNDER SEC. 143(3) OF THE ACT, THE SAID EXPENDITURE INCURR ED HAS BEEN HELD ALLOWABLE. HENCE, THE FINDING OF THE LEARNED CIT(AP PEALS) IN SUSTAINING THE DISALLOWANCE IS BASED ON FACTUAL MISCONCEPTION AND IS IN DISREGARD OF THE FACT THAT AFTER THE BUSINESS HAS SET UP, THE EXPEND ITURE INCURRED IS AN ALLOWABLE DEDUCTION. THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM ON PROPORTIONATE BASIS ON AN ERRONEOUS ASSUMPTION THAT THERE IS NO INCOME FROM BUSINESS OF REAL ESTAT ES AND AS SUCH, ONLY EXPENSES TO THE EXTENT THERE IS BUSINESS INCOME IS ALLOWABLE. WE, THUS COMPUTED THE DISALLOWANCE ACCORDINGLY. THE STAND TA KEN BY THE ASSESSING OFFICER HAS NO LEGAL BASIS. HE PLACED RELIANCE ON T HE FOLLOWING DECISIONS: I) 91 ITR 544 (S.C) - CIT VS. DHANRAJGIRJI RAJA NA RSHINGJI; II) 118 ITR 261 (S.C) SASSOON J DAVID AND CO. (P) LTD.; & III) 254 ITR 377 (DEL) CIT VS. DALMIA CEMENT (P) L TD. IV ) 265 ITR 77 (ALLAHABAD) ABBAS WAZIR (P) LTD. VS. CIT; 27. THE LEARNED AR SUBMITTED FURTHER THAT THE LEARN ED CIT(APPEALS) HAS UPHELD THE DISALLOWANCE BASED ON FACTUAL MISAPPROP RIATION OF FACTS. THE 22 ASSUMPTION OF LEARNED CIT(APPEALS) THAT ASSESSEE HA D NOT INCURRED THE EXPENDITURE FOR THE PURPOSE OF ITS BUSINESS IS BASE D ON NO MATERIAL. HE ALSO FAILED TO APPRECIATE THAT IN THE PRECEDING YEAR, SI MILAR EXPENDITURE HAS BEEN HELD FULLY ALLOWABLE. HE PLACED RELIANCE ON THE FOL LOWING DECISIONS: I) 56 ITR 27 CIT VS. INDIAN BANK LTD.; II) 219 ITR 563 (S.C) WATERFALL ESTATES LTD. VS. CIT; III) 242 ITR 450 (S.C) RAJASTHAN STATE WAREHOUSI NG CORPORATION VS. CIT; IV ) 128 ITR 189 (P&H) PUNJAB STATE COOPERATIVE SUPPLY & MARKETING FEDERATION LTD. VS. CIT. 28. THE LEARNED SENIOR DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 29. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT IN THE PRECEDING YEARS, SIMILAR EXPENDITURE HAS BEEN ALLOWED AND OUT OF THESE ASSESSMENT YEARS 2001-02 TO 2005-06 IN THE ASSESSMENT YEARS 20 01-02 AND 2005-06 THE ASSESSMENTS HAVE BEEN FRAMED UNDER SEC. 143(3) OF THE INCOME-TAX ACT, 1961. IT IS A TRITE LAW THAT AFTER THE BUSINESS HA S BEEN SET UP, THE EXPENDITURE INCURRED IS AN ALLOWABLE DEDUCTION. THE ASSESSING O FFICER HAS DISALLOWED THE CLAIM ON PROPORTIONATE BASIS ON AN ERRONEOUS ASSUMP TION THAT THERE IS NO 23 INCOME FROM BUSINESS OF REAL ESTATES AS SUCH, ONLY EXPENSES TO THAT EXTENT THERE IS BUSINESS INCOME WHICH IS ALLOWABLE. HE ACC ORDINGLY COMPUTED THE DISALLOWANCE. BESIDES, THERE IS NO MATERIAL ON RECO RD TO SUPPORT THE ALLEGATIONS OF THE AUTHORITIES BELOW THAT ASSESSEE HAD NOT INCURRED THE CLAIMED EXPENDITURE FOR THE PURPOSE OF ITS BUSINESS . IN ABSENCE OF SUCH EVIDENCE AND ESPECIALLY WHEN IN THE PRECEDING YEARS , SIMILAR EXPENDITURE HAS BEEN ALLOWED, WE ARE OF THE VIEW THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE AUTHORITIES BELOW TO MAKE AND UPHOLD THE DIS ALLOWANCE OUT OF THE CLAIMED EXPENDITURE. WE THUS WHILE SETTING ASIDE OR DERS OF THE AUTHORITIES BELOW IN THIS REGARD, DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.9,18,103 MADE OUT OF THE CLAIMED EXPENDITURE OF RS.12,31,084. GROUND NOS. 6 IS ACCORDINGLY ALLOWED. 30. GROUND NO.7 : IT IS IN RESPECT OF DISALLOWANCE OF EXPENDITURE O F RS.5,89,433 OUT OF AGGREGATE EXPENDITURE OF RS.11,7 8,186 INCURRED ON CONVEYANCE AND TRAVELLING. 31. THE RELEVANT FACTS ARE THAT THE ASSESSEE CLAIME D EXPENDITURE ON TRAVELLING AND CONVEYANCE OF ITS EMPLOYEES AT RS.11 ,78,186. THE ASSESSING OFFICER MADE DISALLOWANCE OF 50% OF THE CLAIMED EXP ENDITURE ON THE ASSUMPTION THAT THE AFORESAID EXPENDITURE COULD NOT HAVE BEEN INCURRED TO 24 EARN A RECEIPT OF RS.22.36 LACS. THE LEARNED CIT(AP PEALS) HAS UPHELD THE DISALLOWANCE. 32. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBMIT TED THAT DETAILS OF CLAIMED TRAVELLING AND CONVEYANCE EXPENSES OF ITS E MPLOYEES INCURRED AT RS.11,78,186 WERE FURNISHED BEFORE THE ASSESSING OF FICER AND A COPY THEREOF HAS BEEN MADE AVAILABLE AT PAGE NO. 367 OF THE PAPE R BOOK. THE LEARNED CIT(APPEALS) WHILE UPHOLDING THE ACTION OF THE ASSE SSING OFFICER HAS NOTED THAT OUT OF THE EXPENDITURE INCURRED, RS.4,55,847 HAD BEEN INCURRED BY THE TWO EMPLOYEES FOR MEETING FOR PROCURING BUSINESS FO R THE ASSESSEE COMPANY AND FOR CONSULTANCY CONTRACT FOR COMPANY. HE SUBMIT TED THAT INCURRING OF EXPENDITURE, GENUINENESS THEREOF IN FACT HAS NOT BE EN FOUND HAVING NOT BEEN ESTABLISHED. HOWEVER, THE LEARNED CIT(APPEALS) IN H IS ORDER AT PAGE NO. 31 IN PARA 8.4 HAS SUMMARILY REJECTED THE CLAIM OF DED UCTION WITHOUT ANY JUSTIFICATION. HE SUBMITTED THAT IT IS NOT A CASE W HERE THE ASSESSING OFFICER OR LEARNED CIT(APPEALS) HAS DISPUTED EITHER OF INCU RRING OF EXPENDITURE OR GENUINENESS THEREOF. THE ONLY OBJECTION OF THE AUTH ORITIES BELOW REMAINED THAT NO PRUDENT BUSINESSMAN WOULD HAVE INCURRED EXP ENSES ON TRAVELLING AND CONVEYANCE TO THE TUNE OF RS.11.78 LACS TO EARN REC EIPTS OF RS.22.36 LACS SINCE MANY OTHER EXPENSES OVERHEADS WOULD ALSO BE T HERE. BOTH THE 25 AUTHORITIES HAVE NOTED THAT FRINGE BENEFIT TAX HAS BEEN PAID ON TRAVELLING AND CONVEYANCE EXPENSES. THUS, IT IS EVIDENT THAT AFORE SAID EXPENDITURE SINCE HAVE BEEN INCURRED IN THE COURSE OF BUSINESS ON EMP LOYEES AND FOR THE PURPOSE OF BUSINESS, NO DISALLOWANCE WOULD HAVE BEE N SUSTAINED. HE SUBMITTED THAT EVEN OTHERWISE AD HOC DISALLOWANCES ARE NOT TENABLE IN LAW AND PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) GOODYEAR INDIA LTD. VS. ITO 73 ITD 189 (DEL.) ; II) DINESH MILLS VS. CIT 254 ITR 673 (GUJ.); 33. THE LEARNED AR SUBMITTED FURTHER THAT EVEN OTHE RWISE, THERE IS NO BASIS TO DISALLOW 50% OF THE ELIGIBLE BUSINESS EXPE NDITURE INCURRED BY THE ASSESSEE COMPANY AND PLACED RELIANCE ON THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF STATE OF ORISSA VS. MAHARAJA S HRI B.P. SINGH DEO (1970) 76 ITR 690 (S.C). 34. THE LEARNED DR ON THE OTHER HAND PLACED RELIANC E ON THE ORDERS OF THE AUTHORITIES BELOW. 35. CONSIDERING THE ABOVE SUBMISSION, WE FIND SUBST ANCE IN THE CONTENTION OF THE LEARNED AR THAT A DISALLOWANCE OF THE CLAIMED EXPENDITURE CANNOT BE MADE ON THE BASIS THAT NO PRUDENT BUSINES SMAN WOULD HAVE 26 INCURRED EXPENSES ON TRAVELLING AND CONVEYANCE TO T HE TUNE OF RS.11.78 LACS TO EARN RECEIPTS OF RS.22.36 LACS, ESPECIALLY WHEN NO FAULT HAS BEEN FOUND IN THE VOUCHERS AND BILLS FURNISHED IN SUPPORT OF THE CLAIMED EXPENDITURE NOR IS THERE ANY DISPUTE REGARDING THE GENUINENESS OF THE EXPENDITURE OF THE ASSESSEE. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO DELETE THE D ISALLOWANCE OF RS.5,89,433 MADE OUT OF THE CLAIMED EXPENDITURE OF RS.11,78,186 INCURRED ON CONVEYANCE AND TRAVELLING. THE GROUND NO. 7 IS ACCO RDINGLY ALLOWED. 36. IN RESULT, THE APPEAL IS ALLOWED. ITA NO. 3052/DEL/2010 : 37. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS THAT LEARNED CIT(APPEALS) HAS ERRED IN: I) ALLOWING DEDUCTION UNDER SEC. 24 OF THE INCOME-T AX ACT, 1961 OF RS.27,70,088 TO THE ASSESSEE ON ACCOUNT OF INTER EST PAID ON BORROWED CAPITAL USED FOR THE BUSINESS PURPOSES; & II) HOLDING THAT LEGAL AND PROFESSIONAL EXPENSES OF RS.15,24,479 ARE OF REVENUE IN NATURE. GROUND NO. (I): 38. WE HAVE DISCUSSED THE RELATED FACTS ON THE ISSU E RAISED IN THIS GROUND IN GROUND NO. 2.4 OF THE APPEAL PREFERRED BY THE AS SESSEE HEREINABOVE. THE 27 REVENUE IS DISPUTING THE ALLOWABILITY OF THE CLAIM OF RS.27,20,088, WHEREAS THE LEARNED CIT(APPEALS) HAS ALLOWED RS.29,41,967 O UT OF THE CLAIM MADE BY THE ASSESSEE TOWARDS INTEREST ON THE AMOUNT BORR OWED BY IT FOR THE PURCHASES OF PROPERTY NO.103A, THIRD FLOOR, CAPITAL COURT AT MUNIRKA, NEW DELHI, WHILE COMPUTING ITS INCOME FROM PROPERTY. 39. IN SUPPORT OF THE GROUND, THE LEARNED DR PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND ADOPTED SIMILAR ARGUMENTS AS ADVANCED BY HIM IN SUPPORT OF GROUND N O.2.4 OF THE APPEAL PREFERRED BY THE ASSESSEE HEREINABOVE. HE TRIED TO JUSTIFY THE FIRST APPELLATE ORDER WITH THIS SUBMISSION THAT THE SAID AMOUNT OF INTEREST HAS BEEN PAID AT THE AMOUNTS BORROWED FOR THE PURCHASE OF PROPERTY A ND WAS ALLOWABLE UNDER SEC. 24(B) OF THE ACT. THE LEARNED CIT(APPEALS) WAS THUS RIGHT IN ALLOWING THE SAME. 40. CONSIDERING THE ABOVE SUBMISSIONS AND FOLLOWING THE DECISIONS TAKEN ON AN IDENTICAL ISSUE HEREINABOVE WHILE DISPOSING O F GROUND NO. 2.4 OF THE APPEAL PREFERRED BY THE ASSESSEE, WE HOLD THAT INTE REST PAID TO HDFC BANK AND ON UNPAID AMOUNT ( OUT OF THE SALE CONSIDERATIO N ) TO LAL BHAI REALITY FINANCE PVT. LTD. FROM WHOM THE PROPERTY WAS PURCHA SED, AN INTEREST ON THE UNPAID AMOUNT WAS PAID TO THEM REPRESENTED BORROWED AMOUNT AND AS SUCH 28 IT WAS ELIGIBLE FOR DEDUCTION UNDER SEC. 24(B) OF T HE ACT. THE LEARNED CIT(APPEALS) WAS THUS JUSTIFIED IN ALLOWING THE CLA IMED DEDUCTION OF RS.27,20,088. THE SAME IS UPHELD. GROUND NO (I) IS ACCORDINGLY REJECTED. GROUND NO.(II) : 41. THE REVENUE HAS DISPUTED THE ALLOWABILITY OF TH E CLAIM OF EXPENDITURE OF RS.15,24,479 REPRESENTING EXPENDITURE UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES. 42. IN SUPPORT OF THE GROUND, THE LEARNED SENIOR DR SUBMITTED THAT THE ASSESSEE HAD INCURRED SUBSTANTIAL EXPENSES TO EARN ALMOST SIMILAR RECEIPTS WHICH NO PRUDENT BUSINESSMAN WOULD HAVE INCURRED. 43. THE LEARNED AR ON THE OTHER HAND REITERATED SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW WITH THIS FURTHER CONT ENTION THAT DETAILS OF THE EXPENSES WERE MADE AVAILABLE BEFORE THE ASSESSING O FFICER WHICH WERE DULY SUPPORTED BY BILLS. HE POINTED OUT THAT A COPY OF T HE SAID DETAILS HAS BEEN MADE AVAILABLE AT PAGE NO. 368 OF THE PAPER BOOK. H E SUBMITTED THAT THE PURPOSE OF INCURRING THE AFORESAID EXPENDITURE WAS TO PAY CONSULTANCY CHARGES INCURRED TO VARIOUS PROFESSIONALS FOR THE P URPOSE OF BUSINESS. HE POINTED OUT THAT SIMILAR EXPENDITURE INCURRED IN PA ST IN THE COURSE OF BUSINESS HAD BEEN HELD ALLOWABLE AS SUCH. IN THIS REGARD, H E REFERRED THE ASSESSMENT YEARS 2001-02 TO 2006-07 WHEREIN EXPENDITURE INCURR ED IN THIS REGARD HAS 29 BEEN ALLOWED. HE SUBMITTED FURTHER THAT THE ASSESSE E IS THE BEST JUDGE OF ITS OWN BUSINESS AFFAIRS AND IT IS WHO INCURS EXPENDITU RE FOR THE PURPOSE OF BUSINESS MAY BE AT TIMES, IT MAY NOT RESULT INTO IM MEDIATE BENEFIT OR AT TIME NO BENEFIT OR DIFFERED BENEFIT BUT THE SAME CANNOT BE TREATED AS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS SO AS TO DISALLOW T HE SAME UNDER SEC. 37 OF THE ACT. 44. CONSIDERING THE ABOVE SUBMISSION, WE FIND SUBS TANCE IN THE CONTENTION OF THE LEARNED AR THAT THERE WOULD BE NO JUSTIFICATION TO DISALLOW ANY EXPENDITURE INCURRED BY THE ASSESSEE WHEN THE E XPENDITURE WAS INCURRED BY IT IN THE COURSE OF BUSINESS AND THE CLAIM IS SU PPORTED WITH COMPLETE DETAILS WITH EVIDENCE MAINLY ON THE BASIS THAT THE ASSESSEE DID NOT ACT PRUDENTLY WHILE INCURRING SUCH EXPENDITURE. WE THUS DO NOT FIND INFIRMITY IN THE FIRST APPELLATE ORDER DELETING THE DISALLOWANCE IN QUESTION. THE SAME IS UPHELD. GROUND NO.(II) IS ACCORDINGLY REJECTED. 45. IN RESULT, THE APPEAL IS DISMISSED. ITA NO. 1146/DEL/2012 : 46. THE FIRST APPELLATE ORDER HAS BEEN IMPUGNED BY THE ASSESSEE ON THE FOLLOWING GROUNDS: 1. THAT THE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE FINDINGS AND THE ORDER OF THE ASSESSING OFFICER, WHEN HE HELD THAT, THE INTEREST INCOME OF RS.83, 65,124 IS NOT AN 30 INCOME DERIVED FROM THE BUSINESS, INSTEAD THE SAM E WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, DESPITE THE FACT THAT SUCH INCOME DERIVED HAS BEEN HELD IN THE PRECEDING YEARS , AS INCOME FROM BUSINESS AND THERE WAS NO CHANGE IN THE FACTS AND THE CIRCUMSTANCES. 2. THAT THE LEARNED CIT(APPEALS) HAS FURTHER FAILED TO APPRECIATE THAT, THE ASSESSEE IS ENGAGED IN THE VARIOUS BUSINE SS ACTIVITIES NAMELY AS A DEVELOPER OF REAL ESTATE AND DEALER IN REAL ES TATE ETC., AND ONLY ONE OF IT, WAS FROM INCOME BY WAY OF INTEREST. 3. THAT THE LEARNED CIT(APPEALS) HAS ERRONEOUSLY HE LD, THAT MERELY BECAUSE, IN THE INSTANT YEAR, THAT A PART OF THE INTEREST OF RS.13,46,708 HAD BEEN EARNED, BY WAY OF INTEREST OF FIXED DEPOSITS, WHEREAS, SUBSTANTIAL PART OF INTEREST I.E. OF RS.70 ,18,416 HAD BEEN EARNED BY ADVANCING FUNDS TO VARIOUS COMPANIES TO W HOM THE AMOUNTS WERE ADVANCED IN THE PRECEDING YEAR(S), THE SAME IS NOT SUFFICIENT TO CONCLUDE, EITHER IN LAW OR FACTS THAT THE INCOME DERIVED BY THE ASSESSEE WAS NOT AN INCOME ASSESSABLE UNDER THE HEAD BUSINESS INCOME. HE HAS FURTHER FAILED TO APPRECI ATE THAT THE ASSESSEE HAS ALSO ADVANCED FURTHER AMOUNTS TO SUCH PARTIES IN ADDITION TO ADVANCES MADE IN EARLIER YEARS . 4. THAT THE LEARNED CIT(APPEALS) HAS FURTHER FAILED TO COMPREHEND THE FACTS OF THE INSTANT CASE IN ITS PRO PER AND CORRECT PROSPECTIVE. IN FACT, HE HAS FAILED TO COMPREHEND T HAT, ASSESSMENT FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 WERE COMPL ETED U/S. 143(3) OF THE INCOME-TAX ACT, AND INCORRECTLY BEEN STATED IN THE TABLE AT PAGE 15 OF HIS ORDER U/S. 143(1) OF THE INCOME-T AX ACT, 1961. 5. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN HIS C ONCLUSION THAT, AS TWO OF THE ACTIVITIES SINCE WERE INOPERATIVE DUR ING THE YEAR, THE 31 ASSESSEE DID NOT MAINTAIN IN THE BUSINESS, MORE PAR TICULARLY AFTER HAVING HELD THAT, IN RESPECT OF REAL ESTATE BUSINES S THERE WAS NO CHANGE IN THE INVENTORY AND IT REMAINED STOCK-IN-TR ADE. THE LEARNED CIT(APPEALS) WHILE HOLDING SO HAS FURTHER ERRED IN NOT APPRECIATING THAT IN THE INSTANT ASSESSMENT YEAR INVENTORIES UND ER THE REAL ESTATE BUSINESS HAVE INCREASED BY A SUM OF RS.1,20,56,497. 6. THAT THE LEARNED CIT(APPEALS) HAS ALSO FAILED TO APPRECIATE THAT, SO LONG THE BUSINESS CARRIED DID NOT CEASE TO BE CARRIED ON, ANY EXPENDITURE INCURRED IN THE COURSE OF SUCH BUSINESS , IS AN ALLOWABLE DEDUCTION U/S. 37(1) OF THE INCOME-TAX ACT, 1961 WH ICH EXPENDITURE HAD TO BE SET OFF FROM INCOME UNDER ANY OTHER HEAD OF INCOME, AS HAS BEEN HELD BY THE APEX COURT IN THE CASE OF CIT VS. R.P. MODY REPORTED IN 115 ITR 519 AND AS SUCH THE AGGREGATE D ISALLOWANCE OF EXPENDITURE INCURRED OF RS.2,09,62,446 WAS ERRONEOU S BOTH ON FACTS AND IN LAW. IN DOING SO THE LEARNED CIT(APPEALS) HA S OVERLOOKED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION ONLY RS.1,79,0 9,346 AND IN ANY CASE AND WITHOUT PREJUDICE ADDITION OF RS.30,53,100 WAS WHOLLY ERRONEOUS BEING WITHOUT ANY BASIS. 7. THAT IN ANY CASE AND WITHOUT PREJUDICE THE LEARN ED CIT(APPEALS) WAS NOT JUSTIFIED IN UPHOLDING THE PAR TIAL ALLOWANCE OF THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE O F RS.2,77,77,591 IN THE PROFIT AND LOSS ACCOUNT WITHOUT HOLDING ANY PAR T OF THE EXPENDITURE WAS EITHER UNVERIFIABLE OR WAS UNSUBSTANTIATED, CLA IM OF EXPENDITURE. THE ENTIRE SUM OF EXPENDITURE OF RS.1,79,09,346 WAS THUS OUGHT TO HAVE BEEN ALLOWED AS A DEDUCTION, WHILE COMPUTING T HE TOTAL INCOME OF THE ASSESSEE. THAT EVEN OTHERWISE AND WITHOUT PR EJUDICE THE 32 DISALLOWANCE OF THE EXPENDITURE IS NEITHER LOGICAL NOR IS BASED ON VALID MATERIAL AND IS HIGHLY ARBITRARY BEING EXCESSIVE. 8. THE LEARNED CIT(APPEALS) HAS FURTHER ERRED IN UP HOLDING THE DISALLOWANCE OF A SUM OF RS.66,750 SUBJECT TO VERIF ICATION BY THE ASSESSING OFFICER MADE BY THE ASSESSING OFFICER AT RS.1,36,798 BY INVOKING THE PROVISIONS OF SEC. 14A OF THE INCOME-T AX ACT, 1961 AND WITHOUT APPRECIATING THE AMOUNT DISALLOWED BY THE A SSESSING OFFICER WAS IN RESPECT OF AN AMOUNT OF DIVIDEND EARNED WHIC H AGGREGATE TO RS.66,750, WHEREAS THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER FAR EXCEEDED THE AMOUNT AND SUCH EXPENDITURE AS DIS ALLOWED SHOWED NO NEXUS WITH THE EXPENDITURE INCURRED AND WAS NOR IN RELATION TO THE INCOME DERIVED FROM THE DIVIDEND. 9. IN ANY CASE AND WITHOUT PREJUDICE THE DISALLOWAN CE MADE COULD NOT HAVE EXCEEDED THE SUM OF RS.8,497 WHICH WAS CAL CULATED BY THE ASSESSEE IN ACCORDANCE WITH RULES. 10. THAT THE LEARNED CIT(APPEALS) OUGHT TO HAVE HEL D THAT, NO INTEREST WAS LEVIABLE ON THE ASSESSEE U/S. 234B OF THE INCOME-TAX ACT, 1961 AND AS SUCH INTEREST LEVIED OF RS.15,61,030 OU GHT TO HAVE BEEN DELETED. 47. IN GROUND NOS. 1 TO 7 : WE HAVE DISCUSSED THE FACTS OF THE CASE IN BRIEF WHILE DISPOSING THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 HEREINABOVE. THE ASSESSEE COMPANY WAS INCORPORATED ON 28.2.1973. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATES, SALE AND P URCHASE OF WOOD AND RELATED ITEMS. IT IS ALSO ENGAGED IN THE BUSINESS O F PROVIDING CONSULTANCY, 33 EARNING SERVICE INCOME BY PROVIDING INFRA-STRUCTURE FACILITY FOR MAINTENANCE OF PROPERTY AND EARNING OF INTEREST INCOME ON THE A DVANCES MADE. 48. DURING THE YEAR, ASSESSEE HAD OFFERED INCOME FR OM SALES OF RS.19,917, RENTAL INCOME OF RS.1,98,31,020 AND OTHER INCOME OF RS.84,31,874 WHICH INCLUDED THE INTEREST INCOME OF RS.83,65,124 AND DI VIDEND INCOME OF RS.66,750. AGAINST THE AFORESAID, THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS.2,77,77,591. THE ASSESSING OFFICER FRAMED THE AS SESSMENT UNDER SEC. 143(3) AT THE INCOME OF RS.1,51,50,290 AS AGAINST T HE RETURNED INCOME AT NIL. THE ASSESSING OFFICER HELD THAT INTEREST INCOME IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE BUSINESS INCOME OFFERED BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER HELD THAT S INCE NO BUSINESS ACTIVITY WAS UNDERTAKEN BY THE ASSESSEE AS SUCH NO EXPENSES CAN BE ALLOWED TO THE ASSESSEE AND IN VIEW THEREOF THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE TO THE EXTENT OF RS.2,09,62,446 AS AGAI NST RS.1,79,09,346 CLAIMED IN THE COMPUTATION OF INCOME. THE LEARNED C IT(APPEALS) HAS UPHELD THE SAME, WHICH HAS BEEN QUESTIONED IN GROUN D NOS.1 TO 7. 49. THE LEARNED CIT(APPEALS) WITH REGARD TO DISALLO WANCE MADE UNDER SEC. 14A OF THE ACT BY THE ASSESSING OFFICER HAS, H OWEVER, SET ASIDE THE 34 MATTER TO THE FILE OF THE ASSESSING OFFICER FOR VER IFICATION, WHICH HAS BEEN QUESTIONED BY THE ASSESSEE IN GROUND NOS. 8 AND 9. 50. IN GROUND NO.10, THE ASSESSEE HAS QUESTIONED VA LIDITY OF CHARGING OF INTEREST UNDER SEC. 234B OF THE INCOME-TAX ACT, 196 1 AT RS.15,61,030. 51. WE THUS FIND THAT FOLLOWING THREE ISSUES HAVE B EEN RAISED IN THE ABOVE GROUNDS: I) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTI FIED IN TREATING THE INTEREST INCOME OF RS.83,65,124 AS INC OME FROM OTHER SOURCES? (GROUND NOS. 1 TO 7 ). II) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUST IFIED IN SETTING ASIDE THE ISSUE OF VALIDITY OF DISALLOWANCE MADE UN DER SEC.14A OF THE ACT AT RS.66,750 TO THE FILE OF THE ASSESSIN G OFFICER? ( GROUND NOS. 8 AND 9 ). III) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUS TIFIED IN UPHOLDING THE VALIDITY OF CHARGING OF INTEREST AT R S.15, 61,030 UNDER SEC. 234B OF THE ACT? (GROUND NO. 10) 52. ISSUE NO. (I) GROUND NOS. 1 TO 7 : IN SUPPORT OF THESE GROUNDS INVOLVING THE ISSUES, THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD BEEN ENGAGED IN THE EARNING INCOME FROM ADVANCING MONEY ON INTEREST SINCE LAST MANY PRECEDING ASSESSMENT YEARS AND THE INTEREST IN COME EARNED IN EACH OF 35 SUCH ASSESSMENT YEARS HAD BEEN OFFERED AS BUSINESS INCOME AND SAME HAS ALSO BEEN ACCEPTED IN ALL THE PRECEDING ASSESSMENT YEARS I.E. 2002-03 TO 2007-08 AND 2009-10. HE POINTED OUT THAT EVEN IN TH E ASSESSMENT FRAMED UNDER SEC. 143(3) OF THE ACT FOR THE ASSESSMENT YEA RS 2005-06 AND 2006-07, THE INTEREST INCOME OFFERED AS BUSINESS INCOME HAS DULY BEEN ACCEPTED. HENCE, EVEN ON THE PRINCIPLES OF CONSISTENCY, AFORE SAID INTEREST INCOME AS WAS OFFERED BY THE ASSESSEE IS LIABLE TO BE TAXED A S BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THAT FACTS AND CIRCUMSTANCES OF THE PRES ENT YEARS ARE IDENTICAL TO THE PRECEDING ASSESSMENT YEARS AND THEY HAVE OVERLO OKED THAT IT IS NOT A CASE WHEREIN ALL THE PRECEDING ASSESSMENT YEARS, THE INT EREST INCOME WAS ACCEPTED AS BUSINESS INCOME UNDER SEC. 143(1) OF THE ACT. AS SUCH REVENUE CANNOT TAKE A STAND THAT ASSESSEE IS NOT ENGAGED IN ADVANC ING THE MONEY AND EARNING INTEREST AS BUSINESS INCOME. IN SUPPORT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT VS. NEO POLY PACK PVT. LTD. 245 ITR 492 ( DEL.); II) CIT VS. EXCEL INDUSTRIES LTD. (2013) 358 ITR 295 (S.C); III) CIT VS. J.K. CHARITABLE TRUST 308 ITR 161 ( S.C). 53. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, THE LEARNED AR SUBMITTED THAT SECTION 56 OF THE INCOME-TAX ACT, 19 61, PROVIDES THAT INCOME 36 OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THE ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEA D INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UND ER ANY OF THE HEADS SPECIFIED IN SEC. 14, ITEM A TO E. HE CITED FOLLOWI NG DECISIONS IN SUPPORT: I) SG MERCANTILE CORPORATION (P) LTD. VS. CIT 83 ITR 700 (S.C); II) CIT VS. BOKARO STEEL LTD. 236 ITR 315 (S.C); 54. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS I N THE BUSINESS OF DEVELOPMENT OF REAL ESTATES, SALE AND PURCHASE OF W OODS AND RELATED ITEMS, BUSINESS OF PROVIDING CONSULTANCY, EARNING SERVICE INCOME BY PROVIDING INFRA-STRUCTURE FACILITY FOR MAINTENANCE OF PROPERT Y AND EARNING OF INTEREST INCOME. HE SUBMITTED THAT IT IS NOT DENIED THAT DUR ING THE YEAR UNDER CONSIDERATION APART FROM INTEREST INCOME EARNED TO RS.83,65,124 AND RS.19,917 EARNED FROM THE SALE OF TIMBER, NO OTHER BUSINESS INCOME WAS EARNED, HOWEVER, MERELY BECAUSE BUSINESS INCOME WAS NOT EARNED FROM ITS ACTIVITY OF REAL ESTATES AND CONSULTANCY BUSINESS, IT CANNOT BE HELD THAT NO BUSINESS WAS UNDERTAKEN DURING THE YEAR. HE SUBMI TTED THAT THE BUSINESS OF ASSESSEE HAD NEVER CEASED TO EXIST. THE LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT VS. VIKRAM COTTON MILLS LTD. 169 ITR 597 (S.C); 37 II) ADDITIONAL CIT VS. RAJENDER FLOUR & ALLIED IND USTRIES PVT. LTD. 128 ITR 402 (DEL.); III) CIT VS. JACOBS 160 ITR 570 (KER.); 55. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, THE LEARNED AR SUBMITTED THAT EVEN FOR THE SAKE OF ARGUMENTS, IF I T IS PRESUMED THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVITY DU RING THE YEAR, THOUGH THE ASSESSEE SERIOUSLY DISPUTE THE SAME, THEN TOO, IT I S SUBMITTED THAT EXPENDITURE INCURRED BY THE ASSESSEE DURING THE NORMAL COURSE O F ACTIVITIES IS AN ALLOWABLE EXPENDITURE. 56. IN ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABO VE SUBMISSIONS, THE LEARNED AR SUBMITTED FURTHER THAT THE ASSESSING OFF ICER HAS ERRED IN COMPUTING THE EXPENDITURE TO BE DISALLOWED AT RS.2, 09,62,446 AS AGAINST RS.1,79,09,346 CLAIMED IN THE COMPUTATION OF INCOME , AS SUCH, AT BEST DISALLOWANCE COULD BE RESTRICTED TO RS.1,79,09,346 AND NOT AT RS.2,09,62,446 AS WAS MADE BY THE ASSESSING OFFICER. HE SUBMITTED FURTHER THAT THE ASSESSING OFFICER HAD PROCEEDED TO COMPUTE THE INCO ME NOT FROM PROFIT AND LOSS ACCOUNT BUT FROM THE COMPUTATION OF INCOME, WH ILE MAKING THE DISALLOWANCE TO ADOPT THE FIGURE AS PER PROFIT AND LOSS ACCOUNT BY DISREGARDING THE COMPUTATION OF INCOME FILED BY THE ASSESSEE. HE, IN FACT, 38 HAD NOT COMPUTED INCOME FROM BUSINESS ON THE GROUND THAT THE ASSESSEE HAD NOT CARRIED ANY BUSINESS AND THUS HE DID NOT EVEN A LLOW THE SET OFF THE UNABSORBED LOSS AS CLAIMED BY THE ASSESSEE, SUBMITT ED THE LEARNED AR AS AN ALTERNATIVE PLEA. 57. THE LEARNED SENIOR DR ON THE OTHER HAD RELIED U PON THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT UNDER THE FACT S OF THE CASE, THE AUTHORITIES BELOW HAVE RIGHTLY TREATED THE CLAIMED INTEREST INCOME AS INCOME FROM OTHER SOURCES. HE SUBMITTED FURTHER THAT PRINC IPLES OF RES-JUDICATA IS NOT APPLICABLE IN THE MATTERS OF INCOME-TAX. 58. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT IN THE ASSESSMENT YEARS 2002-03 TO 2007-08 AND 2009-10, THE INTEREST INCOME OFFERED AS BUSINESS INCOME HAS DULY BEEN ACCEPTED. IT HAS NOT BEEN DENIED BY THE REVENUE THAT FACTS OF THE CASE ON THE ISSUES DURING THE YEAR ARE SIMILAR TO THAT OF EARLIER ASSESSMENT YEARS. PRINCIPLES OF MAINTEN ANCE OF CONSISTENCY IN THE APPROACH OF THE REVENUE ON AN IDENTICAL ISSUE UNDER SIMILAR FACTS AND CIRCUMSTANCES ARE WELL ESTABLISHED PROPOSITION OF L AW. IN ITS RECENT DECISION, THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. EX CEL INDUSTRIES LTD. (SUPRA) HAS BEEN PLEASED TO HOLD THAT REVENUE CANNO T BE ALLOWED TO FLIP FLOP ON THE ISSUE AND HAVING ACCEPTED THE ORDER IN PRECE DING YEARS, REVENUE CANNOT BE ALLOWED TO TAKE A CONTRARY VIEW IN SUBSEQ UENT ASSESSMENT YEARS. 39 FURTHER, IN THE CASE OF CIT VS. J.K. CHARITABLE TRU ST (SUPRA) THE HON'BLE SUPREME COURT HAS BEEN PLEASED TO HOLD THAT IF THE FACTS FOR THE YEARS UNDER ASSESSMENT ARE IDENTICAL TO THE FACTS OF THE IMMEDI ATELY PRECEDING YEARS THEN IN SUCH A SITUATION, THE REVENUE WOULD NOT BE PERMI TTED TO DEVIATE FROM THE POSITION IT HAD ACCEPTED IN THE PRECEDING ASSESSMEN T YEARS. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEO POLY PACK PV T. LTD. (SUPRA) HAS BEEN PLEASED TO HOLD THAT THERE WOULD BE NO SPECIFI CATION TO ALTER THE HEAD OF INCOME ONCE IN PAST SUCH HEAD OF INCOME WAS ACCEPTE D TO BE THE HEAD UNDER WHICH THE INCOME HAD BEEN EARNED. IN THE CASE OF C IT VS. RAJENDER FLOUR & ALLIED INDUSTRIES PVT. LTD. (SUPRA), THE HON'BLE DE LHI HIGH COURT UPHELD THE VIEW TAKEN BY THE ITAT THAT THE LEASE WAS ESSENTIAL LY A TEMPORARY MEASURES TO TIDE OVER A PERIOD OF DIFFICULTIES AND LETTING M UST BE TAKEN AS ONE POSSIBLE WAY AVAILABLE TO THE ASSESSEE FOR EXPLOITING ITS CO MMERCIAL ASSETS AND HAD TO BE TREATED AS PART AND PARTIAL OF ITS CARRYING ON T HE BUSINESS AND, THEREFORE, THE INCOME FROM LEASE SHOULD BE ASSESSED AS PROFITS AND GAINS OF BUSINESS. THEREFORE, THE INCOME FROM LEASE SHOULD BE ASSESSED AS PROFITS AND GAINS OF BUSINESS. IN OUR VIEW, THE BUSINESS IS CONTINUING P ROCESS AND MERELY BECAUSE THERE MAY NOT BE ANY INCOME FROM ALL RESOURCES, OF COURSE, WHICH IS NOT THE CASE HEREIN, DOES NOT BY ITSELF MEAN THAT THE ASSES SEE IS NOT ENGAGED IN THE BUSINESS AND IS NOT CARRYING ON BUSINESS ACTIVITIES IN THAT YEAR. UNDER THESE 40 FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT TH E ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE INTEREST INCOME OF RS .83,65,124 AS INCOME FROM OTHER SOURCES AGAINST THE CLAIMED INCOME FROM BUSIN ESS. WE THUS WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW I N THIS REGARD DIRECT THE ASSESSING OFFICER TO ACCEPT THE CLAIMED INCOME IN Q UESTION AS BUSINESS INCOME. GROUND NOS. 1 TO 7 INVOLVING THE ISSUES ARE THUS ALLOWED. 59. ISSUE NO. (II) GROUND NOS. 8 & 9 : THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,36,798 UNDER SEC. 14A OF THE A CT BY INVOKING RULE 8D OF THE INCOME-TAX RULES, 1962. THE LEARNED CIT(APPE ALS) HAS REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO CONSI DER THE ISSUE AFRESH. 60. IN SUPPORT OF THE GROUNDS, THE LEARNED AR SUBMI TTED THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE TO EARN THE EXEM PT INCOME; AND THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION VIS--VIS BOOKS OF ACCOUNT OF THE ASSESSEE THAT ANY EXPENDITURE HAS BE EN INCURRED BY THE ASSESSEE TO EARN THE EXEMPT INCOME. IN SUPPORT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) CIT VS. TAIKISHA ENGG. INDIA LTD. ITA NO. 114 OF 2014 AND 119 OF 2014 DATED 25.11.2014 (DELHI HIGH COURT); II) HPP ENERGY (P) LTD. VS. ACIT ITA NO. 4138/DEL /2013 DATED 20.3.2015. 41 60. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, THE LEARNED AR CONTENDED THAT DISALLOWANCE UNDER SEC. 14A OF THE A CT CAN BE MADE ONLY IN RESPECT OF THE SHARES ON WHICH ASSESSEE HAS ERRED D IVIDEND INCOME AND SINCE IN THE PRESENT CASE THE ASSESSEE HAS EARNED DIVIDEN D OF RS.66,750 ONLY, AS SUCH DISALLOWANCE AT PAGE UNDER SEC. 14A READ WITH RULE 8D CAN BE MADE ONLY IN RESPECT OF SUCH SHARES AND SUCH DISALLOWANC E IF AT ALL HAS TO BE MADE TO THE EXTENT OF RS.8,497 ONLY. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT- ITA NO. 117 OF 2015 DATED 25.2.2015. 61. THE LEARNED SENIOR DR ON THE CONTRARY TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW WITH THIS FURTHER SUBMISSION THAT THERE IS NO GRIEVANCE TO THE ASSESSEE ON THE ISSUE SINCE THE LEARNED CIT(APP EALS) HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. 62. CONSIDERING THE ABOVE SUBMISSIONS AND HAVING GO NE THROUGH THE ABOVE CITED DECISIONS, WE ARE OF THE VIEW THAT FOR MAKING DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D, IT IS A PRE-CONDITION F OR THE ASSESSING OFFICER TO RECORD HIS SATISFACTION THAT THE SUBMISSIONS MADE B Y THE ASSESSEE IN RELATION TO THE EXPENDITURE IF ANY INCURRED FOR EARNING THE EXEMPT INCOME IS NOT CORRECT. IN ABSENCE OF RECORDING OF SUCH SATISFACTI ON BY THE ASSESSING 42 OFFICER, THE ONLY OPTION AVAILABLE WITH THE LEARNED CIT(APPEALS) WAS TO DELETE THE DISALLOWANCE. WE THUS RESPECTFULLY FOLLO WING THE RATIOS LAID DOWN IN THE ABOVE CITED DECISION IN THE CASE OF CIT VS. TAIKISHA ENGG. INDIA LTD. (SUPRA) OF THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI, HOLD THAT THE DISALLOWANCE IN QUESTION MADE BY THE ASSESSING OFFI CER WAS NOT JUSTIFIED, AND THE LEARNED CIT(APPEALS) WAS NOT RIGHT IN SETT ING ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISS UE AFRESH. THE SAID ORDER IS SET ASIDE. THE GROUNDS INVOLVING THE ISSUE ARE THUS ALLOWED. 63. ISSUE NO.(III) GROUND NO.10 : IN THIS GROUND, THE VALIDITY OF CHARGING OF INTEREST UNDER SEC. 234B OF THE INCOME- TAX ACT, 1961 HAS BEEN QUESTIONED, WHICH IS CONSEQUENTIAL IN NATURE. HENCE , DOES NOT NEED INDEPENDENT ADJUDICATION. 9. IN RESULT, THE APPEAL IS ALLOWED. 10. IN SUMMARY, ITA NOS. 2538/DEL/2010 AND 1146/DEL /2012 ARE ALLOWED AND ITA NO. 3052/DEL/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 .08.2015 SD/- SD/- ( INTURI RAMA RAO ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 /08/2015 MOHAN LAL 43 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 11.08.2015 DRAFT PLACED BEFORE AUTHOR 11.08.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 15.08.20 15 KEPT FOR PRONOUNCEMENT ON 14.08.2015 FILE SENT TO THE BENCH CLERK 17.08.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.